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  1. 1. Book Shelf <ul><li>What should I do first? </li></ul><ul><li>Books </li></ul><ul><li>Internet </li></ul><ul><li>Organizations </li></ul><ul><li>Subscription data and advisory services </li></ul><ul><li>Education & Training </li></ul>
  2. 2. What Should I Do First? <ul><li>Inform yourself </li></ul><ul><ul><li>Read the book Four Pillars of Investing (W. Bernstein) </li></ul></ul><ul><ul><li>Learn how stocks, bonds, etc. behave </li></ul></ul><ul><ul><li>Learn to take intelligent risks and avoid dumb mistakes </li></ul></ul><ul><li>Start (or continue) Investing </li></ul><ul><ul><li>Open an account with Vanguard or Fidelity </li></ul></ul><ul><ul><li>Invest in a diversified portfolio of index funds, consistent with your risk tolerance </li></ul></ul><ul><ul><ul><li>Follow specific advice in Four Pillars of Investing above </li></ul></ul></ul><ul><ul><ul><li>You are guaranteed to beat (way) over 50% of other investors </li></ul></ul></ul><ul><ul><li>Personal opinion: Go slow; this is a lousy time to invest </li></ul></ul><ul><li>Continue learning </li></ul><ul><ul><li>Join Houston Investors Association! </li></ul></ul><ul><ul><li>Subscribe to Wall Street Journal </li></ul></ul><ul><ul><li>Consider subscribing to Morningstar or AAII </li></ul></ul><ul><ul><li>Make sure you understand before you invest in anything else </li></ul></ul><ul><ul><ul><li>Like a wise physician, “First, do no harm” </li></ul></ul></ul><ul><ul><li>Always obey the Two Fundamental Laws of Investing </li></ul></ul><ul><ul><ul><li>First Law: Don’t lose money </li></ul></ul></ul><ul><ul><ul><li>Second Law: Remember the First Law </li></ul></ul></ul><ul><li>Go forth and prosper! </li></ul>
  3. 3. Books -- Read this First! <ul><li>“ The Four Pillars of Investing: Lessons for Building a Winning Portfolio” by William J. Bernstein </li></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><li>Gives a sound foundation for beginning your study of investing. Really all you need if you are not planning to make investing a hobby. Gives you all you need to construct a sound investing program and manage it over the long term. </li></ul><ul><li>From the publisher: </li></ul><ul><ul><li>William Bernstein's The Four Pillars of Investing gives investors the tools they need to construct top-returning portfolios­­--without the help of a financial adviser. In a relaxed, non threatening style, Dr. Bernstein provides a distinctive blend of market history, investing theory, and behavioral finance, one designed to help every investor become more self-sufficient and make better-informed investment decisions. The 4 Pillars of Investing explains how any investor can build a solid foundation for investing by focusing on four essential lessons, each building upon the other. Containing all of the tools needed to achieve investing success, without the help of a financial advisor, it presents: </li></ul></ul><ul><ul><li>Practical investing advice based on fascinating history lessons from the market </li></ul></ul><ul><ul><li>Exercises to determine risk tolerance as an investor </li></ul></ul><ul><ul><li>An easy-to-understand explanation of risk and reward in the capital markets </li></ul></ul>
  4. 4. Books for General Audience <ul><li>These books fill out your understanding of how markets work and what investing strategies seem to work over the long term. All are based on solid academic research and widely accepted investment practices </li></ul><ul><li>“ The Intelligent Asset Allocator” by William J. Bernstein </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>An earlier work by Bernstein on portfolio construction. Somewhat more detailed and quantitative. Suitable for a non-professional who is comfortable with spreadsheets and simple statistical concepts. Gives more “how-to” for investors wishing to contstuct more sophisticated portfolios. </li></ul></ul>
  5. 5. Books for General Audience <ul><li>“ Unconventional Success: A Fundamental Approach to Personal Investment” by David F. Swensen </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Another excellent guide on how the markets work and constructing/maintaining a diversified portfolio. By the investment manager of Yale University </li></ul></ul><ul><ul><li>Book review: “Swensen, CIO of Yale University and the author of Pioneering Portfolio Management, reveals why the mutual fund industry as a whole does a disservice to the individual investor. Soft money, 12b-1 fees, overtrading, market timing, and other management practices lower performance and virtually guarantee that most mutual fund returns will fall short of their benchmark, such as the S&P 500. Furthermore, for-profit mutual fund companies have a fiduciary obligation to their stockholders, not to their investors, and this relationship &quot;inevitably resolves in favor of the bottom line.&quot; Swensen is also highly critical of the Morningstar rating system, which only causes investors to chase hot performing funds and managers. He advises considering alternatives to the for-profit mutual fund industry, including Exchange Traded Funds and not-for-profit financial institutions such as Vanguard and TIAA-CREF. He highly recommends that as an individual, you should play a more active role in your financial future. This includes periodic portfolio evaluation and rebalancing, to ensure that your asset allocation remains diversified and suits your investment time line” </li></ul></ul>
  6. 6. Books for General Audience <ul><li>“ Irrational Exuberance” by Robert Shiller </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>This is a profound book for understanding overall market valuation and how bubbles form and burst. If you lived through the dot-com boom/bust, and are currently enjoying the bursting of the real estate bubble, you will find this book very enlightening. </li></ul></ul><ul><ul><li>From the publisher: CNBC, day trading, the Motley Fool, Silicon Investor--not since the 1920s has there been such an intense fascination with the U.S. stock market. For an increasing number of Americans, logging on to Yahoo! Finance is a habit more precious than that morning cup of joe (as thousands of SBUX and YHOO shareholders know too well). Yet while the market continues to go higher, many of us can't get Alan Greenspan's famous line out of our heads. In Irrational Exuberance, Yale economics professor Robert J. Shiller examines this public fascination with stocks and sees a combination of factors that have driven stocks higher, including the rise of the Internet, 401(k) plans, increased coverage by the popular media of financial news, overly optimistic cheerleading by analysts and other pundits, the decline of inflation, and the rise of the mutual fund industry. He writes: &quot;Perceived long-term risk is down.... Emotions and heightened attention to the market create a desire to get into the game. Such is irrational exuberance today in the United States.&quot; By history's yardstick, Shiller believes this market is grossly overvalued, and the factors that have conspired to create and amplify this event--the baby-boom effect, the public infatuation with the Internet, and media interest--will most certainly abate. He fears that too many individuals and institutions have come to view stocks as their only investment vehicle, and that investors should consider looking beyond stocks as a way to diversify and hedge against the inevitable downturn. This is a serious and well-researched book that should read like a Stephen King novel to anyone who has staked his or her future on the market's continued success. </li></ul></ul>
  7. 7. Books for General Audience <ul><li>“ Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies” by Jeremy J. Siegel </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>A very good book to understand the broad sweep of how investments behave over time. The one caution is that Siegel does not take into account that your investing results depend on WHEN you enter the market; jumping into a bubble is not good. (See Shiller’s “Irrational Exhuberance”). </li></ul></ul><ul><li>“ The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New” by Jeremy J. Siegel </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>A newer work by Siegel, describes the virtues of investing in conservative dividend-paying companies. A very useful book to convince you to avoid the flashy but risky investments and hold for the long run. </li></ul></ul>
  8. 8. Books for Advanced Investors <ul><li>“ Investment Analysis and Portfolio Management” </li></ul><ul><ul><li>by Frank K. Reilly, Keith C. Brown </li></ul></ul><ul><ul><li> </li></ul></ul><ul><ul><li>“ The purpose of this text is to help the student learn how to manage their money to derive the maximum benefit from what they earn. Mixing investment instruments and capital markets with the theoretical detail on evaluating investments and opportunities to satisfy risk-return objectives along with how investment practice and theory is influenced by globalization. The material is intended to be rigorous and empirical yet not overly quantitative. Reilly/Brown provides the best foundation, used extensively by professionals, organizations, and schools across the country. A great source for those with both a theoretical and practical need for investment expertise” </li></ul></ul>
  9. 9. Books for Advanced Investors <ul><li>“ Value Investing: From Graham to Buffett and Beyond” by Bruce Greenwald et. al. </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>This is the best book I’ve found on value investing. It builds off ideas first expressed by Benjamin Graham, Warren Buffett etc. It provides a consistent and organized framework for making your company valuation. Warning: it is not easy to do! </li></ul></ul><ul><ul><ul><li>From the publisher: From the &quot;guru to Wall Street's gurus&quot; comes the fundamental techniques of value investing and their applications Bruce Greenwald is one of the leading authorities on value investing. Some of the savviest people on Wall Street have taken his Columbia Business School executive education course on the subject. Now this dynamic and popular teacher, with some colleagues, reveals the fundamental principles of value investing, the one investment technique that has proven itself consistently over time. After covering general techniques of value investing, the book proceeds to illustrate their applications through profiles of Warren Buffett, Michael Price, Mario Gabellio, and other successful value investors. A number of case studies highlight the techniques in practice. </li></ul></ul></ul><ul><ul><ul><li>Explores the history and principles of value investing, and sets up guidelines for its successful application. Discusses where to look for underpriced securities, how to determine the intrinsic value of a stock, and alternative methods for constructing a portfolio that control risk without restricting investment return. </li></ul></ul></ul>
  10. 10. Websites & Data <ul><li>Standard & Poors S&P500 data spreadsheet </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Rich source of data on S&P500 prices, earnings, dividends, P/E, etc </li></ul></ul><ul><li>Robert Shiller’s stock market price history </li></ul><ul><ul><li>http:// </li></ul></ul><ul><ul><li>Robert Shiller (Yale) provides a spreadsheet of the data used in his book “Irrational Exhuberance”. You can examine the data and use it to make your own stock market valuations. </li></ul></ul><ul><li>Morningstar </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>An excellent all-round source of information and analysis on stocks and mutual funds. One of the best. </li></ul></ul><ul><ul><li>Offers a low cost subscription service as well as additional stock advisory news letters </li></ul></ul><ul><li>Efficient Frontier </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>William Bernstein’s web site. It has samples of his books on asset allocation, essays, and links to other good financial web sites </li></ul></ul>
  11. 11. Organizations <ul><li>Houston Investors Association </li></ul><ul><li>American Association of Individual Investors </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Excellent source of information for individuals </li></ul></ul><ul><ul><li>Moderate subscription costs </li></ul></ul><ul><ul><li>Monthly magazine with good articles on investing and financial planning </li></ul></ul><ul><ul><li>Many educational resources </li></ul></ul><ul><ul><li>Generally a sound, value-oriented approach </li></ul></ul><ul><ul><li>Oriented to small-cap stocks; maybe a bit biased </li></ul></ul><ul><ul><li>Some of the stock screens are risky; user beware </li></ul></ul><ul><ul><li>Excellent “getting started” tutorials </li></ul></ul><ul><li>CFA Institute </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>A body of knowledge </li></ul></ul><ul><ul><li>Formal certification for the practicing finance professional </li></ul></ul><ul><ul><li>Outstanding and unequaled education; rigorous and challenging </li></ul></ul>
  12. 12. Education & Training <ul><li>Introductory Level </li></ul><ul><ul><li>AAII “Classroom” tutorials </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><ul><li>Morningstar </li></ul></ul><ul><ul><li>Vanguard </li></ul></ul><ul><ul><li>Fidelity </li></ul></ul><ul><li>Advanced </li></ul><ul><ul><li>CFA Institute </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><ul><ul><li>A body of knowledge </li></ul></ul></ul><ul><ul><ul><li>Formal certification for the practicing finance professional </li></ul></ul></ul><ul><ul><ul><li>Outstanding and unequaled education; rigorous and challenging </li></ul></ul></ul>
  13. 13. Subscription Services <ul><li>Wall Street Journal </li></ul><ul><li>Morningstar </li></ul><ul><li>AAII Stock pro </li></ul><ul><li>ValueLine </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Good source of stock & company information </li></ul></ul><ul><ul><li>Covers about 1700 mostly U.S. companies </li></ul></ul><ul><ul><li>Excellent 1-page financial summaries </li></ul></ul><ul><ul><li>Mediocre analyst research </li></ul></ul><ul><ul><li>Fairly expensive </li></ul></ul><ul><ul><li>Free samples for Dow 30 </li></ul></ul><ul><ul><li>Has online version and paper version </li></ul></ul><ul><ul><li>Has proprietary stock timing/ranking system, momentum based; might be hard to implement cost-effectivel </li></ul></ul>
  14. 14. Investment Companies <ul><li>Vanguard </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Best choice for investors seeking simple, sound, long-term diversified portfolios </li></ul></ul><ul><ul><li>Home of the lowest cost index, mutual, and exchange-traded funds </li></ul></ul><ul><ul><li>Also a fairly low-cost brokerage for stocks </li></ul></ul><ul><ul><li>Very high standards, investor-friendly </li></ul></ul><ul><li>Fidelity Investments </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Best choice for investors who actively manage portfolios and select individual securities </li></ul></ul><ul><ul><li>Best overall brokerage and financial services company </li></ul></ul><ul><ul><li>Good service and investor-friendly </li></ul></ul><ul><ul><li>Low cost execution of stock/bond trades, transparent pricing </li></ul></ul><ul><ul><li>Excellent on-line information and trading tools </li></ul></ul><ul><ul><li>Large family of mutual & index funds (though not as good as Vanguard) </li></ul></ul>