Active Investors - how did you get started?

[FastStache]

I'm not looking to become a day trader as I work full time. But, I do have the bulk of my money in tax-advantaged accounts in mostly indexed funds. I'm trying to figure out what to do with the rest of my savings. I'm contemplating real estate, more stocks, a business, etc.

For that manage an active portfolio how did you get started?
How did you pick your niche market?
What are some good resources to get a broad view? Then where did you go to get your specialized info?
How much time a week do you spend on this?

[hodedofome]

I come from a family of active investors so when I first started putting money into retirement accounts, I never considered index funds or mutual funds. The family attitude has always been 'figure it out yourself and do it, never pay someone else for it.' Although most would be better off in index funds, I ended up taking a different route than most.

I made a lot of mistakes along the way, there's no getting around that. I'm sure I would have more money now if I had just initially stuck everything in index funds, but going forward I don't believe that will be the case. My family wasn't much help to me when I reached out to them, so everything I've learned has come from the internet and books. It's only been my passion for markets and the 'game' that has driven me so much to learn what I have. I would not have made it this far if investing was just a 'hobby.' Hobbies cost money. If you really want to make money actively investing, it's pretty much gotta be your life. Would you expect to make money playing poker in Vegas as a hobby? The professionals would rob you blind. It's no different than in the stock market.

The key is going to be finding out what methodology matches your personality. Just because some guy made a bunch of money using a mechanical system on currency options doesn't mean that it'll work for you. There are many ways to make money in the market, but only the way that matches WHO YOU ARE is the one you'll stick with and have the potential to be successful with.

I try to read at least 1 book a month. I follow over 100 trading/investing blogs. I used to follow hundreds of professional traders and investors on Twitter and gained a lot of insight from them, however I recently deleted my account. Too much noise once you have your own methodology. Stay away from CNBC, Bloomberg and any 'news' source while you are learning your process. Those sources can only be used to make decisions once you know what you are looking for.

Here's some books to get you started:

Talent is Overrated by Geoff Colvin - this will tell you the effort you'll need to give to be the few % that actually can outperform the market

Michael Lewis and Jack Schwager are both good authors that cover the industry as a whole and make for entertaining reads, especially Schwager's Market Wizards books. I highly recommend Schwager's Market Wizards books as one of the first books to read. It'll tell you what's possible and also give you a wide variety of methods that were successful.

Value Investing authors:
Benjamin Graham
Philip Fisher
Joel Greenblatt
Whitney Tilson
Peter Lynch
Warren Buffett's letters to shareholders
David Einhorn

Growth/Momentum stock trading authors:
Jesse Livermore
Nicholas Darvas
William O'Neil
Martin Zweig
Stan Weinstein
Mark Minervini

Trend Following/Global Macro authors:
George Soros
Michael Covel (his podcast is fantastic and has a variety of guests - economists, psychologists, authors, entrepreneurs, traders, value investors, portfolio managers etc, I'd recommend listening to all the past episodes)
Andreas Clenow
Curtis Faith

Trading/Investing Psychology authors (this is actually the most important):
Brett Steenbarger
Mark Douglas
Van K Tharp
Ari Kiev

Technical Analysis/Chart Pattern authors:
Robert Edwards/John Magee
John Murphy
Steve Nison
Jeffrey Hirsch
Robert Prechter
Peter Brandt
Alexander Elder
Thomas Bulkowski

That should be enough reading for the next couple of years...

I have one system that trades once a month. I have another system that trades only a few times a year but it requires me to spend about 5-20 minutes a day looking through a screen of stocks to see if there's any potentials. I usually do this around lunchtime or early afternoon. If it was a busy day I'll do it in the evening. I have a full time job so no day trading for me. When I really started getting serious in 2011, I'd be reading anytime I had a spare moment. Many late nights and reading/backtesting systems quite a bit on the weekends. 2 crazy boys later and some days I just browse a few blog posts and my mind is too fried to read after they go to bed. About half the time, I'll try to read a chapter or two when they go to bed. I'll look through some blogs during lunchtime. I still execute my system as designed, but ongoing research in this season of my life has waned quite a bit. When the boys are more independent I'll be able to pick up the pace in the future. And when investing/trading becomes my full time job, I'll be giving it a full time effort.

[TurtleMarkets]

hodedofome, awesome write up. out of curiosity what style did you end up with?

I am a fan of Michael Covel and his podcast. Awesome guests and great insight into things.

[hodedofome]

Trend following/momentum is what I currently use. Covel's Trend Following book was the 'aha' moment for me. It actually wasn't the regular part of the book, it was the example mechanical system in the appendix. The system comprised of the markets to trade, entry, exit, and position size. I realized up until that point, I was just winging it and really didn't have a clear methodology for trading.

My individual stock system is similar to O'Neil's CANSLIM or Nicholas Darvas. It's 100% technical however, no fundamentals currently. ETF system is a global momentum style similar to what Meb Faber and Gary Antonacci has posted in the past. In the future I'd like to add in a value investing system like Joel Greenblatt's Magic Formula. It's easier on the taxes.

[TurtleMarkets]

Trend following/momentum is what I currently use. Covel's Trend Following book was the 'aha' moment for me. It actually wasn't the regular part of the book, it was the example mechanical system in the appendix. The system comprised of the markets to trade, entry, exit, and position size. I realized up until that point, I was just winging it and really didn't have a clear methodology for trading.

My individual stock system is similar to O'Neil's CANSLIM or Nicholas Darvas. It's 100% technical however, no fundamentals currently. ETF system is a global momentum style similar to what Meb Faber and Gary Antonacci has posted in the past. In the future I'd like to add in a value investing system like Joel Greenblatt's Magic Formula. It's easier on the taxes.

Awesome thanks for the response.  i totally agree with the appendix of Covels book. So many books talk in general terms with no real application. His was one of the first I read with detail examples.

[Khan]

Everything Hodedofome said is excellent.

For myself, how I got started was this: I read the book "Stocks for the Long Run" by Jeremy Seigel. Around the same time I came back from a deployment and had about 23k in my bank account. I opened a TD Ameritrade account and put ~10k into SPY, this was around 2008. As the years went by, I worked on several books(Peter Lynch, William Bernstein, Millionaire Next Door, a couple frugality/minimalism books) and I watched Mad Money a lot and read through SeekingAlpha and Fool articles. I also subscribed to the Income Investor Motley Fool portfolio.

By 2012 I had formulated a mostly DGI/value strategy, but with a little bit of rulebreaking. I like the consistency of dividends, the steady growth, the downside protection(goes for value stocks too).

For the rulebreaking, I'm interested in special events, in companies that don't meet traditional metrics(like DGI investor's 5+ years of dividends/growth, semi-recent cuts in dividends, etc). BAC(Bank of America) when it went to ~5$/share in 2011, and the future of that stock. NOK(ia) when it was trading ~2-3$/share and had the Lumia coming out(dumped it when they sold phone division to MSFT), SIRI(usXM) for their continued capital return plan(buybacks buybacks BUYBACKS!) and their FCF.

When my current plans pan out over the next ~2 years, unless I see a place I'd specifically like to put my money, I plan on index'ing most of it back up. Of my 18k ROTH, 6k is a CD and 3k is VIG(vanguard), so only half of that is "actively" managed, but by actively managed, I've bought and sat on stocks(SIRI, SNA(Snap-On), INTC. And plan on doing that for a very long while. My 401k is about ~35% of my net worth, and it's all indexes.

Active management is an addiction I can't say I'm all that happy to have, and I wouldn't recommend it. Until the recent run up in INTC, I was lagging the S&P from 2013-2014 by about 15%. I'm not sure if I broke that difference with that one move, but the research is pretty damning, I'm likely to underperform the market. I believe I sleep better at night knowing specifically why I own 'X' company, instead of why I own 'Y' Index, and I enjoy following things, but try and limit your exposure to your own choices.

I recently got options approved on my account, and bought a couple of out of the money LEAPs.

[TurtleMarkets]

hodedofome, any good trend following blogs or forums you can recommend?

[hodedofome]

Sure, here's some I follow:

trendfollowingmentor.com
newtraderu.com - Steve runs a really good private facebook group of traders, mostly of trend following nature but all different styles represented. Contact him on twitter or facebook for an invite.
mercenarytrader.com
embracethetrend.com
chartingtrends.com
jonboorman.com
automated-trading-system.com
darvastrader.com
financetrends.blogspot.com
followingthetrend.com
http://managed-futures-blog.attaincapital.com/
thetrendfollower.com
http://tradersplace.net/

[Reepekg]

I'm amazed at the complexity of responses to this question.

I just threw an amount I was comfortable losing (3% of net worth) into a taxable TD ameritrade account and bought things I was interested in for fun. I like clean energy and spent time living in Denmark, so early tesla shares and a big danish wind turbine manufacturer were obvious choices. (big wins so far). When the Japanese tsunami hit, I figured maybe people like sony would take an unjustified dip and recover. (big loss). A company I used to work for was managed by complete morons who routinely exaggerated how the company was doing, so I bought put options around an earnings call (big win).

Investing is just a reflection of what you think will happen, and my opinion is that people are fooling themselves with a lot of fancy analysis into believing their guesses are any better than mine.

But guessing can sure be fun!