

Ask HN: How to buy/sell stocks? - Red_Tarsius

Premise: I have zero knowledge about <i>stock market and trading</i> and I want to learn how to buy&#x2F;sell stocks.<p>What books and courses would HN suggest? What is the <i>essential bookshelf</i> of any self-taught trader?<p>Please remember this is all new to me, so answer as if you are talking to a simpleminded 12-year-old. Thank you in advance.
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thisIsNotMikey
Buy low sell high. Research value investing. Although some would argue he is
not, Warren Buffet is a self described value investor. It is a method that is
no thrills, but has a great track record. The premise is to buy securities,
which are undervalued. The trick is learning to "value" a company. Personally
I like to mix Peter Lynch's buy what you know with value investing. Once you
do a few google searches on value investing, Read Benjamin Graham's The
Intelligent Investor; it's a bit dry and seems outdated in some sections, but
it is a classic, and he was buffet's teacher. Next Google search for Berkshire
hathaways shareholder letters. After this, I would focus on valuation metrics
and learning how to value a company. Eventually though, you just have to buy a
stock. No book or course can predict if a stock is a good investment, but by
employing the techniques I mentioned, you provide yourself with a margin of
safety.

~~~
switch33
While valuation metrics are one aspect of trading and I do think that most
beginners do overlook the basics of them that should be covered before almost
any investing.

For real returns it may not always be best to play it by all the metrics. It
is important to note that the market itself fluctuates a lot on sentiment and
sometimes a good valued holding can turn sour fast even with good metrics but
bad timing.

Some companies will over invest in dividends which in turn means they are not
investing in growth as much as they could be for instance.

Some companies will try to grow revenues but by focusing too much on the quick
buck of short term and will not be as good for longer term with steep
competition.

It is also important to note that the market reports of portfolio manager
purchases like berkshire hathways tend to report just the stock name and not
the amount they hold of that stock. As well as the fact that you do not see
how long that portfolio manager generally holds the stock without constantly
crawling that site daily. The portfolios holdings are only updated at the end
of the day. So you can see recent purchases but you cannot see when they sell
them until the day after.

~~~
thisIsNotMikey
You have been doing this for 6 months, you could throw a dart in this market
and make money. Long-term though, you will be humbled if you try and "time"
the market. I was a trader for three years, and now I only invest. When
investing, value is all that matters. Not just metrics, but value. Ask
yourself, how much would this company be sold for in a buy out. Typically, you
should try and hold a stock for at least a year, unless something
fundamentally changes, as the tax benefits for long term cg is much better.

~~~
Red_Tarsius
Thank you for describing such a clear learning path!

------
biomimic
Use this
[http://www8.gsb.columbia.edu/researcharchive/articles/1555](http://www8.gsb.columbia.edu/researcharchive/articles/1555)

and the 14-day MACD

and then get yourself a system that gives you good swing trades based on
sympathetic, symbiotic and parasitic hidden relationships between public
companies.

Never buy pre-market on a Monday.

Before you take a long term position, check to make sure the stock has not
spiked up in the last week or so.

Learn to hedge. Learn to short because everybody makes money in a good market,
its the black swans that shorts are more capable of handling than longs.

~~~
switch33
I would not be telling people to start making money off of shorts as their
first few trades. Shorts are much more riskier than holding good amounts of
selective monitored companies.

Most people should hold about 5-6 stocks that they can keep track of, but
those 5-6 stocks should be well thought out bought on good opportunity timing
with good metrics.

Calls and shorts are just for quick bucks. They can make you a lot of money
with the right timing, or you could lose it all. It's important to read up and
know what your doing before you decide to play with options.

I could have made a lot of money off of amazon when it went from 300 to like
360 or so in a day from the last quarter's earnings based on a call if I made
it, but some bad news could have equally made the stock not reach as high as
it did.

Instead what I did do was buy and sell the stock like 3 times or so before the
earnings report making money each time, because amazon was hitting relatively
noticeable support levels at around 300. I was also under the impression that
they might make the earnings report but it may be on bad management or
something which can result in stocks being devalued.

Amazon is a stock that has good potential revenue in many developing sectors,
but it has not made net income greater than it's growing debt in 20 years that
it has been on the market. It is a growing anomaly in the world of modern day
trading but is an amazingly futuristic company.

Hedging is also something you only really do if you are heavily invested. Like
buying a put on the S&P 500 if you have a large portfolio(large as in good %
of your money) but you are worried about a stock market crash.

------
gus_massa
Nothing useful, just a warning: "Don't invest more than you can afford to
lose"

If you are new in that business, you'll probably make a few mistakes. I guess
you are not a millionaire, but anyway read this advice:
[http://www.nutmeg.com/nutmegonomics/2014/05/19/lessons-in-
mo...](http://www.nutmeg.com/nutmegonomics/2014/05/19/lessons-in-money-
management-from-google-an-open-letter-to-future-millionaires/)

~~~
switch33
While greater risk can mean greater returns, for most investors a better
strategy usually avoids some of the heftier risk in the first place.

People often "fall in love" with certain stocks but that is usually not too
good of a thing. When too many people hold a stock that stock can fall from
too high expectations.

Apple for instance everyone loves it because they make earnings all the time
and beat them. The company has great returns, but it is very bid up. The
stocks future earnings as a result are very highly projected, which makes the
goal of reaching them harder every quarter. (same goes for some other
companies like Tesla)

------
switch33
I have been investing for roughly the last 6 months or so out of college. I
would have made a good amount of money if I made a few more riskier trades,
but I have been mostly playing it safe. So far I've made around 7k or so give
or take with some of it being bigger trades than others.

I've made more in some etfs, but haven't cashed them out yet. I have mostly
been actively monitoring them with many of them being relatively good single
stock investments. I am currently waiting for the market to go down to finally
start making mutual fund and maybe some etf purchases at the moment.

So I think I will help you get started a bit.

First a few quick questions you should ask yourself and reply as a comment
here if you have time (My responses are in brackets just for some dialogue on
it.):

1.How much do you think you should invest in a single stock as a %. What about
a % for an etf? or % a mutual fund? (You should remember cash is king for
being a personal investor, as you are not a mutual fund who has to meet
certain wins you should play things somewhat safe for starting out)

2.How much time do you have to spend watching the market? (It is important to
watch the market at least a few minutes a day whether it be by phone or by tv
or just looking up at least what the market is at and some of your holdings)

3.What news items(twitter, finviz, morningstar etc) do you think are important
for trading? (personally I like finviz, morningstar, and seeking alpha.
Although it is important to note that most investing advice is just opinions
and not all fact checked in every case. Twitter is a horrible idea for
sentiment analysis because anyone can say anything out of context in only 140
characters, but seeking alpha is a decent amount of sentiment with some
structured information about the well-being of the investor's mindset with
some backed information in most cases.)

4.What market data should determine your trading? (What metrics do you think
you should pay attention to? What level of risk seems worthwhile?)

5.Do you prefer an active concentrated approach to investing or a more
diversified approach? (even warren buffet makes most of his money on 5-6
stocks but owns tons for diversification, but you are more likely to buy
indexes or etfs for diversification as an individual)

6.Should you buy/sell on your own or are you better off using etfs and mutual
funds some of which are index funds? (Most people do a bit of both but buying
mutual funds or etfs are longer investments than daytrading stocks. You can
save yourself a bit of trouble by using bogleheads passive investing portfolio
to pick mutual funds:
[http://www.bogleheads.org/wiki/Lazy_portfolios](http://www.bogleheads.org/wiki/Lazy_portfolios)
)

7.What are some criteria or timing events you can think of that would be a
good time to buy a stock? (This is important because it shows risk timing.)

8\. Should you concentrate in one sector of stocks? (This can work if you
really know a lot about that sector, but it is rare. I have been fairly
successful with trading mostly tech and some biotech lately but tech is still
very risky)

9\. How long should you hold a stock for? Do you ride it to what % of loss?
When do you know when to cutt loses and move money elsewhere or take winnings
and cash out? (This greatly depends on the stock of course, but I think the
answer is basically you should in most cases be ok with looking at trends of
the stock's day range. If it breaks below it's normal day trading range it may
be very bad news and you should consider selling it. If your stock goes up
think about it as will it do better next quarter by beating earnings. And what
about the general market as well?)

As for actual trading brokers in my opinion there are 3 good ones:
fidelity(has the most safety/trust for your money), vanguard(has the best
mutual funds with cheapable/do-able expenses with great returns), and
schwab(very beginner invester friendly, and I plan to join them when I will
pick up trading more).

~~~
Red_Tarsius
I'm impressed, thank you for taking time to answer in such a thoughtful
manner! Those questions have been very useful to me, as I've discovered many
unknown unknowns and things I had yet to be clear about.

1) I've no clue about the correct percentages but, for now, I'm going to
prioritize the _safest choices_. I know about the ETFs, but I'm a little
puzzled by all the acronyms and variants: is there any _One Sacred Book_ for
the bare basics and jargon?

2) I can watch it on a daily basis, for up to _1 hour_ distributed throughout
the day.

3) I'm new to this world, so I have no favorite source. _seeking alpha_ seems
a good suggestion, the best I've found so far. I fully agree with you on
twitter.

4) I know the meaning of the individual numbers, yet I feel overwhelmed when
it comes to connect the dots and decide. What data or pattern do you look for
when trading?

5) I would have _very little_ to invest at first, _the equivalent of 1000$_.
Given enough money, I would opt for a diversified portfolio. Is it foolish to
start with such a small amount?

6) I guess I'll have to try both methods and find the right mix.

7) Basically any event that 1 _sets my target apart from the competition_ and
anything that screams 2 _" I'm going to be here X0 years from now!"_. It could
be an acquisition, changes in the Law, new production and/or distribution
processes. To put in a cheesy way, it's like looking for the one butterfly
that will cause the tornado.

8) Diversification. However, I don't know much outside of _tech_ or what
happens in YCombinator. I mainly follow TechCrunch et similia.

9) I've yet to think about it, but I'll keep in mind all the great advice you
wrote.

Yesterday I discovered Investopedia. The tutorials and stock simulation make
it an incredible website for beginners like me. I'm going to study and
practice until I get enough confidence and save $1000~2000 to trade with.

~~~
switch33
1) Books are mostly gimmicky just as news are for trading, but I think you
should assume %'s should be dependent on how much you are willing to lose.

2)good

3)good

4)Somewhat make it up as you go, but basically you need to make sure some
metrics work. Some people are more hype oriented for trading on hype like they
will buy stocks that are being talked about more like when the CEO is on the
tv talking etc. But every investor should check metrics to see if they make
sense. A company has to have some really good prospects for it to be sporting
a large future earnings number. Understanding and researching a bit about the
company and other companies in that market segment which you can usually
garner at the morningstar site.

5\. Then invest in top 1 or 2 companies that are in a specific sector on a
down day on the market. Make trades that you know will have some returns but
will not risk you too much. Tech and biotech are very much growing, but the
have risks associated with them. Buy brand names that you know are good. Look
at monthly activity and price floors. There are price floors where some stocks
will stay at a single price like facebook stood at 75 for a lot of this year
or like good stood at 430 for a while before shooting up to 540 on some good
news/earnings reports or qualcom which stalled at 70 because of it's china
deal being stuck in process.

6.If you buy mutual funds use vanguard. All other ones cannot compete with
their low expense ratios. For starting out buying stocks n etfs use fidelity
or schwab (i'd recommend either of the two for starting out as an investor,
because mutual funds can also fail as well it is good to know how to do
regular investing).

7\. You should consider the easier route by looking at past few months and
past year. There doesn't need to be a particular event for a stock to be a
good time to buy. You can also buy a stock based on it's just a time where it
got beat up on some random news but is still a good stock. Another thing you
should know is growth numbers are fidgety animals. Growth numbers don't make
sense for many tech businesses or other types of fast growing businesses. One
reason is if you have say 10 enterprise customers paying like a million
dollars per year and then you get another 10 customers you suddenly are
growing at 50% rate.

8\. Diversification is a good start, but since you are starting out i'd choose
at most 5-6 stocks, then as you grow change your holdings number for how much
you want to risk. You can definitely put more into etfs or mutual funds when
you have more money to play with. Mutual funds often have a required minimum
to put in.

9\. When you are starting out it may be helpful to cut your losses when you
are losing a good 30%+ on a stock, unless you think that it will make a real
turnaround. This is because generally a good break from the price target can
be disasterous and you can always reinvest whatever you have left into
something else.

Investopedia is great. You should also look at www.finviz.com . They outline
good metrics for stocks in green and bad ones in red so you can learn a bit
more to look at. There are other things you can realize from finviz like
insiders buying the stock or not. If insiders are buying a stock they think it
will go up. If insiders sell the stock they may (or may not) think the stock
will fall.

