This is a great post on investing on a great site about managing your money better. This thread shows how hard it is to invest wisely- way too hard. I am the Founder and CEO of a new investing site called Cake Financial that aims to make it much easier than existing options. It’s secure and free and it allows all of us to do what we are doing here and collaborate in real time what we are all doing- without revealing any sensitive information like how much money we have.

Please check it out and let me know what you all think!

Best,

Steve

Great post on an overview for individual stock investing. If I could add a few things that would help a potential investor.
Read the 10-k and 10-q for the most recent year, skim the 10-k’s for the last five years. Read the auditor’s letter first, then the footnotes, then the balance sheet/income statement/cash flow, then the MD&A. Look for changes in accounting methodology, or aggressive accounting. Also a big red flag is a change in auditing firms.
Another red flag is if in the presidents letter attached to the annual report the word “challenging” is mentioned three or more times. If so sell ASAP, no further research is needed.
Next look at items like the debt/equity, free cash flow, long term commitments. If possible go back five years or so to get a gauge of earnings quality.
If after all of this you still haven’t ruled the company out determine the intrinsic value, and if you’re comfortable purchasing the issue at the current sales price.
If this seems like a lot of work it it..but then again there is real money on the line, so a few hours of work to save tens of thousands of dollars is worth it in my book.

An example of an obvious one is debt. If a company is hugely in debt and interest payments are rising every year, that’s a factor that you need to investigate — are they taking on new debt and putting it to good use or are they sinking in it? It doesn’t matter if it’s an oil tanker company or a fast food company.

An example of a relatively hidden risk would be how interest rates affect utility companies. If you go read about a specific utility company, chances are you won’t see them issue a big press release that says “Our stock may fall quite a bit if the government raises interest rates.” Why does it happen? Well it turns out a lot of people invest in utility companies just for the dividend, which is often several percent, for things like steady retirement income. When interest rates rise, people take their money out of utilities and put them in treasuries or high-yield savings accounts, and the stock falls. I don’t know, maybe that’s obvious to some people, but it wasn’t to me!

This is why a lot of famous investors (Warren Buffet, Peter Lynch) tell you to buy what you already know. Casual research often won’t give you enough information for you to know all of the risks, unless you already have background in that industry.

In the retirement fund business, Fidelity seems to serve its customer base a lot better than Vanguard. VG’s statements were always late–sometimes I had to call up, navigate the annoying punchabutton phones, finally get a real person, & beg them to send me a statement. After my employer dropped VG and I had to switch to Fidelity, I found Fidelity sends statements on time.

In other contexts, Vanguard is great. But when you deal with VG through your employer’s retirement plan, it’s like an entirely different corporation.

In general, individual stock prices, in theory at least, are a “random walk,” if you buy the efficient market hypothesis. The only objection I have to the 50% chance of going up figure is that the price does include an assumption that it will appreciate at at least the risk-free rate (i.e. whatever U.S. Treasuries are currently paying). This doesn’t necessarily mean that the chance of its going up is higher than 50%, only that its expected gains times the probability of gaining are higher than the expected losses times the probability of losses.

The stock market is being artificially inflated right now by the Fed. They’ll lower the fed funds rate again in October, but they can’t keep that up for long. When they stop trying to prop up their banker friends, it’ll be a bad time to be in the market.

This is how I learned. Practice. It doesn’t cost any money (initially) and it’ll give you a decent feel for the market.