Sources for Learning to be a Great Investor

Learning to be a great investor is as much art as science, and can best be learned by reading and listening to as many diverse sources as possible over many years.

Books

My own favorite investing books are:

• "One Up on Wall Street" by Peter Lynch
• "The Little Book that Builds Wealth" by Pat Dorsey

Other related books that I found relevant to investing:

• "The Signal and the Noise" by Nate Silver
• "Thinking, Fast and Slow" by Daniel Kahneman

Shareholder Letters

Another good way to learn is to read shareholder letters from some of the best investors out there. And fortunately, these are published for free on the internet.

• Warren Buffett's letters to shareholders of Berkshire Hathaway
• Howard Marks shareholder memos for Oaktree Capital

Blogs

These are some of my favorite blogs about investing:

• Reformed Broker
• Wealth of Common Sense
• Farnam Street
• Collaborative Fund
• Rational Walk
• The Vantage

Podcasts

There are tons of good podcasts out there that interview people from finance and business, if you have time to listen on commutes, at the gym, or folding laundry. My favorites are:

• "Invest Like the Best" by Patrick O’Shaughnessy
• "Masters in Business" by Barry Ritholtz
• Motley Fool Money by Chris Hill & Friends
• Rule Breaker Investing by David Gardner

Reddit

Do you use Reddit? There are several good investing subreddits:

• r/investing
• r/finance
• r/SecurityAnalysis
• r/ValueInvesting
• r/IntelligentInvesting

Investing in Stocks: How to Get Started?

I'm not a financial advisor, but here's what I tell people when they ask me how to get started investing.

1) Get your finances in shape otherwise. Low debt (except mortgages), no credit card debt, build an emergency savings account of a few thousand dollars (in case of short-term, unexpected money needs like your car dies or you get laid off).

2) Open an on-line, discount brokerage account with anywhere from $1k-$5k that you could afford to lose in the short run. Stocks don't always go on a straight upward line like interest on a bank account. Even great companies go up and down in the short term, though over 5-7 year spans, good companies go up overall.

If you can afford to put this money away for decades without withdrawing it, you can open your brokerage account as an IRA account (Roth or Traditional), giving you decades of tax-free growth until you reach retirement.

3) Buy stocks in dollar quantities. $500 per stock is a good starter amount where a $5 trade commission is only 1% of your total investment. Don't worry about the number of shares. If $500 buys you 3 shares of ABC, that's fine. If $500 buys you 20 shares of XYZ, that's fine too. Lots of people believe you have to buy 100 shares at a time or you have to be rich to have a brokerage account, and that's not true anymore (it was true 30 years ago, but the idea persists).

4) Strive to add money to your portfolio account over time, buying new companies or adding to the ones you already own, in those same moderate-sized increments. 10-15 stocks in a diverse range of industries is a good goal for a new investor to reach after the first few years of investing. Don't put all your eggs in one basket (or all your money in one stock).

5) If you're still unsure of what you're doing, a good way to start investing is with a low-cost index fund, like an S&P 500 index fund.

Want More Details?

Nerdwallet has a good guide to getting started. The Motley Fool also has a good guide to the basics. Both sites are credible sources for new investors.

Should You "Buy in Thirds"?

Let's say you want to invest in a company. Should you buy now? Should you wait for a correction? Will that correction ever come? What if the stock goes way up tomorrow and never comes back to today's price, even with a correction? I don't know the answers.

Buying in Thirds is a way to shift some risk around. If you want to invest $1500 in a company, buy $500 worth of shares today, $500 more a few months from now, and $500 a few more months after that.

Risk is not created or destroyed, but spread around differently. You avoid some of the risk of buying now, only to see the price go down. But you gain some risk of not buying it all now, only to see the price go up later. If the price does go down, you can buy your next batch at the lower price. If the price does go up, well at least you got your foot in the door at the lower price.

You are adding "time diversification" to your portfolio by buying the same company at different prices over time, sort of (but not exactly) like dollar cost averaging.

If you are wavering over whether to buy or not, buying in thirds also helps you ease into your ownership position instead of having to make an all-or-none decision today. In the long run, repeated over many stocks over many years and through full market cycles, the risk and luck should even out.

Arguably, things also even out at the big-picture portfolio level if you buy every stock all at once, and there's debate among investors about whether "time diversification" is a fallacy. Buying in thirds can still be useful, even if you view it as mostly an effort to control your emotions and manage cognitive biases.

Secondly and equally importantly, depending on how much cash you have on hand and whether you're regularly adding cash to your portfolio, buying in thirds is a good way to slowly establish larger positions in stocks when you don't have all the cash up front. It's useful as a way to get stock diversification in your portfolio earlier in the process of portfolio building. Keep your "third" purchases big enough that your commissions don't end up as a significant part of the cost of the stocks though. If your brokerage charges $4.95 commissions now, you could buy my hypothetical $500 worth of a stock and the commission would only be 1%, which is reasonable to me (many people say 2% is fine too).

Here's another longer discussion about "buying in thirds" from Stock Market School.