How to Invest In the Stock Market-Background

April 16, 2009 | Comments (13)
Jae Jun

This is part 1 of the How to Invest in the Stock Market series.

How to Invest in the Stock Market: Part 1 | Part 2 | Part 3 | Part 4 | Part 5

As I’ve been receiving emails from people wanting to learn how to invest, I wanted to get a post out to share my experiences in order to help new visitors be confident that they too can invest in the stock market and manage their own money. I’ll be breaking the article into a couple of posts over the next few days due to the length.

My Background

In case you haven’t read the about me page, let me sum up my previous investing experience in one word. None.


To be totally honest, at the sake or ruining my credibility, if I had any to begin with, I read my FIRST how to invest article on Fool.com in August 2007 and I bought my first company, Genlyte, on September 28, 2007 by subscribing to a 30 day trial Fool.com service. The DOW was at 13,895 on this day of purchase. Note that the DOW’s highest peak of all time was at 14,093 on Oct 12, 2007, just a couple of weeks after I invested in my first stock. Eventually Genlyte was bought out a couple of months later by Philips.

I started to invest at the worst possible time but had no idea. I knew nothing. No one informed me that bargains were hard to come by. Everyone I knew was just euphoric about AAPL and GOOG. Truth be told, I had no idea why a bull and bear were even mentioned in investments.

Seriously, I had never taken a finance, economics or accounting course in my life. I still haven’t. So for those just starting out or trying to, hold your head up high and keep your shoulders back. You can learn how to invest the stock market.

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Fast forward 1.5 years and people are now actually interested in my opinions.

Why You Can Manage Your Own Money

More than 90% of mutual funds underperform the market and a majority of the mutual funds have very similar holdings as other mutual funds.

When brokers issue buy and sell recommendations, most of the recommended companies have already moved up and probably beyond a good buying price. Brokers also tend to issue sell recommendations when the stock is already down. Therefore, they are masters at the buy high and sell low game.

Financial advisors are paid on how well they sell you high commission funds, regardless of performance, and most mutual funds offered by your company are rubbish as the person in charge at HR or benefits, only look at the past return numbers.

The point is, never believe you cannot do it yourself. That’s what I first believed and that is what Wall Street and your 401k company want you to believe. “Smart money” is not as smart as you think. They are tightly constrained to operate within rules of their company and clients.

Don’t worry about the “invest early” cliche. It’s never to late.

Before You Get Started

Do you agree with me that the purpose of investing is to increase your assets? Then the most basic of all steps to investing is to ensure your financial status is organized. This means you are not living paycheck to paycheck, your debt level is easily manageable, credit card balances are low, you have an emergency cash account which can support you and your family for at least 3 months. Money to be used within 2 years is in a liquid CD or high yield savings account.

Some other points to keep in mind and fully understand is that the stock market is not a high yield bank account. Also, now that I have a family, it is also my wife’s money that I am responsible for. If I had to suddenly realize a 50% total loss by investing recklessly, I would be sick to the stomach when it’s time to tell the wife. It’s this type of irresponsibility that creates negative views of the stock market by family members.

My brother, mother and I went through the same thing. I considered the stock  market to be a gamble because I witnessed my dad go pale in the face some days and I knew he lost a lot.

Stay Tuned

This concludes the initial background and why you should and can manage your own money. I hope that after reading my story, you can all find confidence in your abilities.

About Jae Jun


Jae Jun is the founder of Old School Value. He is on a mission to provide practical and actionable value investing tools, tutorials and educational material to help empower the individual investor. Keep in touch with Jae via any of the methods linked below.

  • http://www.dividendgrowthinvestor.com Dividend Growth Investor

    Jae,

    Nice post. I am looking forward to redaing your series in the future.

    Best Regards,

    DGI

    Dividend Growth Investor’s last blog post..Value Investing is all about finding market inefficiencies

  • Paul (aka augustabound)

    “More than 90% of mutual funds underperform the market and a majority of the mutual funds have very similar holdings as other mutual funds.”
    Amen to that. This was my first clue as to why mutual funds weren’t for me. Here in Canada, most equity mutual funds hold (or held when I was looking into them), all 5 big banks, all of the major insurers, the big 3 telecoms etc.
    You’re better off indexing than buying a Canadian mutual fund and paying the higher MER.

    Nice post and I love the blog!

  • Jason

    We started investing at the same time! Unfortunately, I have been roasted over the last 1.5 years, and have learned some serious lessons in these times.

    Thanks for your blog; it is very informative, and has shaped my investment perspective for the better.

    Keep up the good work.

  • http://www.oldschoolvalue.com Jae Jun

    @DGI
    Thanks! Just a little hard trying to remember all the steps I took.

    @Paul
    I used to have a bunch of mutual funds in my retirement account but luckily my company also has a separate brokerage account that allows us to purchase individual stocks. I reviewed how the funds were performing and they really are a shocker. It does worse than the market but at the same time, cant outperform it on a rally.

    @Jason
    Although we both started at a bad time, I believe it was the BEST time to invest in terms of gaining experience in a severe recession. My portfolio isn’t very big so it makes things much easier to manage but it would have been pretty bad to go through this later on. I’m sure you and I can do much better in the future because of this.

    I also ended up having to sell most of the companies I bought when I first started out. They weren’t as good as I thought after learning how to analyse companies.

  • Santosh Nair

    Hi Jae,

    You have a very good blog. Your hard work and dedication shows in the quality of your posts.

    As a novice investor, I am getting to learn a lot.

    Keep up the good work.

    Thanks,
    Santosh

  • http://www.oldschoolvalue.com Jae Jun

    Hi Santosh,

    Thanks a lot. Im glad you are finding useful information and hope to see you around more often.

  • http://howtoinveststockmarket.net invest stock market

    Thanks for this great article. I have been searching Google for article like this about investing on stock market. Very informative..Thanks again

  • http://oldschoolvalue.com vincent

    were you investing small amounts,waiting till you had a couple of hundred or investing what you left after settling your budget?
    who did you approach?

  • http://www.oldschoolvalue.com Jae Jun

    I had about $3,000 to start off with from my 401K which I invested in about 3 stocks. Then it just grew from there as I deposited monthly contributions. I no longer add to my 401K but at the time I didn’t have any debt.

  • T.I.

    Hi! Jae,

    Could I ask you a question about Index mutual fund investment? Since I have to stick my 401k with my company in either mutual funds or index funds, I am currently all invest in index funds. What is your strategy on investment in index funds?

    Here is what my strategy: I conduct the index fund valuation using Damodaran’s S&P 500 valuation spreadsheet (using stock dividend and stock buyback data from S&P web site). Then I will kinda know whether current S&P 500 is overprice or not. If underprice, then buy, otherwise, sell.

    What do you think of my method? Any further suggetions?

    Thanks.

    Regards
    T.I.

  • http://www.oldschoolvalue.com Jae Jun

    So you cant buy ETF’s?
    I’ve never valued an index myself, but how about looking at what the market P/E is as well?
    That way you get a quick idea of the value and then you can dive into the valuation spreadsheet.

    I’ve always liked the Russell 2000.

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