Stockology

Things you can invest in are sometimes called investment vehicles or financial instruments. Normally, when you think about the market, you think stocks or mutual funds. A stock is a share of a company that you can buy or sell. A mutual fund, and there are many types, is typically a basket of stocks that you can buy or sell.

A quick bit: People buy mutual funds for several reasons. The two more prevalent ones are 1) because they don’t have time to track a group of companies, instead electing a professional fund manager to manage their money for them, and 2) to diversify their holdings, diminishing risk, since mutual funds include a bunch of companies (and if one company went bankrupt, it won’t completely wipe you out).

There are a whole lot of other things you can invest in, namely bonds, options, index funds, and exchange traded funds (ETFs). And while becoming an expert on each of these will literally explode your brain, you should have an idea of what each of these are. Ignorance and obliviousness is not rewarded in investing.

Bonds, and there are many types of these as well, are debts. Treasury bonds are issued by the government. Municipal bonds are issued by a municipality. Corporate bonds are the debts issued by a company. When you buy a bond, you’ll get paid interest. Bonds are less risky than stocks in general. The government isn’t going to collapse, so you don’t have to worry about your interest payments not coming through. I don’t want to get too into detail for now. So just know that investing in bonds can be an alternative or a complement to investing in stocks. Bonds are also known as fixed income securities because they pay out a fixed interest rate to their investors.

You can visit http://www.investopedia.com for more detailed explanations of each.

Moving on…

Options are part of a more general group of securities called derivatives. These aren’t the derivatives you learned you in your high school calculus class, but there is a correlation. Options are called derivatives because their price is derived from something else. I’m sure there will be a future post on how options work and all that good stuff. But for now, just know that options are contracts that give you the right to buy or sell a stock at a given price. The concept is actually really simple, but there’s a lot of ground to cover and I’m still learning it myself.

We kind of touched on mutual funds earlier, so now we’ll briefly touch on index funds and exchange traded funds (commonly known as ETFs). Index funds, as the name might suggest, track an index. I wrote about indices in an earlier post. So we know that the Dow Jones Industrial Average (DJIA), and there’s a fund that tracks that index. Likewise for the S&P 500 and Nasdaq indices. There are also indices that track a particular industry (like oil, technology, financials), or track a particular region (like Europe, emerging markets, etc.).

Exchange traded funds are essentially mutual funds that trade like a stock. For a conventional mutual fund, say the Fidelity Real Estate Fund, you’d have to have an account with Fidelity Investments to buy it. But for exchange traded funds, you buy shares just like you would for a stock. Nowadays, a lot of companies offer exchange traded funds. The more popular ones include iShares, PowerShares, and ProShares.

There have been volumes of books and tons of articles written on each of these instruments. And there are new bonds, options, and funds (especially) created every single day. So this is just a little recap of what each of them are.

What is stockology? Stockology is the study of human growth hormones, otherwise known as HGH. Wait, what? Really? No. To be honest, what I really wanted for the name of this blog was “investology.” But that was already taken… So stockology it is.

I started this blog because I want to share my knowledge of investing with those who want to learn. By no means am I an expert, but I figure people can at least learn from my mistakes if nothing else.

Obviously, this blog is under major construction not only in terms of content, but also in terms of organization. The best way to share my knowledge would probably be in the format of a book, but how mundane would that be? Instead, it’s a blog. And I think by tagging key words or concepts, and by making them searchable, is a pretty decent way to go about it. At least for now.

Comments, questions, and suggestions are welcome. Actually, any kind of feedback would be great.

On with it then! 

The first rule of investing is… Just kidding. There are no rules to investing… Just kidding on that one too. The fact of the matter is, there are way too many rules to investing. I’ve read the basic self-help investing books as well as the down-and-dirty ones. And they’re always preaching rules. Rules to not let your emotions dictate your actions… Or rules to maximize your gains and limit your losses… I mean, they’re all great rules. It’s just that remembering them, and following them, is a bitch. Instead, I’m going to say, “Set your own rules.” So if you’re the type of person that functions most optimally without rules, and “setting your own rules” means NO RULES AT ALL, then more power to you.

The best thing to do is to be adaptive. Be adaptive and be proactive. Being adaptive means being able to adapt. Duh! Ok. It means being able to learn from your mistakes. Able to shift gears and change your game plan when things aren’t working. Simple enough, right? Being proactive is a bit more complicated. I say that because there’s a bit of persistence involved. Be proactive in learning. Subscribe to the Wall Street Journal (or just the online version, and split the cost with a few friends if you’re cheap like me), watch CNBC (or just the clips on CNBC.com if you hate sitting through commercials like me), and study annual reports (or at least get the abridged version via Yahoo! Finance like me).

Investing is not just about buying low and selling high, although that’s a really big part of it. It’s about keeping up with the news and learning what affects what. For example, an oil field explosion in Venezuela will affect oil supply, affecting oil prices, and in turn, affecting the stock prices of oil companies. Investing is also about making money. As the saying goes, “Rather than work for your money, let your money work for you.” Who hasn’t heard that one, right? The two kind of go hand in hand. The more informed you are, the more you’re able to make informed decisions when investing your hard-earned money.

If you think you’re going to be able to pick any stock and make money, you’ll probably be right 50% of the time.

If you think you’re going to be able to pick any stock and make money consistently, you’ll probably be right too, depending on what kind of market we’re in.

Wow, I’m really digging my own grave here… Let’s try again and change it up a bit.

If you want to make money by investing in the market and do it consistently in the long run, you’d better have a plan.

There we go.

So that’s it for now. I don’t want to bog you down with too many obtuse details, at least not for an entry titled “Introduction.” I just kind of want you to get into the mindset of what you need to be prepared for. There’s a lot I need to be prepared for as well. Undertaking a blog to edumacate my audience in investing is no short order. There’s a lot of brainstorming, idea-jotting-down, and all that good stuff to do. So yeah. That’s it for now.

And damn that guy for taking “investology!”