8 Steps to Becoming a Great Stock Investor
A lot of people have been asking me, “How do you become a great stock investor? What books can you recommend?”
There are thousands of websites and people claiming to have the best financial advice which makes you question, which ones are real. Who do I trust?
Something to note when reading or researching for knowledge or advice about this topic is to thoroughly do your research about the author. Check their financial history or track record if possible. Lastly, seek out advice that fits into your current situation and your end goal.
Here are the 8 things I think you need to have and do to become a great stock investor:
1. You need to have a passion for investing.
- If you don’t have the passion for it, you are not going to devote enough time to improving yourself.
- Knowledge can be easily passed on, but generating insights is almost impossible to teach. Your passion will fuel you to keep on slugging away until you see what most people don’t.
- Investing is like participating in a 240-mile race. The only difference is that investing doesn’t have a finish line. You will make a plethora of mistakes, and you need to pick yourself back up every single time you suffer a setback.
2. You need to devote a lot of time.
You’re going to need to spend at least 10,000 hours to become good, and at least double that to become great. Investing is going to be your second job if you already have one, and if it’s your only job, even if you work at least 60 hours a week for a long time to become great.
3. You’re going to need to read a lot!
For people I don’t know well, I often recommend starting by reading “The Warren Buffett Way” by Robert Hagstrom and “Poor Charlie’s Almanack” by Charles Munger. If you have a hard time understanding these books, you’re going to need to take some undergraduate business, accounting and economics classes. If these were easy, you can move on to the recommendations below:
- Every article, literature, book and video on Warren Buffett including all Buffett Partnership and Berkshire Hathaway Shareholder letters since the 1950s. Repetition helps you deepen and ingrain his philosophy.
- Seth Klarman’s “Margin of Safety” and any articles and videos about him.
- Benjamin Graham’s “Intelligent Investor” and “Security Analysis”, but note that there are some chapters in these books that may not be as applicable today.
- “Richer, Wiser, Happier” by William Green.
- Every book from Philip Fisher, especially “Common Stocks and Uncommon Profits”.
- Every book, letter and video of Charlie Munger, especially “Poor Charlie’s Almanack” and “Seeking Wisdom”.
- Study everything from great investment managers, such as Donald Yacktman, Dan Fuss, John Templeton, Bill Ackman, Jean-Marie Eveillard and Chuck Akre.
- Every book, letter and video of Howard Marks, especially “The Most Important Thing Illuminated”. For Howard’s latest thoughts click here https://www.oaktreecapital.com/insights/howard-marks- memos/
- Every book, letter and video of Peter Lynch, especially “One Up Wall Street” and “Beating the Street”.
- Every book, letter and video of Mohnish Pabrai, especially “The Dhando Investor”.
- Every book, letter and video of Guy Spier, especially “The Education of a Value Investor”.
- “Big Money Thinks Small” by Joel Tillinghast.
- Books on all types of detecting and understanding fraud, including but not limited to “Financial Shenanigans” by Howard Schilit, “The Confidence Game” by Christine Richard, “The Wizard of Lies” by Diana Henriques, “The Smartest Guys in the Room” by Bethany McLean and Peter Elkind, “Fooling Some People All the Time” by David Einhorn, and “Investing Between the Lines” by L.J. Rittenhouse. I also recommend “How to Lie with Statistics” by Darrell Huff. Don’t limit yourself to reading books on just investing fraud, study criminals, conmen, politicians, terrorists and more. “Fooling Houdini” by Alex Stone is a great book about magicians and mentalists.
- A lot of Behavioral Finance and Psychology books, including but not limited to “Thinking Fast and Slow” by Daniel Kahneman, “Predictably Irrational” by Dan Ariely, “Factfulness” by Hans Rosling, “The Halo Effect” and “Left Brain, Right Stuff” by Phil Rosenzweig.
- “The Manual of Ideas” by John Mihaljevic. Aside from the book, I recommend going through all his interviews of great money managers on his website www.manualofideas.com. John has also organized a free 6-hour compilation of interviews from the best investors in the world, here is the link https://www.udemy.com/investing- stars/.
- The show “Wealthtrack” is hosted by Consuelo Mack. Watch as many episodes as you can.
- “The Outsiders” by William Thorndike.
- “100 Baggers” Christopher Mayer.
- “The Money Masters” and “The New Money Masters” by John Train.
- “Fooled by Randomness” by Nassim Taleb.
- “The Five Rules for Successful Investing” by Pat Dorsey.
- “How the Mighty Fall” by Jim Collins
- “The Little Book that Still Beats the Market” by Joel Greenblatt.
- “The Great Minds of Investing” by William Green, Michael O’Brien and Dr. Hendrik Leber.
- “Strategic Value Investing” by Horan, Johnson and Robinson.
- “Freakonomics” by Steven Levitt and Stephen Dubner, not for the specific knowledge, but to expand your way of thinking.
I’m sure I’m forgetting a lot more books. I encourage you to read outside of investing and business. Everything is connected! The best insights come from your knowledge of multiple disciplines.
4. You’re going to need to open and fund a brokerage account.
- You don’t learn much from investing “fake” money. The decisions you make with real money are going to be very different.
- Experiment with small amounts of money first.
- Test your theories and measure them over the long term. Be fanatical about making sure your investment results are accurate and compare them to the appropriate benchmark.
5. I highly recommend that you consider going through the CFA program. The CFA program will give you the tools you need to become a better investor.
For more information about the CFA program, please click here.
6. There is no substitute for reading, studying and analyzing your investments.
- Read all proxy statements, quarterly and annual reports of your investments and their competitors. For beginners, I recommend you read every word. One sentence buried in the footnotes can literally cost you a lot of money. Over time, you’ll know which parts you can breeze through.
- Read articles relevant to your investments, their competitors and industries.
- Listen to every quarterly call.
- Conduct in-depth market research by visiting stores and factories, looking at product reviews, talking to employees, etc.
- Read books and watch videos about the company and its CEO.
- Write key data points as you read the financial statements.
- Journal your thoughts and analyses at least once every quarter, so you can solidify your thinking and allow yourself to look back in the future and learn from your mistakes.
- Create a checklist of criteria to help you decide if the company is a good investment.
7. Build EQ (emotional quotient), not IQ!
- Even if you do everything above, but do not possess the right emotional temperament, your investment results will be average at best. Many smart and experienced people, including Nobel Prize Winners, have gone bankrupt because they couldn’t control their emotions.
- I believe playing poker helps you build the patience and emotional fortitude you need in investing. So read books on poker and become a winning player.
- Overcoming life’s tragedies can also offer you the skills you need to help you build EQ.
- Play golf to practice focus, self-awareness, humility and patience.
8. Talk to others who have more investment knowledge than you.
- Attend the Berkshire Hathaway annual meeting or other similar investment events to meet other investors.
- Speaking with or asking for help from someone who is ahead of you on your investing journey can help point you in the right direction.
- Finding a mentor will help you save a lot of time as they can impart decades of experience in just a short amount of time.
If I haven’t scared you off yet, you might just become a great investor. If I did scare you, I just saved you at least 10 years of work.
If you know someone who is interested in becoming a great investor, please share this guide with them.
If you know someone who is interested in investing, but can’t commit to these steps, please let them know that I can help them with their investments. Please feel free to send them a link to my website: www.mywealtharch.com.
Please let me know if you have any questions or comments.
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