Random thoughts: An open letter to my friend

I have 2 friends who have started investing, and we have had several chats. I thought I give my coherence thoughts here, what I think are important steps to take.

1) Read, read and read

Understand investment methods, understand business model. Yes, as a retailer, we can never be as good as an insider, but if you are not interested in understanding the business model, maybe the technical analysis route is better for you. Even then, there are plenty to read about TA (Technicial Analysis)

I do fundemental analysis, so I recommend the following reads.

• Best classic - The intelligent investor  by Benjamin Graham (Read Chapter 8 and 20 again and again)
• Best classification of companies -  One up in Wall Street by Peterlynch
• Best research checklist - Common stocks, uncommon profits by Philip Fisher
• Best industry analysis - The Five Rules for Successful Stock Investing by Pat Dorsy
• Best execution ideas - The art of execution by Lee Freeman
• Best Earning modeling analysis - Common stock, Common Sense by  Edgar Wachenheim III

These are the chronic order of my reads, but I would think the Intelligent Investor is perhaps quite complicated, and can be left for later. 

Start hanging around Valuebuddies Forum, although a few veterans have been rather inactive there, it is still one of the best FA forum around. 

Download Bloomberg and Reuters and start getting interested in the business news. There is never a day i spend without reading them. It might also be a good idea to subscribe to "the edge"

2) Start investing

It is never the same, before you start investing. When you skins in the games, you are more motivated to read, more motivated to find out more, and you can find out more about your own disposition and emotions when price goes up and down, and you can apply theories.

Market is off the high, so it is not as risky as compared when STI is hovering at 3200. But I suggest less than 10% of your money, and start only with one or two counter that you are most interested in. See how different it is before your click "buy" and after you do it. 

All the assumptions you had can now be tested.  

3) Find the right company

Here, I mean the right friends and cousels to bounce off ideas. Not workshops that you need to pay to attend. 

Finding the right company, you need to understand them, start downloading their quarterly reports, and annual reports, the annocements. Make judegement, connect dots. Read the notes of Annual reports, yes, it is painful, but after a while, you know what to look for, and it becomes faster and shorter.