Stockology

Imagine the days before there was the internet. Researching anything required either a drive or a long-ass hike to your local library, which may or may not have had information on what you were looking for. Back in the day, people got stock quotes by either 1) calling their broker, or 2) waiting for the quotes on the next day’s business section.

Now, we have all the information we need at our fingertips. Sure, some stuff cost money, but there are plenty of great resources available for free. The only thing I would recommend paying for, and incidentally the only thing I pay for myself, is a subscription to The Wall Street Journal. Being an investor without a subscription to The Journal is like being a priest without access to the Bible. What a great analogy. I surprise myself sometimes… Get it in print. Get it online. It doesn’t matter.

If $100 per year (translating to $8.33 per month, significantly lower than my porn subscription) is just too much to ask for, then you have a few options. Share the paper with a roommate or two, reducing your cost by 66% to 50%. Share the online subscription with a few friends (it’s frowned upon, but what the heck, right?). Go to the library and read it there. If none of those work, you’re likely an uptight cheap-ass and maybe shouldn’t be investing in the first place.

Every other resource I’m going to mention is free. Some will have premium content available for a fee, but you can do without those. Know that currently there is enough information out there transcribed every minute to dizzy you. And if you don’t have a set way to sift through, ingest, digest, and analyze and put to use all the information, you’ll be wasting a lot of time.

So here’s how this is going to work. I’ll tell you some of the research resources I use. You can pick and choose from those, and hopefully find some of your own. You mix and match to create a method that best suits your time restraints, interests, preferred-media, etc.

First off is Investopedia.com. I believe I mentioned this a little earlier. It’s an investment encyclopedia. A great place to go and look up terms you don’t know. The reason I put this first is because if you dive right into The Wall Street Journal or some other publication without knowing some of the basic terms you’ll run into. It’ll be like a Chinese guy reading Arabic. So have it bookmarked, put it in your favorites, whatever. You’ll use it a lot when you first start.

In the investing world, The Wall Street Journal is the publication of record. That aside, CNBC, the network station or the website are great resources. They have up-to-the-minute headlines, and great analysis. TheStreet.com is also a good place to get market news, investing advice, and stock picks. And finally, a site that I recently discovered, SeekingAlpha.com. This site is more focused on analysis on certain industries and companies than news. I like it because experts (albeit many are self-proclaimed) break down how news affects the stock prices. And besides, it’s always good to hear it from a fellow investor who is biased toward one company or another.

For researching individual companies, obviously the best place to go is their website. Aside from information on what they do, publicly listed companies all have this “investor relations” section where you can find and download their financial filings with the SEC. That’s the Securities and Exchange Commission, a government commission that regulates the securities markets. For watered-down versions of financial information, including income statements, balance sheets, and cash flow statements, Yahoo! Finance is the place i frequent the most.

I also subscribe to print versions of BusinessWeek, Forbes, Fortune, and The Economist. And no, I don’t really have time to read all that. That’s what tables of contents are for. You find the stories that interest you and just read those. There are online versions of all of those, so they’re definitely worth checking out.

There are also research reports published by analysts who cover particular companies or industries. Your online brokerage should provide access to some of these on their site. I use Charles Schwab where, in addition to its own ratings, it provides outside research from Goldman Sachs, Argus, S&P, and Reuters.

Finally, I have a charting software called TeleChart 2000 by Peter Worden. I have no idea how much it costs because I don’t pay for it, but I imagine it’s not cheap. It’s definitely not necessary. But just thought I’d throw that out there because I’ve been using it for about a decade and a half now.

So all in all, I mentioned about 10 research resources that you should be able to access for free. One of the great things about the internet is hyperlinking. Through your readings, you’ll run across a lot of cross-linking. For example: A Yahoo! Finance story linking to a relating story from Reuters, which mentions something a TheStreet.com reporter says. The Wall Street Journal usually won’t have that. They’ll be telling the story from their reporters’ point of view. That’s why it’s the paper of record.

If you’ve ever cracked open the Business section of your local newspaper, or clicked on the Finance link on Yahoo!’s front page, or simply not been living in a cave for the last y years, you’ve undoubtedly heard of the Dow Jones. Dow Jones is the publisher of The Wall Street Journal and Barron’s (a weekly business journal). Yeah, it’s those things too. But that’s not the Dow Jones I’m talking about. I’m talking about the Dow Jones Industrial Average, or the Dow, for short.

The Dow is an index of 30 companies. Some smart people sat in a room and decided to create an index of 30 companies that would best reflect the United States. These 30 companies in the Dow are known as the Dow components. Like… the components that make up something… Anyway, the Dow components are usually big companies, big household name brands that you’ve heard of. You’ve got your Bank of America, Disney, McDonald’s, General Electric, Boeing, Verizon, Home Depot, etc. Usually when people say, “The market’s up 200 points today,” they’re refering to the Dow.

There are two other main indices that you’ll want to know: The S&P 500 and the Nasdaq Composite Index. I’ll save the Nasdaq for last because it’s more confusing.

The Standard & Poor 500, or S&P 500, is kind of like the Dow. But instead of tracking 30 companies, it’s an index that tracks 500 companies. A lot of the S&P 500 components are still companies you’ve probably heard of, like UPS, or Wells Fargo, E*Trade, eBay, Gap, etc. The two indices (the Dow and the S&P) overlap. The 30 Dow components are probably also components in the S&P. I haven’t confirmed this, and I’m not going to because I’m lazy. But just think about it. If you’re going to make a list of 30 really big companies, then make another list of 500 really big companies, some of those companies are going to be the same companies, right?

Before moving on to the rest of the indices, I’m going to talk about exchanges. Trust me, I’m not deliberately trying to confuse you. It’s just better to know these things in this order.

In the United States, there are no less than 10 stock exchanges, or bourses (a word I picked up from reading The Wall Street Journal and looked up on Dictionary.com). The good news is you don’t have to know all 10, just 3 of them. The bad news is, it’s confusing. So the 3 you should know: the New York Stock Exchange (NYSE), the National Association of Securities Dealers Automated Quotations (NASDAQ), and the American Stock Exchange (AMEX). The way exchanges work is this: When a company becomes public, it lists its shares on an exchange so that its shareholders can trade its stock.

The NYSE is the largest stock exchange in the world in terms of dollar volume. That means, more money exchanges hands on the NYSE than any other stock exchange. Then you have the Nasdaq, which is an electronic exchange. Most of the companies that trade on the Nasdaq are companies with smaller market capitalizations; smaller companies, if you will. That’s not to say there aren’t any big ones that trade on the Nasdaq. Microsoft, Intel, and Cisco are some of the biggest companies in the world that trade on the Nasdaq. It’s just that a lot of smaller companies, namely technology and biotechnology companies, tend to list on the Nasdaq rather than the NYSE.

I’m going to leave the AMEX out of this discussion because frankly, it’s not that important. 

Here’s where it gets confusing. We’ve established that the NYSE and the Nasdaq are exchanges. But they’re also indices! The NYSE Composite is an index that covers all the stocks listed on the NYSE. Likewise, the Nasdaq Composite tracks all stocks listed on the Nasdaq exchange. But wait! There’s more. There’s a Nasdaq-100 Index, which tracks the 100 largest domestic and foreign non-financial companies.

Is your head spinning yet? 

So while indices and exchanges are completely different things, there really is a fine line in distinguishing them when you hear them in the media. You’ll hear people say, ”The Nasdaq is up today,” in which case, they’re refering to the index. Or if you hear, “Apple was among the Nasdaq’s most active today,” they’re refering to the exchange that Apple is listed on. Conversely, you’ll probably never hear anyone say, “The NYSE was up today.” I don’t know why. It just doesn’t happen.

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!”