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On June 07 2009 06:11 floor exercise wrote:
Yeah I have to say the more I read this the more it's clear you don't understand even the most basic investment and finance fundamentals, and that your guide is just a synopsis of a few books you have read supplemented with a few trips to wikipedia or something. Just by the amount of critical information omitted if you truly were writing a guide on investing for the average person.
I have no idea what you are talking about.
I'm wondering what critical information that he omitted?
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I'm not going to lie, when I first saw this thread I thought it would be useless. I've taken a bunch of accounting and finance courses and I still wouldn't consider investing without serious research on every firm in an industry. This made me sceptical that a thread on TL could help potential investors.
I withdraw my initial skepticism. This is a fantastic compilation of the basics for those starting out. However, I would still recommend more research before diving in.
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On June 07 2009 05:14 floor exercise wrote:I'll agree the flashy one is a moron and I have not read 95% of what you wrote but just glanced through most of it but this is such a bad explanation of both tvm and horribly erroneous in calling everything under the sun risk free for god knows what reason but how do you get a 10% return on a long term tbond? I have to say the likelihood of you copypasting or just rewording wikipedia articles is pretty high. I would love to know what sort of qualifications you have. Show nested quote +
[Note: There’s a very important reason why it’s not precisely $200—the time value of money. Think about it this way, would you rather have $100 now or $100 in a year from now? If you said it doesn’t matter, then you’re forgetting that you could potentially put your $100 now in a savings account, in an index fund, in a treasury bond, or any number of other investments which would earn you a risk-free amount of interest. Generally the long-term Treasury bond is considered a risk-free rate, and that earns about 10% a year, meaning that $100 now is worth at least $110 in a year from now. Conversely, $100 a year from now, discounted by the 10% interest rate would give it a present value of only about $91. (PV = FV/(1+r)^n; where r = interest rate and n = number of years)
The 10% long-term Treasury bond rate is a good point. The trailing 30-year rate for the 5-year Treasury bond is 7.2% and for the 10-year Treasury it's 7.5%. I used 10% to illustrate a point and make the calculation easier. I guess I should apologize that it so egregiously offended you.
Also, if you have a better way of explaining the time value of money to a forum aimed towards fans of a 10-year old computer game, please share and I'll put it into the guide.
On June 07 2009 06:11 floor exercise wrote:
Yeah I have to say the more I read this the more it's clear you don't understand even the most basic investment and finance fundamentals, and that your guide is just a synopsis of a few books you have read supplemented with a few trips to wikipedia or something. Just by the amount of critical information omitted if you truly were writing a guide on investing for the average person.
I really don't mean to pick on you but it's just interesting that you seem to be suggesting that the guide isn't long enough as it is. I've been working in the professional investment field for years now, I have no idea how you can suggest that I "don't understand even the most basic investment and finance fundamentals". I mean, maybe that's the case and I've been leading all my clients and coworkers astray, but I'd like to hear what your issues are specifically so maybe I can address them?
Disclaimer
I'm really not interested in being overly defensive. However, I am worried that these comments that question my ability and knowledge will derail other readers. I wrote this guide because I thought it would be interesting if I could take someone with zero financial knowledge and walk them all the way through an entire investment analysis. I admit I referenced Wikipedia, Investopedia, Google, Thesaurus.com, Dictionary.com, and probably a lot of other resources in compiling this guide. However, every word was typed from my hand, and where I really did copy and paste, the phrase will be in quotation marks to make clear that the words are not my own.
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To echo what Durak said- it's not a bad guide, but it's also just the VERY basics of investing. You'd find the same info in just about any book on investing that focuses on a fundamental, risk-averse strategy. It's also kind of old fashioned- regardless of how you might personally feel about TA, it's worth at least learning about before putting any money into a specific stock. People love to talk about Warren Buffett, and how he got rich using just pure value investing. Well, he's also very unique, and probably quite lucky overall.
edit: besides, your example is wrong. Breaking above the 52 week high would be a sign of strength.
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I scan read it. It's a very qualitative discussion of investing that covers the basics, but I think you underestimate the quantitative ability of many people who visit TL. Some paragraphs about theoretical ways in which assets are priced, e.g. CAPM or APT, and how that relates to making an investment decision. Also, it would be nice if you extend the part on EMH and state that returns are uncorrelated but not independent and follow it up with some information on volatility forecasting.
Only talking about a firm's intrinsic value isn't really enough. As you're aware, measuring this intrinsic value is difficult because of many intangible assets. Further, I didn't see any discussion of alternative investment opportunities other than company shares. Investment is much more than the stock market and something on different assets and asset allocation for a portfolio would've been good too.
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On June 07 2009 06:42 kewlsunman wrote:Show nested quote +On June 07 2009 05:14 floor exercise wrote:I'll agree the flashy one is a moron and I have not read 95% of what you wrote but just glanced through most of it but this is such a bad explanation of both tvm and horribly erroneous in calling everything under the sun risk free for god knows what reason but how do you get a 10% return on a long term tbond? I have to say the likelihood of you copypasting or just rewording wikipedia articles is pretty high. I would love to know what sort of qualifications you have.
[Note: There’s a very important reason why it’s not precisely $200—the time value of money. Think about it this way, would you rather have $100 now or $100 in a year from now? If you said it doesn’t matter, then you’re forgetting that you could potentially put your $100 now in a savings account, in an index fund, in a treasury bond, or any number of other investments which would earn you a risk-free amount of interest. Generally the long-term Treasury bond is considered a risk-free rate, and that earns about 10% a year, meaning that $100 now is worth at least $110 in a year from now. Conversely, $100 a year from now, discounted by the 10% interest rate would give it a present value of only about $91. (PV = FV/(1+r)^n; where r = interest rate and n = number of years)
The 10% long-term Treasury bond rate is a good point. The trailing 30-year rate for the 5-year Treasury bond is 7.2% and for the 10-year Treasury it's 7.5%. I used 10% to illustrate a point and make the calculation easier. I guess I should apologize that it so egregiously offended you. Also, if you have a better way of explaining the time value of money to a forum aimed towards fans of a 10-year old computer game, please share and I'll put it into the guide. Show nested quote +On June 07 2009 06:11 floor exercise wrote:
Yeah I have to say the more I read this the more it's clear you don't understand even the most basic investment and finance fundamentals, and that your guide is just a synopsis of a few books you have read supplemented with a few trips to wikipedia or something. Just by the amount of critical information omitted if you truly were writing a guide on investing for the average person. I really don't mean to pick on you but it's just interesting that you seem to be suggesting that the guide isn't long enough as it is. I've been working in the professional investment field for years now, I have no idea how you can suggest that I "don't understand even the most basic investment and finance fundamentals". I mean, maybe that's the case and I've been leading all my clients and coworkers astray, but I'd like to hear what your issues are specifically so maybe I can address them? DisclaimerI'm really not interested in being overly defensive. However, I am worried that these comments that question my ability and knowledge will derail other readers. I wrote this guide because I thought it would be interesting if I could take someone with zero financial knowledge and walk them all the way through an entire investment analysis. I admit I referenced Wikipedia, Investopedia, Google, Thesaurus.com, Dictionary.com, and probably a lot of other resources in compiling this guide. However, every word was typed from my hand, and where I really did copy and paste, the phrase will be in quotation marks to make clear that the words are not my own.
Yeah I don't want to shit on your guide because I'm sure you put a lot of effort into it, I just really question why you would start at financial analysis if it's a guide for people with zero financial knowledge. For all intents this information is useless to the target audience if they don't understand the basics of tvm, compounding, risk in all its forms, liquidity, leverage, dca, risk correlation, portfolio management, the differences between holding debt and equity, the various investment vehicles etc.
And if it's primarily for trading, you don't even mention the importance of stop loss orders, the pitfalls of penny stocks, neither of which are mentioned at all
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you guys need to chill out. when i said "copy-pasted", it wasn't offensive and it was nowhere near an accusation of plagiarism in which the text is copied word for word. i was just referring to the fact that this guide lists a few basic generic concepts, most of which are unanimously accepted by academics, and then enumerates a few competing school of thoughts. All these issues have been explained or debated in any financial textbook you can find. I don't think its reasonable to expect from a TL member to come up with any "new" or "groundbreaking" research on his own. Also, i don't think it's even necessary since investing is a simple topic and it needs to remains this way. Those who try to complicate it end up like LTCM.
i'll reiterate my point that the author made a good job of collecting knowledge and presenting it to us.
P.S. im not a moron 
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Read the whole thing! Everything was spot on! I also love that you used the ATVI example!
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My question to the author is: how financially successful have you been using this knowledge and these ideas?
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This guide is HUGE!!!!!!!!!!!
Awesome write-up! Thanks
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Very impressive stuff. I have zero knowledge and zero experience in this field so I can't give any "real" criticism but most of your points made alot of sense, looking at things logically. Good work!
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Korea (South)11583 Posts
awesome, give this guy a SC 2 Beta key, so much work and effort to make us all start to learn investing and make it rich!
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bookmarked, I'll try to read this when I've got some time.
What an awesome idea to start this guide contest. So much interesting stuff is poping up.
OP definitely gets an A+ for effort!
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Bookmarked 
so... you just decided to crank out a guide about investing eh? :p
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holy shit... ppl r really pulling all stops for this guide shit...
On June 06 2009 18:11 TheFlashyOne wrote:
heavily copy-pasted, but still a good collection
source or gtfo
i was just referring to the fact that this guide lists a few basic generic concepts, most of which are unanimously accepted by academics, and then enumerates a few competing school of thoughts.
i believe that's wat a guide does for u... makes ur life ezier that way...
P.S. don't act like a moron if u rn't
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Nice effort.
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Wow VERY informative. Should be awarded a beta key definitely! I'll make use of this for my finance classes next semester! Thank you!
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On June 07 2009 07:22 Milton Friedman wrote:
I scan read it. It's a very qualitative discussion of investing that covers the basics, but I think you underestimate the quantitative ability of many people who visit TL. Some paragraphs about theoretical ways in which assets are priced, e.g. CAPM or APT, and how that relates to making an investment decision. Also, it would be nice if you extend the part on EMH and state that returns are uncorrelated but not independent and follow it up with some information on volatility forecasting.
Only talking about a firm's intrinsic value isn't really enough. As you're aware, measuring this intrinsic value is difficult because of many intangible assets. Further, I didn't see any discussion of alternative investment opportunities other than company shares. Investment is much more than the stock market and something on different assets and asset allocation for a portfolio would've been good too.
Well, if you're interested, I don't think CAPM or APT make any sense at all. The idea that volatility substitutes as a proxy for risk is oftentimes right, but on very important occasions turn out to be false. Those very important occasions being situations like the collapse of LTCM, the collapse of Lehman Brothers and Bear Stearns, etc. I know, the entire academic establishment still disagrees. Don't worry, I've taken those classes too. They've convinced most of Wall Street but I wouldn't be surprised if even the investment banks started to shy away from volatility-based risk models in a year or two--they simply don't hold up when it's most crucial that they do.
I do mention other asset classes, by the way. Maybe not as much as you would have preferred but I think the most important points were made: no other asset class beats equities in the long run. Retirement planners suggest a variety of asset classes for older investors because lower volatility is important for them--they have to live off their investments. But for younger investors who are more interested in capital appreciation, there's almost no reason not to invest in equities.
(Also, intangible assets are one of the last of one's worries when it comes to intrinsic value. Most companies don't have a large amount of intangible assets relative to the rest of their book, you can oftentimes write-down the entire figure and not have a significant effect on your investment assessment.)
On June 07 2009 07:41 floor exercise wrote:
Yeah I don't want to shit on your guide because I'm sure you put a lot of effort into it, I just really question why you would start at financial analysis if it's a guide for people with zero financial knowledge. For all intents this information is useless to the target audience if they don't understand the basics of tvm, compounding, risk in all its forms, liquidity, leverage, dca, risk correlation, portfolio management, the differences between holding debt and equity, the various investment vehicles etc.
And if it's primarily for trading, you don't even mention the importance of stop loss orders, the pitfalls of penny stocks, neither of which are mentioned at all
I'm not sure if you actually read the guide because I don't start with financial analysis. I believe I spend the first three parts discussing some basic financial concepts, and I specifically touch on the exact subjects that you list: the time value of money, compounding, portfolio management, the differences between debt and equity, and the various investment vehicles. I've also included a glossary to explicitly address anything that I think the novice investor might need to know which might not have been clear in the read-through.
Besides dollar cost averaging, which is an investment strategy for old people who are trying to build up their retirement account (and like I mentioned above, I just don't think my audience here is retirees), I believe I talk about everything you mentioned--except for the trading stuff, which you're right, I don't talk about. Because this isn't a guide on trading; this is a guide on investing, and there's a very important difference between the two.
To everyone: thank you very much for your generous comments. Please feel free to ask any questions or continue to make suggestions. I will continue to address even the most misplaced imperiousness with utter civility (or try at least) :D
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wow, this is a really good guide imo.
i think for the average investor, u should just buy index etfs. best instruments on the market imo.
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EPT
