Novice Investor

8th Dec '17 by JamesS

41 comments 9473 reads

Hi All,
I recently became interested shares. Initially I put my money in a FTSE100 tracker and have done well with the recent bull market. I then wanted to take it a stage further and subscribed to stockopedia at the beginning of 2017, used the stock ranks to invest in several shares and mostly have again done well (thank you morgan sindall)
However again I was hoping to move a stage further, and I want start doing my own research as many to do say in the SCVR column.
This website has so much information and I have no idea how to put it into practice. Does anyone know any good books or other sources they would recommend to help develop my knowledge? Or is it a case of learning through doing? The only problem her is if a share price does move, I cant really explain it.

To summarise I guess am trying to find ways to develop my limited knowledge whether through reading or others sharing their experiences, or maybe just use this site better such as the screening. Hopefully I could then become a useful contributor to these good discussion pages :)

Thanks,
James

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PhilHofGrowYourDough

10th Dec '17

“The first rule is that you’ve got to have multiple models — because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models..

Wow I love that and I'm going to try to find a way to weave it into my therapeutic work. For me it chimes with ...

If the only tool you have is a hammer, everything looks like a nail!

Thanks
Phil

Thanks Howard.

timarr

If you go to the primary source and read the great man himself, man-with-a-hammer syndrome is something he specifically discusses:

http://www.tilsonfunds.com/mungerpsych.pdf

timarr

JamesS

11th Dec '17

Hi all,
Just wanted to say thank you for all the responses so far. Going to read them all properly after work.
Went and purchased a couple of the books over the weekend, Naked Trader and One up on Wall Street as they were mentioned quite regularly. The rest have found their way onto my Christmas list.

Thanks again,

James

Gazh

14th Dec '17

It's a brilliant thread and there's megga loads of useful info on it, well worth taking the time to absorb.
Only been investing just over a year ,i think i am too cautious. but then again i ain't lost a lot .
I will keep reading and researching until i am happy to ivest some more
Thanks for the brilliant thread.
Gary

pennri

HI All, As a newish investor myself i am still learning what suits me and have read extensively, whilst trying different strategies in the markets with small sums to test my idea's. As such the bulk of my holding are mainly via various global efts, IT's and individual shares across the UK , Europe and the US - but i would still like to become a more proficient stock picker, especially with UK small caps! Which is something i hope to achieve with the help of this community going forward. I have read pretty muck all of the book suggestions above and more, plus many websites and it is a constant learning curve - that i love! That said the books that i found especially useful (and refer back to the most) are (in no particular order); What works on wall street - James O'shaunessey, Naked trader series, How to make money in stocks - bill oniel, The zulu Principle - Jim Slater, Intelligent investor & Security Analysis - Ben Graham, Contrarian Investment strategies - David Dremen, The disciplined trader - Mark Douglas, Trading for a living & Come into my trading room - Elder, Free capital - Guy thomas and Reminiscenses of a stock operator - Edwin lefervre.
Good luck!

Nick Ray

18th Dec '17

Another recommendation: "Investing Demystified" with the (interesting) subtitle "How to invest without speculation and sleepless nights".

This book is essentially a non-technical description of how to build a portfolio (called the "rational portfolio" in the book) by exploiting the ideas behind Modern Portfolio Theory. (In that sense it is also very similar to the ideas of Harry Browne in his "Permanent Portfolio".)

I think even if you decide not to go with all the ideas in this book it is advisable to understand the basic principles behind efficient markets and portfolio theory, and this book covers it very clearly.

lemonjar

I'm fairly new to this myself and found Phil Oakley's 'learning the basics' type resource useful (and free, always helps) https://www.sharescope.co.uk/philoakley.jsp#guide

21st Dec '17

Well here, again, Cialdini does a magnificent job at this, and you’re all going to be given a copy of Cialdini’s book. And if you have half as much sense as I think you do, you will immediately order copies for all of your children and several of your friends. You will never make a better investment

That's a direct quote from the Charlie Munger pdf linked above.

The book in question, Influence. The Psychology of Persuasion, is on sale for 99p in today's Amazon Kindle Daily Deal.

Thanks Timarr.

Currently working my way through "One Up on Wall Street" but ill be sure to add it to the list.

James

Chris Brown

Taking things back to the beginning, if you're going to invest in shares there's only one place to start: it's essential you have an understanding of company accounts. If you don't understand an income statement, balance sheet and cash flow statement you simply don't know how a business works and where its value comes from.

That's what all the Stockopedia data is about, and It's no coincidence Paul Scott is a trained accountant.

So I'd recommend Accounting for Dummies or perhaps a high school textbook!

Hi Chris,

it's essential you have an understanding of company accounts

I'm sorry but I don't agree.

The performance of the top deciles of Stockranks portfolios demonstrate that my 10 year old could build a portfolio using the screens without having any knowledge of the businesses or their accounts.

That has been my constant challenge to Ed & the team ... make investing accessible to individuals from all walks of life and let them take control of their wealth.

DJLJ23

Chris, Have to disagree with you, if your going to invest in companies directly than some understanding of whats the accounts are saying and what the business does is a definite advantage. Unless its pure momentum your following, but then how do you decide when to get out.

matylda

22nd Dec '17

Sorry Chris123 - "if you're going to invest in shares there's only one place to start: it's essential you have an understanding of company accounts. If you don't understand an income statement, balance sheet and cash flow statement you simply don't know how a business works and where its value comes from."

I have no idea how to read an income statement, a balance sheet or a cash flow statement. Perhaps it has affected my investing perhaps not. Don't get me wrong, I have read books on the subject but all have bored me half to death.

For me half a dozen or so simple metrics keep me reasonably well on track, e.g. it makes a profit (and its rising), ROCE stable and above industry standard, Operating Margin the same, Net Debt less than 10% of Mkt Cap, etc. etc. Just a few simple rules. And of course I like to see something exciting happening in the Trading/Results/AGM updates. I miss some opportunities and still choose some dogs but hey ho - I am sure the bean counters do too!

Each to their own I say.

Hi all thanks for the replies. Of course Phil, the stockranks appear to offer a compelling system.

But the original post asked how to move beyond the stockranks to do your own research.

You definitely don't need to be a trained accountant, but some knowledge is surely very important. Matylda your approach is really what I'm talking about - for example your 'I Read the News Today Oh Boy' columns frequently mention revenue, gross margin, ROCE, EPS, dividends etc. - how would jsatchwill1 know what you're on about without some accounting knowledge, or be able to enter a conversation or form their own views? (Keep up the good work btw). Chris.

Hi Chris,

Well I can tell you that I can't read Accounts.
I can read some key elements but to fool myself that I could forensically analyse a set of company accounts would I think be folly (for me).

Ask yourself (all of you) ... do you think you can?

Why do so many hang on the publication of SCVR or subscribe to tips sheets, etc.?

If it's so easy to be a Value Investor why aren't there ten of thousands of successful part time value investors?

Quite often, you'll see Paul Scott say "I don't understand that industry, so I avoid it"

So not only does a Value investor have to know how to deconstruct accounts they have to understand the industry and it's competitors, moats, etc.

Seriously, do you, on your tod, think you can do that?
For all industries, all companies, all CEO's?

I think an investor is better off finding a Guru strategy that works for them and then identifying key fundamentals from that approach and simply extract them from Stockopedia. They've done the work for you.

So for example, if you're interested in balance sheet strength, you can screen for ...

Net Debt levels
Price to Book
Current Ratio

I must be mad eh?
Since adopting this approach I've annualised 27% over the last 5 years.

See my fantasy fund which mirrors my personal investments (with the exception that I didn't start off with £1m)

Don't work harder, work smarter!

Best of luck
Phil

DJLJ23,

If you want to talk of definite advantages, let's get concrete ... Please can I ask you what your annualised return is over the last 5 years?

I'm running at 27%+ annualised over that period.

You talk about 'momentum' as an exit strategy as if it's something you'd scrape of the bottom of your shoe.

Yes I use price action to take me out of a stock as well as negative news or strong mark downs in brokers estimates.

I can honestly say that I know very little about every company I own.

Consider do the guru strategies screens or stockranks screens at Stockopedia know anything about the companies they choose over and above the screening parameters?

Personally I think it can be hard for some investors to remove their ego from their investing. Just let the screens and your rules do the work and take subjectivity out of the equation.

I pay little, if any attention, to opinion on bulletin boards about individual companies.

Best of luck
Phil

Hi Chris,
Thanks for the advice. Recently became a chartered accountant so hopefully I can put it to some sort of use.
Thanks to everyone else for their advice too. I think I'm Going to try and get a basic strategy together over Christmas, run a dummy portfolio for a year and see how it goes.
Maybe do a regular update on it if time permits

Phil, 24%, Ego is probably the biggest barrier, for most people, nobody like taking a loss, and while i full accept that the screens do a great job, for me blindly taking the figures is not the answer. Like you i avoid bulletin boards and jumping on band wagons, and use news flow to get me out of stocks. I just prefer to know a little more about the business i'm putting my money into. As to riding the momentum wave, nothing wrong with that, as long as you can pick when to get off.

So it doesn't seem to be a definite advantage, but it's something you prefer?

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JamesS

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