This is a reworked article that I posted back when Chroma first started, but no one read it, so it is new information to anyone hanging out now.

What is this Value Investing Blog about anyway?

Since you are at my blog, I will summarize to you what I think is important. This is not a complete list. These ideas are not listed in any particular order. You didn’t go to Gray investing. This is Chroma Investing. Hopefully I can bring a little color to what everyone else seems to think is black and white. There are hundreds of blogs about investing and many have not just different but contradictory ideas. Which is correct?

Figuring out what  is right and what is a load of crap takes time. If you don’t  understand the basics of investing, you will have to learn them. Hopefully that is part of why you are here. And that you like sarcasm. That is a bonus. If I am tired I often leave it out.

Investing Advice from a non Professional

1) Take it slow.  You didn’t learn to drive in a day. You won’t learn how to invest in a week. There will still be good deals whenever you are ready. Don’t invest with real dough until you have worked through the fundamental investing ideas enough so that you know how you want to invest. That means if someone says they have a great tip, that you better get in now, before the market closes in fifteen minutes. Pass. Run away. They may be right. But you won’t be able to figure it out that fast. Unless have already done research on that particular company. And you believe them. And they are right. That’s a lot of “ifs.”

2) as Graham said, you need to make sure you are protecting your capital before you are earning on it. O.k. that is a paraphrase.  And not a very good one, but the idea is right. There are a million ways to lose your money. Don’t jump off the bridge, unless the bungy cord is properly connected. Make sure you are not taking unnecessary risks or being rewarded too low for the risks you are taking.

3) Get out of debt. This is an easy one. Unless you are the next Warren Buffett you will not be making more money from investing that you are paying on credit card debt. Unless you have been able to secure some incredible deal on a loan, you will be burning cash until you get out of debt. That said, even the master Buffett has used leverage ( a fancy word for borrowing) on occasion. If you know what you are doing, leverage is not a bad thing. Used sparingly and fully understanding the risks. Even many of the financial professionals seem to misunderstand the risks involved with leverage. Just ask Nassim Nicholas Taleb the master of explaining risk and probability and how stupid we really are in understanding it. Taleb is at least a week of posts given the importance of his work in understanding down side risk. (Taleb has two great books that are must reads for humans and doubly so for investors. They are The Black Swan  and Fooled by Randomness).

Investing Well Means, Investing Differently

4)  Have fun. Seriously. If you are not having fun investing for yourself, you will probably cut corners on your research, or fail to update your spreadsheet or valuation tools. Or fail to grasp the fundamental principle that investing is a zero sum game. If you wine somebody else lost. If you aren’t having fun, drink good wine instead. Some people are beer drinkers, not investors, enjoy the brew instead.

5)  Be comfortable with the fact that you will never, ever have perfect information about anything you invest in. I am not kidding. This is one of those facts that most people missed in the course of college, or grad school, or kindergarten, whenever they got the best info in their life. You will need to embrace the unknown. If you understand the Macro side of economics, you will miss the Micro side. Many professionals will have a problem with this point. Ignore them, this isn’t their blog.

6) Don’t be afraid to keep your money in cash. If you don’t know what to do, or no good deal presents itself to you- Do nothing. Remember Benjamin Graham- preservation of capital first. Be Patient and be confident in your choices. Then change with new information.

7) There are always deals to be had. Sometimes they are good, sometimes they are great. Sometimes they suck donkey. Go for the great ones. If you can’t find anything that looks great to you see point Six again.

8)Don’t be afraid of annual reports. Annual Reports are like Security Analysis , everyone says they read them, but few people do. Apart from the numbers most of the good stuff is the gems that tell you to run the other way. Good info and sometimes they put right there for everyone see.

What Makes You Different as an Investor?

9)Develop an investing strategy. Listen to everyone you can read. I will expose you to a bunch of great sites and books and investors. Take it all in. Then figure out what makes sense to you. If it doesn’t make sense you dump it. It doesn’t matter if your neighbor Tom has made a killing in Apple stock. If you don’t understand how he did, or if you understand but, it doesn’ add up some how, then find another strategy. Your goal is not to be like other investors but be better. Your goal is to make money.

10) Know what your edge is. Warren Buffett has said stay in your circle of competence. To me this means that we all have special knowledge and talents. Get some self knowledge and decide how that gives you an edge. Low volume penny stocks for example can be an edge for small time investors over mutual funds. IF you can’t stand all the detail pick an investing style that doesn’t involve combing through boring reports.

11)  if your investment has a looming catalytic event or person, or group. Pat yourself on the back.  I like catalysts like liquidation. It helps develop a time frame for your stock investment. But don’t count on it.

12) Make sure you have an Roth IRA. Remember if you do well in investing you want to keep your profits. I love the USA, I just don’t want them taking all my hard earned investment profits.

Buffett is a Genius but you Can’t be Like Him

13) Buy and Hold forever isn’t an investment strategy. Buy and hold is a great strategy for Berkshire Hathaway, the corp that Buffett runs. They are huge and you can’t move ships that big, very quickly. But the nimble small time investor needs to be clear when an investment is good to buy and when it is good to sell. Buffett didn’t follow his own advice when he was younger and had hedge fund like partnerships. See tip ten again. What is good for Buffett now is not necessarily a good deal for a beginning investor.

14) Don’t deworseify your investments. Peter Lynch coined the term. Stick to your good ideas. No small time investor should own 40 stocks. You don’t have time to track that many companies actively. Time is of the essence.

15) Do not dollar cost average. This is an idea so patently stupid it must have come from the same geniuses who gave us the Effecient Market Theory. Why would anyone invest in anything when it is clearly overvalued? Bet big when the deal is good, stay out when the deal is bad.

16) Research companies in advance. Have a watchlist of companies you might be interested in buying at the right price. Have a buy in price. If the price drops unexpectedly, you will be ready like a vulture to swoop in for the kill.

Be a Contrarian Investor

17) Falsify First. Don’t sprint into trying to prove your latest, greatest theory is correct. Try to disprove it. Take a shotgun to it and try to fill it with holes. Karl Popper would be happy.

18) Don’t follow the herd. Really. There are a lot of stupid people investing. They are not stupid because they lack intelligence, but because they lack the courage to be different and discover for themselves what is a good investment strategy and a dumb one.

19) Consider some form of mechanical investing. I know this takes some of the ego out of the investing process. But really, would you rather have a fat investment account or take credit for the intelligence of all your investing ideas. (Yes they are often mutally exclusive) Wait, most of you are answering the wrong way.  The right answer is get out of the way of your investing decisions and make money.

O.k. so maybe that wasn’t 20 things about value investing, but it is close enough. I think I said everything I needed to say with this blog. I guess I can retire.

Disclaimers: If you go to Amazon and buy a book I am hocking, I get a tiny, very tiny commission. You will have my gratitude and you can feel good knowing that you have supported a worthy cause: this site. I am not a professional investment advisor, you shouldn’t follow anything I say or even what professional investment advisor says without checking it out yourself. This is the internet. Its mostly all crap.

Related Posts:

• What is your Investing Edge?
• Why You may Want to Invest for Yourself
• 3 Must haves for your Value Investing Notebook
• Mutual Funds – Beginning Value Investor Terms
• Greenblatt, Ackman & Value Investing Masters speak at the Value Investing Congress

ETF Defined

An Exchange Traded Fund (ETF) is similar to a mutual fund, but has similarities to purchasing stocks. The SEC says that ETF’s are “investment companies that are legally classified as open-end companies or Unit investment Trusts (UITs).” An open-ended investment company is one of the three primary groups of companies as described by the SEC. Unlike a close-end investment company, an open-end investment company can offer to buy back its shares from the investors.

A normal mutual fund is a pooled investment where the money from thousands of investors are joined together and invested in whatever the focus of a mutual fund is, such as equities, bonds or commodities. Conversely, a common stock is traded on a stock exchange. An exchange traded fund tracks a stock index, a commodity or pool of stocks, but is also traded on a stock exchange like a stock; the price variations occurring as people buy and sell the fund over the day.

 ETF – Good Value Investing Tool

ETF’s are very popular with value investors since they often have tax advantaged status. That is you don’t pay on the capital gains with the ETF only when you sell your investment. In the current law if you sell after one year that means long term capital gains which as of this writing is only 15%. Another reason ETF’s should be popular amongst the value investing crowd is that unlike mutual funds Exchange Traded Funds can trade at the same price as a stock Trade. Both TradeKing and Zecco charge $4.95 for an ETF trade the same as an individual stock.

ETF the Nitty Gritty

An ETF often represents a set of stocks. For example the SPDR 500, the oldest ETF follows the Standard & Poor’s 500 Index, which is an index of the 500 largest companies in the US. ETF’s portfolio would not change over the course of their lifetime and that means that investors are aware what they are investing into. If an ETF says that it is investing in energy stocks, then it is investing in energy stocks.

An ETF’s price is determined by their daily trade volume which is not the case with other funds. Because of the inherent benefits of Exchange Traded Fund, they are widely used as a preferred mode of trading across the globe with more than a few hundred Billion dollars having been invested in various funds across hundreds of indices.

ETFs do not sell individual shares to investors like Mutual Funds., large blocks of shares known as creation units are issued. The creation units are not purchased by the investors in cash, rather they are purchased in the form of a portfolio of shares which would represent the portfolio of the ETF. Investors after purchasing the creation units can either sell the shares in the secondary market or sell them back to the Exchange traded fund.

Another difference between a Mutual Fund and an ETF is that Mutual Funds have their Net Asset Values computed at the end of a trading day based upon the values of their holdings; they constantly trade in the market to reflect a better price. However Exchange Traded Fund gets their prices determined by the push and pull of the market since they follow a fixed basket of stocks.

Related Posts:

• Why You may Want to Invest for Yourself
• What is Value Investing?
• Value Investing Criteria that Works- Low Price to Free Cash Flow (FCF)
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• Top 5 Value Investing Tips

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The confirmed speakers are

Bill Ackman, Pershing Square
Leon Cooperman, Omega Advisors
James Chanos, Kynikos Associates LP
Adam Weiss and James Crichton, Scout Capital Management
Alexander Roepers, Atlantic Investment Management
Joel Greenblatt, Gotham Capital
Guy Gottfried, Rational Investment Group
Michael Kao, Akanthos Capital Management
Whitney Tilson & Glenn Tongue, T2 Partners

I can say that Michael Kao and Guy Gottfried were both very popular speakers at the last Value Investing Congress I attended in May. I am also curios to hear Jim Chanos speak, since he is a legendary short seller. Finally, Whitney Tilson is always good for the T2′s long and short actionable idea. If you decide to go be sure to use my Value Investing Congress discount coupon N11CI4

If you would like more information about this Value Investing Conference, or any other, please go to my Conference page which has the most up to date information on Value Investing Conferences.

Disclosures: I am a media sponsor of  the Value Investing Congress.

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What if I told you could do just that on May 3rd and 4th. Would you be interested in saving nearly 32%? If you act by March 15th you save $1400 off the full price for the Value Investing Congress. I am cheap. That is part of why I am a value investor. I don’t want to pay full price for my stocks, and I certainly don’t want to pay full price to learn to be a better investor. Here are some of the fund managers/gurus who have spoken at one of the seminars just in the last two years, Bill Ackman, Monish Pabrai, David Einhorn, Bruce Berkowitz, Paul Sonkin, Eric Sprott, Joel Greenblatt and Whitney Tilson. Most of the biggest names are added to the speakers list after the price goes up and the discount I am sharing with you ends.

I have written about the Value Investing Congress previously here,  and here and linked to it here. I did so because I believe that the right kind of information is power.  Not all information, mind you. Too much information can be crippling. Just ask anyone who is coming off a five hour binge of internet. In the past I did not benefit from the recommendations, nor could you. However, now I am able to offer my readers a special deal to the Value Investing Congress. To save $1400 you can click on the link or the banner ad.

As always here are my caveats. If you are just starting out and have a very small amount of money, say $2500, this is not the event for you. You will consume too much capital going to the event and not retain enough to actually invest. This is also not an event if you already think you know everything about value investing. But If you think you are the latter, you might want to consider that you are failing the hubris test and read a book on behavorial finance.

Finally, if you will be attending the Value Investing Congress please let me know. I would like to have a meet up, perhaps after the 2nd day for drinks. I would like to try to link up with other value investors as well. Email me at chroma@chromainvesting.com if you are interested.

If you would like more information about this Value Investing Conference, or any other, please go to my Conference page which has the most up to date information on Value Investing Conferences.

Disclosures: I am a media sponsor of  the Value Investing Congress.

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• Greenblatt, Ackman & Value Investing Masters speak at the Value Investing Congress
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The other problem with share buy backs is that they are often an effort to conceal share dilution in granting management options. In this case it is not a case of increasing the EPS, but an effort to maintain the status quo. This is almost always done regardless of share price and is anti shareholder value. As much as I hear investor’s speak positively about share buy backs, I say show me the money, first. If management consistently buys back share only when they are a value and refrains when share price is high, that would be a rare, but positive indicator. Do you know of a company like that, that is currently a good value. I would love to hear about it. Otherwise, be wary of share buy backs.

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The first order of business will be to find a good discount online broker. The good news is that a few of the big name brokers have lowered their fees or commissions recently, making them more competitive, and enlarging the pool of potential brokers. The bad news is that it is a cumbersome process to wade through all the detail of a broker’s website to discover if they have hidden fees or surcharges. I have created a comparison chart called Best Online Broker for Small Investors and Penny stocks, which you can download or see below. This is not a comprehensive list of all brokers. Any company with a commission of greater than $10/trade was eliminated.

In the spirit of Buffett, who is said to look at the risk of an investment first,  I want to mention, briefly, the notion of capital risk because a brokerage companies goes bankrupt or pulls a Madoff. We all know that in a traditional bank account the Federal Deposit Insurance Corporation (FDIC) insures our accounts up to $250,000 per depositor, per bank.  This is not a permanent state of affairs, and is set to reset to $100,000 per depositor per bank in 2014. As the FDIC says on their website,  the “FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC began operation in 1934, no depositor has ever lost a penny of FDIC-insured deposits.” Of course, those in Nassim Taleb camp might argue, the FDIC does not make bank deposits risk free, but the guarantee does minimize the risk. The situation with securities is not quite as clear cut.

For stocks, the Securities Investor Protection Corporation (SIPC) is in charge. They have a brochure which you can download called SIPC English 2009. I suggest you read this or go to their website to truly understand what your capital risk is with regard to a broker failing.  The high school student version of it is this: the SIPC doesn’t insure an investor against loss. This should be self evident. If you are investing in the stock market you know that you could lose your money, that you have an expectation of risk. The SIPC doesn’t help you avoid the risk. If your stocks decline in value, you will not get a check from the SIPC. But here is what the SIPC does say, “…(the) SIPC replaces missing stocks and other securities where it is possible to do so … even when the investments have increased in value.

SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons.” The SIPC guarantees up to $500,000 per customer, including $100,000 in cash. But the broker MUST be a SIPC member for the investor to be protected. For the small investor we are covered for the time being. But this raises concerns for person’s nearing retirement with large IRA’s. The viability of a firm is vital. As with diversifing bank deposits with different banks to mitigate risk, this suggests that over the long term one should have more than one retirement account if possible and at different brokerage firms. This is a subject for a future post. As of this posting I have confirmed that all brokers listed are members of SIPC. Before you open an account you should check and ensure they still are.

Let me spell out my criteria for best online broker. This will differ, perhaps significantly, from other blogs or websites. What may be right for you, if you have a larger portfolio  or if you eschew penny stocks, could look completely different. This is by no means a definitive list, but it should suffice for the Chroma Investing Small Investor Portfolio. You will note that I go into some detail here, because the brokers are quite adept at hiding some fees behind a cute little asterisk. Also, commissions and fees change often. I was surprised how different some companies are since last year at this time when I went through a similar process. My apologies in advance if I missed your favorite broker. Some I eliminated for price, others for minimum deposit requirements.

1) I looked primarily for value in stock trading commissions. The intention is to have little or no mutual funds, ETF’s or bonds traded in this portfolio. That does not mean they are not worth investing, simply that that is not the focus of this investing account. Consequently, factors that effect those type of investments have been  ignored.

2) The total brokerage costs including commission & fees will need to be low, under $10/trade especially for Penny Stocks. There will need to be no or additional charges for buying penny  or OTC stocks. There are lots of companies with value hiding in 99 cent store of investing, I would hate to miss them because my broker charged too much to trade them.

3) No inactivity or maintenance fees.

4) unlimited shares in a trade without additional fees. This is another way that brokers attempt to limit penny stock  purchases. A stock trading at .25/share will require 4000 shares to invest $1000.

5) I will not include a comparison of margin account rates because I intend not to employ leverage of any kind.  This means  I will also not factor in options or contract prices.

6) I am assuming we will be placing all our orders online directly, with no broker assisted trades.

7) Since short term interest rates are effectively zero, I will not bother comparing interest rates, if any, that cash earns in a sweep account (although I may reconsider and update later, if this factor changes)

You may also want to include a No-IRA fee in your criteria. For the purposes of this blog I will not. But for me personally, in my IRA’s I include this as important screen to minimize expenses.

I will discuss size of positions in another post. But one of the tricks in investing with a small portfolio is not getting killed by the fees. If you expect to have a total of 3-4 positions in the portfolio, at least in the beginning, each $500 invested will have a 1% purchase fee with a $5.00 commission and 1% exit fee. The result is that you must make 2% just to break even. That is not an onerous hurdle. Let’s say we changed that to just $10/trade. Our total is then 4% to buy and sell a stock. That is, I think in the new normal era, perhaps too high a price to saddle yourself with. Of course, we have to balance commissions with other fees, particularly extra charges for Penny  or OTC stocks.

So let’s jump in and evaluate. First, I will screen out companies for various criteria, then discuss all that passing companies. Later I will give a quick comment on each company.

From this chart I can eliminate a few companies right away simply based on price. E*Trade, TD Ameritrade, & ThinkorSwim all charge $9.95. Think or swim had other negative  factors which I detail below.

OptionsHouse, Scott Trade, SogoTrade & Tradeking (my favorite broker) are eliminated because they have Penny stock charges.

That leaves Charles Schwab, Choice Trade, Fidelity, Just2Trade, TradeMonster & Zecco. Fidelity and Just2Trade have too large a minimum balance requirement, so they are out. For investors, starting with larger sum in their investment portfolio, this arbitrary cut off may not apply. Of the remaining four companies two had IRA fees, Choice Trade, and Zecco, so if that is an important factor to you. Think twice. For the Chroma Investing Small Investor Portfolio it is not.

On an absolute price perspective you would have to narrow the choice down to ChoiceTrade or Zecco, at $5.00 and $4.50 per trade respectively. But finding the best broker isn’t only about price.

O.k. so what I haven’t mentioned, because it is so hard to judge, is what is offered for this price and how customer service is when things don’t work out as expected. This is qualitative area where stats don’t tell the whole story. Before I decide between these two brokers, I would like to hear from you. Do you have any experience with either ChoiceTrade or Zecco? Tomorrow I will call both and get a sense of their customer service. Then I will make a decision. I will post soon where I decide to open the account. Maybe I will open accounts at both and see what the process is like, before I fund the account.

Below are my thoughts on the companies on the  comparison chart.

Charles Schwab- The original discount broker. In recent years their prices have not been competitive with other online discount brokers, that seems to have changed this year. They are a surprise late addition, because they have recently (Jan. 2010) lowered their per trade fee form$12.95, eliminated the number of shares that would be allowed per trade without additional fees. Schwab has banking options, including checking accounts.

Choice Trade- I had not heard of them until I started my research on discount brokers.  Two things intrigued me. First, their overall good price and Second, they are offering a $50 bonus if you add a margin account and open your account for $2000. That is a quick 2.5% gain on my money.  They are not a good choice if this was an IRA account because of the IRA fee.

E*Trade- I was surprised they made the initial cut, that is under $10. But ultimately they would be to costly for our tiny trading account.

Fidelity- Last year trades cost over $10. This is perhaps the biggest surprise. I have read about some complaints with their trading tools, but are supposed to have a lot of free research available on more than 4500 corporations.

Just2Trade- Their low, low per commission rate would be partially offset by their IRA fee for some investors. Their reputation, however, sucks. The longest complaint I read on any forum about any broker was about Just2Trade. If you believe that poster, they could not get anything right. Two things concerned me most. First, their customer service is not great. Second their cash balances are often inaccurate.

OptionsHouse- Another low priced commission house, seemed initially promising with their $2.95 commission, but their Penny stock surcharge begins below $2.00 and is $0.005/share. Moreover, anything over 50,000 share requires a separate over and brokerage commission.

Scott Trade- I have spoken to several investors who have been happy with Scott Trade and their moderately price $7.00 trade. Their commercials at least garner attention. But Scott Trade is a terrible choice for Penny stock investors. They charge 0.5% of the value of the purchase for Penny stocks. Even on a $500 investment that adds $2.50 and makes them uncompetitive.

Sogotrade- I heard negative things about Sogotrade even before I decided to include them in the comparison. But their price of $2.95 begged inclusion. Unfortunately, they also have 0.5% charge on Penny stocks, and frequent complaints about their their online trading platform.

TDAmeritrade- Another large brokerage company that recently dropped their commission to $9.95/trade. Much better deal are possible with you are frequent trader. Eliminated for price.

Think or Swim – I have used Thinkorswim for more than a year. They are eliminated for two reasons, First they limit their $9.95/trade fixed rate to 5000 shares, above that you pay a per share fee, and Second, I hate their web based interface. It is the least intuitive I have seen. It is shocking to me anyone likes it. I feel like I am transported back to the days of early DOS, where nothing made sense.

TradeKing – A solid company, with great customer service and good reasonable $4.95 commission. Unfortunately, for the purposes of the small investor portfolio the Penny Stock Charges forces their elimination.

TradeMonster- The most promising of all the brokers I never heard of. While their $7.50 commission is higher than I like, it has no Penny stock charges, shifting the balance in its favor. The interface allows all tools to be used in Paper Trading, making this a very interesting choice for a small investor who is also a beginner. The ideal Chroma Investing reader.

Zecco – The price you can’t deny. $4.50/trade. If you are a frequent trader or have $25,000 in assets you get 10 free trades/month. On the plus side Zecco has virtual trading and FOREX trading. On the negative side they have a yearly IRA fee and on some forums some complaints about customer service. Perhaps the service is getting better.

Disclosure: Some of the information in this post has changed since I first wrote it. I will post an updated article. I currently have accounts with Schwab, ChoiceTrade, Zecco, TradeKing and ThinkorSwim.  I have an affiliate relationship with TradeKing and Zecco, but these are based on my satisfaction with their services and not because I am making money  with them (so far, not so much).

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It is my intention to start an investing account with just $2000. The reason for this is that it is an amount of money that one could save in a year with less than $200/month. I will add $200/month to the account to mirror what a small investor might be able to do. $2000 is also an amount that you may have on hand, saved from not buying a Starbucks latte every day for a couple of years. O.k., lets not get that extreme. Like all the investments detailed on this website, all trades will be real money, so all gains or losses will be actual and reported on this blog. I will call this the Chroma Investing Small Investor Portfolio.

An account of this size will allow you to hold 3 or 4 equity positions and thus to have a focused value oriented portfolio. Starting with a small amount will also force a certain amount of discipline in buying. Knowing in advance that you will initially only be able to hold 3-4 positions will focus our attention on the quality of the investments to make sure that we are making only the best investment decisions.

The investing philosophy will be straight forward: value investing with an emphasis on NCAV and other deeply discounted asset plays, special situation investments, or other empirically supported value investing approaches, all with an emphasis on maintaining a margin of safety and keeping an eye on understanding the investment risks inherent to each company. I will concentrate on small and micro cap companies, where the smallness of our portfolio is actually an advantage over big money investors. I will look for the best value, and not shy away from Penny Stocks, if that is where the value leads. My intention is to avoid leverage, and any investment involving margins, including options and futures. It is possible in the future that I will develop a value approach that looks at investing against the market or an individual company if I can satisfy myself that such a strategy can be made in a beneficial risk/reward scenario. As with every other investment on this blog, the research will be self directed and no investment will be made with out checking the financials and analysis myself. You should do no less with your investments.

I do not intend to invest in mutual funds, ETF’s or bonds. Nor will their be any speculation on commodities, currency or other other bets outside of my ken.

Tomorrow I will begin the search for the best online broker for this account.

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Before you can begin investing,  you have to have money set aside for this purpose? This is not a personal finance site, but one must get control of their personal finances to invest effectively. I like to keep things simple. So here it is. If you have a $10,000 credit card balance at 18% you are not ready to invest, unless you have oodles of cash and that is your Starbucks bill. First, make sure you are saving some money every month above all your bills. If you have credit cards pay them off, unless you have somehow lucked into a zero percent credit card. If you don’t have a budget, make one. If you have a budget, stick to it. None of this new, and if you are undisciplined with your finances or have no financial education, it may take some time to master this first step. Be patient and dig in. Once you have repaired your personal balance sheet. You are ready for the next step.

For the purposes of this example I am going to assume that I can put aside $200 per month for your eventual investing project. You will need to save some money, if you are starting off with very little, just to open a brokerage account. This will be come clear in the next installment when discuss constructing an investment portfolio. If you have any ideas, please post.

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• 20 Things You Need to Know about Value Investing
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