By Chloe Lutts
Editor of Dick Davis Investment Digest
and Dick Davis Dividend Digest
Learning to Invest Part II
The Hard Way and The Easy Way
Why Investment Advisories?
A couple of weeks ago, I wrote here about how it can be hard for beginning investors to know where to start. So they often get started by trying out a bunch of not-very-successful strategies. As a reader named Dudley replied, “My only note as to what I have learned so far is that it was also a costly education. However, I do know quite a few things not to do.” Dudley was one of many readers who learned primarily from their mistakes.
But, I also heard from many investors who managed to get off on the right foot by finding a good advisor, mentor or system right off the bat.
A reader named Sally wrote that she learned from her father, a broker, who learned from his grandfather, who managed a University endowment. She wrote, “I started in 1981 working for my father. I liked it so much that when my father died in 1983 I registered and I’ve been at it ever since.”
A reader named Elissa wrote in that she first learned about investing from her social studies teacher, who in 1949 gave each student a newspaper, a small book on investing and $1,000 to manage. Elissa made money and her early success got her “hooked.”
And reader Bob Kramer wrote: “I’m a subscriber to both Cabot Stock of the Month and Cabot Market Letter. I have no other ‘market advice.’ ... I started dabbling on my own late last year and got serious the first part of this year.
“Relying almost totally on the advice from Cabot, I’m up 28% over my total invested principle and I’m solely investing on gut feelings I have from your organizations’ recommendations. I’m a degreed Electrical Engineer so I’m not uneducated but when it comes to investing, I would be totally in the dark without Cabot. I know by far the best teacher is experience, but I want to learn to speak the language and understand the analysis behind investing without going through the years of lose and learn.”
Even without a father or teacher in the biz, Bob realized something early that many investors take years to figure out: there’s a better way to learn to invest than by trial and error.
Think about it this way: if you didn’t know how to cook but wanted to learn, how would you start? Would you just go to the grocery store, buy a bunch of ingredients, and try to make something out of them? Or would you buy a cookbook or look up a recipe online, and follow it?
Either way, you’ll learn to cook, eventually. But with the first strategy, you’ll make a lot more mistakes, and your education will take longer. You might have to eat some inedible food. On the other hand, if you start by following recipes, you can make pretty good food right from the start, even as you’re still learning.
Investing is exactly the same way. With thousands of books written on investing, there’s no reason every new investor has to learn by trial and error. That’s like insisting that anyone who wants to drive a car build their own car.
Instead, new investors can—and should—avail themselves of the advice of the millions who have come before them. Yes, it might be more fun to jump right in: being in the kitchen cooking is more fun, and feels more productive, than sitting and reading a cookbook or recipe. Likewise, just reading investing advice, whether in a book, investing advisory or online, is not as thrilling as actually buying and selling stock.
But if you take the time to learn the ropes first, before you crack a single egg or make a single trade, your diligence will be reflected in your results.
And that’s why we’re here.
Investing isn’t something they teach you in school (usually). If you want to learn to be a good investor, you’re going to have to educate yourself. Taking a series of stabs in the dark will eventually teach you some things, but it’s the slow, expensive way to learn. On the other hand, as Bob said above, subscribing to an investment advisory is a great way to learn to invest “without going through the years of lose and learn.” Maybe you’re already in the same boat as Bob. But if you haven’t tried one of our advisories yet, I strongly encourage you to think about joining him. It could save you a lot of money, time and stress. And we have a super quick quiz on our website that can tell you which of our services is best for you. Just click here to take the quiz.
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I want to close with one of the longer responses I got to my first article on learning to invest. It came from a reader named Lois Hayes. Here’s what she wrote:
“In answer to your request for how one gets into investing, perhaps I can give a somewhat atypical explanation since I have never once responded to a hot tip and I don't think I have ever talked investments with others since I never knew anyone else who was interested. I’ve been investing for over 50 years and have gathered most of my info by reading.
“I do have an early memory from the 1930s when my grandparents, who had lost heavily in the depression, were debating whether to sell a remaining stock to be able to purchase a much needed car so I got the idea that stocks were important.
“Then in the mid-1950s when my mother was widowed, a financial advisor placed her in several conservative dividend stocks one of which was AT&T. When rights were issued and she didn’t want to buy more stock, she gave me the rights and that became my first investment. I was teaching at the time and thought I would like to buy more stocks so I went to the Indianapolis office of Merrill Lynch and asked to open an account. They seemed very reluctant to open an account for a single woman but when they realized I was a college professor, they decided they could take a chance. Needless to say, I didn’t stay long with Merrill Lynch.
“In the 1960s and 1970s, I continued to buy some individual stocks and also did quite well with some Fidelity funds such as Magellan and Low Priced Stocks. By this time, I was married but my husband had no interest in investments so he left it all up to me. In the 1980s, I was working as a medical librarian and the library subscribed to the Wall St. Journal, which I enjoyed reading.
“At the present time, I subscribe to Investors Business Daily, Personal Finance, a couple of the Cabot advisories (which I very much respect) an occasional Motley Fool item and I turn up at the local library on a regular basis to read Value Line and sometimes glance at Morningstar. So that is how I get most of my information. I also enjoy listening to Jim Cramer at times, which horrifies my son with whom I live. Guess he doesn’t like the voice but I occasionally get an idea there.
“Now in my mid 80s, my problem is how to spend less time on all this as I realize there are more important things in life than spending so much time keeping up on investments. I could go more into mutual funds than individual stocks but that seems so boring. Perhaps this is a topic you could suggest to your readers to comment on. I tell myself it is a good way to keep the brain active.
“Anyway, I enjoy your Wealth Advisory writings and appreciate the opportunity to tell my story.”
Lois makes an excellent point. Though investing is a great, stimulating hobby, it’s also work, and many people would prefer to work less as they get older. But trusting your money to someone else, whether a mutual fund or a money manager, is not only “boring” but also nerve-racking (at least I think so). So, as she suggested, I want to hear how you feel about the time you devote to your investments. How much time do you spend on your investing every week? And do you feel like you’re spending too much time on it, or would you rather spend more? Have you tried anything to cut back the amount of time you have to dedicate to investing? Let me know by replying to this email.
Wishing you success in your investing and beyond,
Chloe Lutts Jensen
Editor of Investment Digest and Dividend Digest
P.S. If you’re looking for returns of 37%, 38% or even 47%, look no further. Dividend-producing investments we recommended in Dick Davis Dividend Digest produced these total returns in just the first six months of 2013.
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