It's time for poker players to start putting their money to work.

[Kovner]

OK - we get it: you are the [censored] and we need to start investing.
What now? My plan was to read the advice of this forum and invest in index funds so that I don't have to do too much work. Are you suggesting that is a bad idea?
You say not to go to a broker but that we need to talk to someone who knows what they are doing. How do we do that?
You can obviously offer some valuable advice, so please, stop being vague.

[Scorpion Man]

I will give a little advice, but you have to understand that your questin is like asking -- How do I play jacks in no limit hold'em? Please answer in 5 sentences or less...as you know, its much more nuanced and situation specific than that.

I am talking about developing lifetime habits of saving and investing, as well as developing a lifetime relationship with a financial advisor (something that most people desperately need and few do).

That said, in response to your specific question...investing in index funds is much better than buying individual stocks for an investing novice. During most environments it is hard to go really wrong this way. You are rarely going to make big returns (e.g. 40%+), but the same can be said of big mistakes.

The key caveat is that every 15-50 years we end up in an environment where even indexing is dangerous. The year 2000 was an obvious case...many people began indexing to the Nasdaq during this period and lost 80% in short order. I cannot tell you in an internet post how to identify when you are in an environment with the potential to inflict this kind of damage. My current opinion is that we are not in that kind of environment today.

[lala]

[ QUOTE ]
I will give a little advice, but you have to understand that your questin is like asking -- How do I play jacks in no limit hold'em? Please answer in 5 sentences or less...as you know, its much more nuanced and situation specific than that.

I am talking about developing lifetime habits of saving and investing, as well as developing a lifetime relationship with a financial advisor (something that most people desperately need and few do).

That said, in response to your specific question...investing in index funds is much better than buying individual stocks for an investing novice. During most environments it is hard to go really wrong this way. You are rarely going to make big returns (e.g. 40%+), but the same can be said of big mistakes.

The key caveat is that every 15-50 years we end up in an environment where even indexing is dangerous. The year 2000 was an obvious case...many people began indexing to the Nasdaq during this period and lost 80% in short order. I cannot tell you in an internet post how to identify when you are in an environment with the potential to inflict this kind of damage. My current opinion is that we are not in that kind of environment today.

[/ QUOTE ]

well diversification is the key when buying index funds. Anyone who lost a lot in 2000-2002 was just gambling in tech stocks/megacap, and a diversified portfolio with large/mid/small/int'l funds would have held up a lot better during this period.

[Scorpion Man]

Better....but still easily 35% .... i would have to go back and do the math. Emerging markets were horrible too. The simple fact is that in the bubble most young guys like people on this forum would have gone the tech route.

[critikal]

First off, congratulations on all of your success and what not. I'm wondering how I go from someone who does not know very much about investing, to someone who could potentially make a career in it (the field interests me). What helped you get started? After getting started in the field I'd assume work experience/some natural ability carried you up? Do you have any books or other resources that you would reccomend?

Thank you for your input/general advice in this thread.

[Scorpion Man]

Hmmmmmmmmmm. That is a lot of questions, some with not very short answers. Trying to be brief:

How did I do it?
Worked my ass off from very early, great grades (all the way through), went to (IMO) the top 2 schools in the country, one for undergrad, one for MBA. Had good jobs every step of the way (started a successful business between summers at school, worked for a consulting firm my last summer).

Post MBA I identified a young and growing field (hedge funds) and focused on it when others were not (they are now, however). I also had a ton of drive and worked my butt off at those jobs and, most importantly, performed in terms of investment acumen.

In terms of getting started, you have to be genuinely interested. I bought my first stock when I was 10 years old ($40 total purchase). I was the only kid at summer overnight camp who got the investor's business daily mailed to him (sad, I know). The way you guys feel about poker and are this board debating things...it sure helps to be that passionate about stocks. This will show when you interview for jobs.

It is hard to answer your getting started question without knowing anything about you. The answer for someone who is a senior at Harvard with a 4.0 GPA is very different than the answer for a 33 year old unemployed poker player. If you tell me more about yourself, I could give you a better answer.

For starters...read everything in sight. Start with the Wall Street Journal daily, and include books. To make a career in investing you have to understand accounting for sure. It very much helps to understand finance, although its not 100% necessary (but its probably hard to get a job without it).

Also, the question of how to learn to invest on your own is very different than the question of how to get a job investing. I loved it. Investing in stocks has a lot in common with playing poker. You also get to be very knowledgeable about the world around you and have the responsibilty to ask, at every turn...how does this busienss make money? How do they defend their market position? What is happening to their pricing power and inputs? An MBA helps frame these questions...although I have not figured out if getting an MBA from a second rate school is worth the time and cost.

I will recommend books to you if you reply and tell me what it is you are trying to accomplish.

[aceupthepants]

If you have 1.7 million in investments that are earning 9% a year then I am pretty confident that you could comfortably retire in many places other then Montana.

[Scorpion Man]

[ QUOTE ]
If you have 1.7 million in investments that are earning 9% a year then I am pretty confident that you could comfortably retire in many places other then Montana.

[/ QUOTE ]

No, you can't. You are going to want to own a house, for starters, and this won't even buy that.

You have to keep it in today's terms -- it ain't $1.7m, its less than half that. And where is that 9% coming from? If you want "safe" money that you have to live on, you will be in bonds, earning 3.5% after tax. So you now have no house, and in today's terms, are earning like $25k per year after tax to support your wife and kids. You can't earn 9%, because you would ahve to be fully in stocks to do it and you need the cash flow.

I have friends with a lot more money than $1.7m who are nowhere NEAR being able to retire.

[aceupthepants]

[ QUOTE ]
[ QUOTE ]
If you have 1.7 million in investments that are earning 9% a year then I am pretty confident that you could comfortably retire in many places other then Montana.

[/ QUOTE ]

No, you can't. You are going to want to own a house, for starters, and this won't even buy that.

You have to keep it in today's terms -- it ain't $1.7m, its less than half that. And where is that 9% coming from? If you want "safe" money that you have to live on, you will be in bonds, earning 3.5% after tax. So you now have no house, and in today's terms, are earning like $25k per year after tax to support your wife and kids. You can't earn 9%, because you would ahve to be fully in stocks to do it and you need the cash flow.

I have friends with a lot more money than $1.7m who are nowhere NEAR being able to retire.

[/ QUOTE ]
Where do you live? In 2004 the average cost of a house in the United States was $264,540. To say you can't even buy a house for 1.7 million is absurd. Not to mention the vast majority of people who will have paid off a large percentage of their mortgage by the time they decide to retire. The average household earns around 45,000 dollars. If you were to deduct the average income from the 1.7 million you’d be able to live off of it for 37 years. Add that to the fact that you will be receiving interest greater then the cost of inflation and this allows for an even longer retirement. Not to mention by this time one’s kids will have moved out and no longer be an expense (hopefully), which would lower the cost of living. I guess the additional medical attention might be an equivalent trade off though.

I don’t question your investment credentials but your mind appears to be a bit warped due to the fact that you make mega money, don’t forget there are a lot of “average” people out there and they are ok with that.