Some people have asked how to get started with dividend stock investing and where to begin. So I’m going to share some of my favorite authors/books!
Why get started with stock investing at all? Let’s pretend you do things “the right way”: You go to work, put a little money into a savings account/CD every month (to avoid risk), and then happily retire with a nice nest egg. This is the scenario we are told and it may have worked in the past but with savings accounts/CD’s yielding 1-2% in most cases, if you follow this scenario you might actually be LOSING money every year even though you are doing everything “the right way”. The reason is because of inflation. Goods go up in price every year due to inflation (think about how we joke that movie tickets used to cost $2) so your money doesn’t stretch as far as it used to. So if your money isn’t growing faster than the inflation rate, you are in fact losing money. Working at a job for most of your good years, socking some money away, but never getting ahead…this sounds like a horrible scenario and I didn’t want that.
Put another way: Let’s say you have $100 in your pocket and you have your eye on a TV that also costs $100. Instead of buying the TV this year, which will leave you with $0, you put the money into a savings account yielding 1% (because stocks are too risky). So at the end of the year you now have $101 which sounds great…but if the inflation rate is 2%, that same TV now costs around $102. That’s right, you “did the right thing” by putting your $100 into a non-risk savings account but now you can’t afford the TV and you are a $1 short for the same TV you could have bought last year! This is where stocks come into play. If you instead put that $100 into a stock which gave you a 5% return for the year, you can now buy the $102 TV and you have an extra $3 in your account! Plus you didn’t really have to do any work for those $3…this should be the goal. If you then take that extra $3 and put it into another stock (to diversify and spread around your potential risk), it can keep growing and compounding and keep you ahead of the inflation rate. I am using simple examples but the results in all scenarios magnify with each passing year which is why the earlier you start thinking about your money the better.
Even though he has his share of detractors, I have to start with Jim Cramer. I knew nothing about stocks and never had much of an interest in them until I was flipping the channels and caught Jim’s Mad Money TV show on CNBC one night. He laid out the example above and the proverbial light bulb went off in my head. Some of my favorite Jim Cramer books are Mad Money and Real Money: Sane Investing in an Insane World. He shares his investing methodology and some great advice and examples to get you going in the world of stock investing. I found the books to be very helpful and they got me over some of the (fear) hurdles when it comes to getting started with stock investing. As a bonus, another interesting read is his book Confessions of a Street Addict which isn’t as heavy on the stock analysis and methodology but rather focuses on lessons learned from being a hedge fund manager.
The Intelligent Investor by Benjamin Graham is a book about value investing and provides some timeless advice. He actually lived during the Great Depression and shares his investing experience during that time and in the aftermath. He is credited with the creation of value investing.
One Up On Wall Street by Peter Lynch is another classic. Peter was a very successful fund manager and this book shares simple and actionable advice which you can apply to your stock investing journey. He provides numerous examples detailing his thought process and how he values stocks.