|A 2-Year Course to Become a Smarter, Independent Investor 19 Nov 2012 12:05 am | Vishal KhandelwalA reader, who joined the Safal Niveshak tribe recently, sent an email to me a part of which I am reproducing below…
I am just getting started into the world of investment and just like you I am also a strong believer of the fact that wealth is created over period of time and you need to have patience and time on your side if you really want to create wealth in equities.
But I am struggling to get my fundamentals right so that I can do my own research as well as understand the research article penned by people like you. I hope I will be able to educate myself with your help. Any suggestions here are highly welcome.
This is a question that has been raised by several other tribesmen in the past – “I am new to investing and would like to become a sensible, long-term, value investor. But where do I start?”
If this question bothers you as well, here is my small attempt to dispel some of your doubts on where and how you can start your journey to become a smarter, independent investor.
Take this 2-Year course in smart, independent investing I have penned down a 2-year course for startup investors, who really want to answer the question – “Where do I start?”
I am not offering this course via Safal Niveshak. Instead, you need take this course – call it a roadmap – on your own.
What you will read below is not cast in stone, and you are free to create your own roadmap to investing success. These are, in fact, just some guidelines that can help you in case you lose your way somewhere in your journey.
Treat is as a 2-year self-study course in investing that can benefit you tremendously for your lifetime. You are of course free to complete the course in more than two years, but then procrastination sometimes costs use heavy. This is especially true when it comes to investing.
By the way, before I move on to the course details and the steps you must take to see it through, here are some steps you must take prior to even investing your first rupee in the stock market.
- Spend less money than you earn. In simple words, save money.
- Pay off any high cost debt you have (like car loan, or personal loan).
- Create an emergency fund and buy mediclaim.
- Buy term insurance, especially if you have dependents.
- Prepare a simple asset allocation. Download my guide on asset allocation to know how you can do so.
- Start investing in the stock market by identifying 3-5 good equity mutual funds, and then start SIPs in them. Download my guide on identifying winning mutual funds. This step is basically to test the waters by getting your feet wet – getting the flavor of how stock markets perform by hand-holding some smart money managers.
Also, before sharing the course details with you, I am assuming certain things:
- You are willing to do the hard work to become an independent investor.
- You believe in the power of compounding and know the importance of dollar cost averaging.
- You are open to making mistakes as an investor and not repeating those mistakes.
- You are open to learn from the mistakes of fellow investors, as you appreciate that you won’t live long to make them all.
- You are willing to switch off all the noise that can distract you as an investor – block those business channels and forget the password to unblock them.
Now, since you are fine with these assumptions, let me share the details of the 2-year course (you can call it “Value Investing for Smart People 2.0”) that can help you become a smarter, independent investor.
Here’re the step-by-step details of this course that is spread over a 24-month period…
Months 1-2 Step 1: Sign up for my Value Investing Course. It’s free!
Step 2: Buy, borrow, rent (but please don’t steal!) these books for your primary stage of reading, and read them from start to end. Also, make your notes.
- The Intelligent Investor by Benjamin Graham
- One Up on Wall Street by Peter Lynch
- As a Man Thinketh by James Allen
Months 3-7 Step 3: Here’s your reading list (secondary stage) for the next five months:
- Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay
- Margin of Safety by Seth Klarman
- Your Money and Your Brain by Jason Zweig
- Common Stocks and Uncommon Profits by Philip Fisher
- Warren Buffett Letters (these are available free of cost, here + read my reviews)
- Essays of Warren Buffett by Lawrence Cunningham
Step 4: Pick up the latest annual reports of a few companies you like, and read them from front to back. Watch this video to know what sections of an annual report you must read.
Months 8-12 Step 5: Here’s your reading list (higher secondary stage) for the next five months. These books will help you create a better mental framework towards investing:
- Aesop Fables (Morals like “appearances are deceptive’ and ‘look before you leap’ are so important in investing)
- Influence: The Psychology of Persuasion by Robert Cialdini
- Poor Charlie’s Almanack by Peter Kaufman
- The Black Swan by Nassim Nicholas Taleb
- Prof. Sanjay Bakshi’s Blog
Months 13-20 Step 6: You are nearing your graduation as a sensible and independent investment thinker. Congratulations!
Here’s your reading list for the graduation stage, which will help you learn how to analyze and value businesses and identify the best among them:
- The Little Book that Builds Wealth by Pat Dorsey
- Warren Buffett and the Interpretation of Financial Statements by Mary Buffett & David Clark
- Financial Shenanigans by Howard Schilit
- Quality of Earnings by Thornton L. O’glove
- The Little Book of Valuation by Aswath Damodaran
- A Few Lessons for Investors and Managers by Peter Bevelin
Months 21-24 Step 7: Memorize this:
“I am an investor; I am not a speculator. As an investor, I will:
- Buy stock in simple, strong, sustainable businesses, and expect to be rewarded over time through stock price appreciation and dividends.
- Focus on the value of the businesses, and not stock prices. I will ignore daily stock price movements by not keeping an online portfolio tracker and switching off all business channels.
- Not try to time the market. I know that ‘time in’ the market, and not ‘timing’ the market, is important.
- Buy to hold. Not buy and forget, but buy-review-hold. My intention will be to buy a stock without any plans of divorcing it.
- Spread out my risks. I will prepare an asset-allocation plan for my equity investments, and review it from time to time.
- Stay strong, think long.
Step 8: Prepare your investment philosophy based on what you’ve learnt over the past 20 months. Yes, you do need a written investment philosophy that will help you remain disciplined.
Step 9: Print the Investment Owner’s Oath, fill it, and stick it in front of your work desk so that you look at it every day.
Step 10: Pray. Prayer can help you think clearly and make fewer mistakes. It reduces anxiety and stress – two of the biggest killers of investment returns. Reduced stress can help you make better investing decisions.
Finally, open a brokerage account (any big broker will do, till you don’t listen to his advice), pray again, and start investing in stocks.
Huh, this is hard work! Welcome to reality! At Safal Niveshak, call it my sadism, but I want to see you do the hard work to make your money really work for you.
But, believe me, as you go through this course, you will realize that this is NOT extraordinary stuff. As Warren Buffett says that in investing, “…it is not necessary to do extraordinary things to get extraordinary results.”
Some of you might also wonder – “But this is just reading, reading, and reading. How much can one read?”
For you, here is what Charlie Munger has to say, “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. You’d be amazed at how much Warren [Buffett] reads — at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
So, if you want to become a simpler, smarter, and independent investor (well, you have no other choice if you want your investments to work for you), this is one course you would like to follow.
This will help you sharpen the saw before you actually hit the tree!
You have my best wishes!
Note: If you are in Ahmedabad on 8th December 2012, you may want to register for my “Art of Investing Workshop”. Click here to register.
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