How To Invest In Stocks
Investing in stocks requires answering the following questions:
How to invest money in stocks?
How much money to invest in stocks?
What are the best stocks to buy?
How to find the best stocks to buy?
How do I protect myself from a stock market crash?
What are the best stocks to invest in?
Should I invest in penny stocks? Should I invest in bitcoin? Should I invest in blockchain?
How to invest in stocks on your own?
Hi, my name is Sven Carlin, Ph.D, and I am an independent stock market investor and researcher. Before researching and analysing stocks full time, I was an Assistant Professor of Finance and Accounting at the Amsterdam School of international business and before that a researcher at Bloomberg in London. I am also a book author – Modern Value Investing – where I describe 25 tools to apply when looking at a stocks and other interesting modern value investing topics.
I want to explain what I do and how I go about these questions.
How to invest money in stocks? How much to invest in stocks?
I invest money in my stock market portfolio on a month by month basis. I have a model stock portfolio that I started with $10 thousand and I add $1 thousand every month no matter what. I do not necessarily buy with all the money that I add every month, that depends on the opportunities in the market, more about how I find opportunities and track them later.
My goal is for my stock market portfolio to be at $1 million in 20 years. This will be achieved if I reach an investment return of 12% per year. I believe, this can be achieved with proper research, good risk reward analysis and proper portfolio diversification. Investors that I admire like Seth Klarman, Warren Buffett, Schloss, have achieved even higher returns than 12% over the very long term. Other value investors are steadily above 15% which shows that this can be done over the long term with a smart value investment strategy.
The stock market portfolio is just one component of my investment portfolio that includes real estate, businesses, cash, and a separate option portfolio in the future, when the time comes for that. When I think stocks are generally cheap I might transfer some of my money from other asset classes to stocks.
As for you, see what your financial goals are, how many of those goals can be reached through the stock market, what is the long term return you can expect. Your long-term returns depend on the earnings the businesses you own deliver. This also answers the following question.
What are the best stocks to buy?
The best stocks to buy are those with good businesses that lead to growing earnings, cash flows and dividends over time no matter what is going on with the economy or stock market. The higher are the cash flows those companies make, the higher will be their stock price. For example, NIKE’s earnings in 2008 were $0.95 per share. In 2017 the earnings were $2.51, thus almost 3 times higher.
The stock price reacted similarly, or even a bit more as valuations expanded but you get the picture, the more earnings grow, the higher will your returns be. So, the key is to buy great businesses that will grow over time.
The market is now a bit overvalued from a historical perspective, so a fair price for NKE should be around $40 or $50, and that is exactly when I recommended it last summer.
So, the focus for the investor should be in finding the best business earnings. This will also be the best stock to buy. So, how do you find such / best stocks to buy?
How to find the best stocks to buy?
Here it all boils down to research, looking for the best businesses, following sectors that are cheap at the moment due to temporary reasons. I was following the shoe sector last year because it was down due to fears about American retail, but for companies like NIKE it doesn’t matter if you buy in a shop or online, it is even better to buy online for them as their margins are bigger. I made my money relatively quickly in that sector last year. So, the key is to do constant research, keep the value models on lots of companies updated, research new sectors and keep an eye on the stocks you find interesting with a good business. By having a fair value model of many stocks, you know when something becomes a buy or no.
An overview of my research platform will give you a good indication of how this works. Please check the platform and the curriculum: Sven Carlin Research Platform
We have been looking at Argentina lately because those stocks are down 50% in the last few months, but many business have their revenue in US dollars, so not really affected by the Argentinian peso which creates an opportunity for those who follow such a situation. Solar stocks are also down, and there are other opportunities in current market.
But, this doesn’t mean a stock has to be down for me to buy it, positive structural long-term trends are also extremely attractive. For example, the electric vehicle revolution or 5G might really create great opportunities and there are too amazing value investments to be found because there are several ways to get exposure (nickel for batteries and copper but also the technology for 5g through stocks that have other good business segments too. I have found that the more research I do, the better are the risk reward opportunities I find, it takes a lot of time and I do this full time, but it pays with high returns of investment. My amatorial (unfortunately no audited track record yet) return since 2002 is around 18% per year on average.
You will be thinking that 18% returns sound nice but how do I protect myself from a crash?
How do I protect myself from a stock market crash?
Another question all would like an answer too is how to prevent your stock portfolio from crashing during a stock market crash.
Well, you can’t, let me tell it to you immediately. Peter Lynch, had seen his Magellan portfolio crash more than the S&P 500 each time the S&P 500 crashed 10% or more. That happened more than a dozen times while he was the manager.
However, in case of a crisis I like to be hedged against more money printing by owning gold miners. I like to be hedged against stupidity by owning stocks that produce things all people need and will need in the future, with good management, with a long term orientation.
Further, on stock market crash protections, you have to see when you need the money and then balance between cash and investing. Stocks to expensive? Have more cash and then balance as the market always fluctuates. The best protection is to invest in the best stocks.
What are the best stocks to invest in?
This is a bit different from the best stocks to buy because you sometimes buy on a merger arbitrage, or there are some catalysts that crate a positive risk reward situation. The best stocks to invest in are the best businesses at a fair price. When you see NIKE at a PE ratio of 15, you know your long term returns will be at first 7%, but those will grow by 10% per year over the next two decades and you will have 10%, 15% in time from a great business.
So, when you invest in stocks for the long term you simply buy the best businesses and forget about them. The returns will come.
Should I invest in penny stocks or bitcoin or blockchain?
Penny stocks and cryptocurrencies attract lots of people because big money can be made there fast due to the high volatility. However, that is speculation and you depend on someone paying more than what you paid. There might be penny stocks that are worth something but that requires huge research analysis of an investigative type that usually costs a lot and you don’t have much volume to make money on that. So be careful there and usually what you make here you lose somewhere else. Fortunately, those who tell you how much money they made on a penny stock or cryptocurrency don’t have to tell you how much they lost on something else.
On cryptocurrencies and blockchain, there is a big difference between investing in cryptocurrency scams or investing in the blockchain technology.
How to invest in blockchain?
To invest in the blockchain technology you are looking at long term investments in companies like IBM. There is even an IBM blockchain page.
This is something completely different than buying bitcoincash or other. The key is to know as much as possible about any form of investment assets, which will give us the answer to the final question.
How to invest in stocks on your own?
The first thing to know is to understand all the terms related to stocks and investing, all the accounting factors (I have to make a course accounting for investors, will come but I can’t promise when), read as many books as you can (we have made a summary of the intelligent investor here) and there is also my book, and give yourself time to learn. Invest the money you can afford to lose as tuition, you learn much better with real money.
Secondly, when you understand what is what, when you find your investment style you will also find what works best for you. If you like value investing, emerging markets, commodities, and pure common sense investing but don’t know how to do the research yourself or simply prefer to use your time in different ways, please check my research platform.