“An investment in knowledge pays the best interest.” – Benjamin Franklin
Investmest Class: Introduction to Investing
The course does a good job of introducing us to the basics of investing, Mr. Alvarez reminds us that stocks are not just pieces of paper; they make you a business owner. I like this because it helps keep the process grounded in reality. Sometimes it’s easy to forget that you’re buying pieces of a business when you start wading into the world of market indices, financial reports, and stock price trends.
The course begins with the language of investing and provides us with the definitions for terms we’ll need to work through the course. He covers such things as stocks, stock indices (Dow Jones etc.), investments types, asset categories, and other important information you’ll need to know. On the whole, it’s a good basis but some of his definitions are brief and could be confusing to the lay investor. For instance, Mr. Alvarez describes the Nasdaq as a market index when really it’s a stock exchange (the “market” that stocks are bought and sold on). What I believe Mr. Alvarez is referring to is the Nasdaq Composite.
In the author’s time horizons for investments (short term , intermediate-term, and long term), he urges us to be clear about our goals. He says that we need these clear boundaries if we are to keep our head in the game. I appreciate what he shares with us here because too often it’s easy to bring emotion into the equation and make a snap decision when something doesn’t seem to be going right. As Mr. Alvarez warns us: “Always focus on the BIG picture.”
While we’re talking about time horizons, the author offered the generally accepted guidelines of short-term (1 year), intermediate-term (2 to 5 years) , and long term (5 or more years) but then states he disagrees with these terms and offers his own version. I was a little curious about why he disagreed and was hoping he would have expanded a little more on this idea. Perhaps it was important?
I really liked the author’s discussions about mutual funds. He went beyond the standard definition of mutual funds and speaks intelligently about the pros and cons of using them as an investment tool. He explores the different types of funds and offers a good beginner strategy for how to choose some of your own.
From there, we start to get back into discussing the stock market. He introduces the concept of the “stock market”, explaining that it’s an auction “where traders come together to buy or sell shares…” (p. 21). He talks about some of the indices that offer us a snapshot of how a certain portfolio of companies performed in the market that day. Some examples are the Dow Jones and S&P 500 (Standard & Poor’s 500 Composite) that you hear about on the news sometimes.
Investments Class: Buying and Selling Stocks
In the section about buying and selling stocks, Mr. Alvarez does a good job of giving us the basic tools we need to understand the process. I really appreciated his discussions about the different kinds of brokerage firms and the difference in services they offer to you. Being new to the process, I understand the strengths and weaknesses of using each kind of brokerage. At the end of the section, Mr. Alvarez points us to his resource page which has a great comparison chart for different discount brokerages like E Trade and TD’s Ameritrade. Very useful!
Mr Alvarez also demystifies the different types of stock orders: market order; limit order; stop-loss order; and stop-limit order. I really appreciated this section because I recently opened a “practice account” with Scotiabank’s Itrade and didn’t know a lot about placing stock orders. This cleared up a lot of that confusion. His section on how to read a stock quote, that long column of numbers you’ll see in the Wall Street Journal, is also really accessible and easy to understand. The dividend stuff might trip you up a little bit if you’re unfamiliar with that stuff.
Investments Class: Stock Valuation
Mr Alvarez’s next section gives us an introduction to stock valuation. By far, I found this section most informative, but confounding, part of the course. Stock valuation is the process of determining the value of a stock based on “forecasted risk” and “return performance” (p. 41). The author discusses the various tools used to analyze the worth of a stock. He recommends using both a technical and fundamental analyses when gauging stock risks and returns.
Investopedia offers a nice little snippet of some of the topics covered in the Investments course.
The author delves into the math behind fundamental analyses and explains how these kinds of techniques can used to gauge how a company is actually performing. I felt he could have expanded further on what the numbers actually mean and how they all fit together to create a picture. Mr. Alvarez does give us numerous examples of each analysis technique which helped; I could have just used more. He does provide a handy dandy PDF chart that outlines the formulas in more detail. And also a chart for his Dividend Discount Model which is awesome. It saves us mere mortals from having to do the math ourselves.
Investments Class: Investment Strategies
To complete his course, Mr. Alvarez finished with investing strategies. In it, he covers how to diversify your portfolio and measure risk in stocks, understanding stock price variance, and appreciating the impacts of correlation between stocks. One of the things I like about this section his is explanation of “rebalancing” a portfolio. I had heard the term “rebalancing” bandied about in articles and books but never understood fully what they meant. He talks about several philosophies traders use to guide their purchase and selling of certain stocks at certain times. He goes way beyond the standard “risk tolerance” descriptions you see everywhere (For example, you are “low risk” trader because you don’t like losing money). This was great! I learned a lot and recognized myself in some of the descriptions.
In conclusion, I enjoyed the course and it both challenged and engaged me at the right times. Mr Alvarez tackles a tough subject and makes it accessible to the lay investor who has an interest in stock market trading. There were some places where I felt I had bitten off more than I could chew and needed to review again for more clarity. Like I mentioned earlier, the stock valuation section was a little confusing. As someone newly interested in stock trading, I could have used a little more hand-holding. Overall, this course was worth the $25 cost and then some. Buy and enjoy!
Here are a few of my posts that talk about my own goals to start investing: