Looking for advice: How do I find out what stocks to invest into?
First of all, I am not asking for advice about what to invest in.
TLDR: I just want to ask for advice about how to know what to invest into?
Background information and/or irrelevant rambling below:
I have minimal experience with stocks, having only invested €2500 into a pension account thanks to it being a gift from my father some years ago. Early this year I got taxed about €200 for unrealized gains of my stocks, mainly one of them (RHM.DE) and it takes up a little more than half of the value of the stocks I have. At that point in time when I got taxed it was up almost 100% compared to when I bought it almost two years ago. It has now fallen quite far again and as a result is up less than 10% and my gains are €180 so basically the massive gains (if I had sold at the right time) got cancelled from the taxes. Although to be fair I don't actually know if that's how the tax system works, but I do know I was unlucky to not just sell it off at that peak. But speaking of luck, I am still up like 60% overall thanks to another lucky stock which is up 150% (ENR.DE) compared to when I bought it.
Again, I have no sense for economics or financials or investing lol, genuinely just lucky??
The investing I did was based entirely on Merz changing the direction of German defense policy when he got elected where he said his government will heavily invest in defense. Rheinmetall being a German weapons manufacturer, it only made sense (and it paid off for a while) and the Siemens investment I made was just an afterthought in order to not have all my eggs in one basket. I also have other stocks that are up like 60% 75%, 90%, and then get this: a stock I didn't even buy (it was like a split-off of something else, and given to me automatically?) is up over 800% so I still have an overall value of €4000 from a starting point of about €2500 and €1500 gained in less than two years is, of course, and I cannot emphasize this enough, just purely luck lol
I might as well have gone to a casino.
Long story short and reason for posting I'm now wondering what to do with that RHM.DE stock. Because it doesn't seem good anymore and maybe the ~€2100 value is better spent somewhere else? But how do I know?
You don’t. Pick large market ETFs. There’s no point in picking individual winners or losers as a retail investor. Instead, invest in every company at once.
If you want to stick to European markets, VGK is fine. Although I know most Europeans own US ETFs like VOO and VTI as well.
Yeah this.
There's strong evidence that indexes will always beat literally gambling.
Well, unless you're a trillion dollar hedge fund and you can afford to throw money around individual stocks based off insider trading, but I doubt that's anyone here.
That’s too strong a statement, even for actual gambling. Lottery winners are rare, but they exist. There are also plenty of people in Silicon Valley who became rich by holding company stock.
I’m still a Boglehead in principle and recommend index funds. But in practice, holding Google stock has been very lucrative, and my investment strategy was procrastinating about diversifying.
Nowadays, tech stocks are a large part of US index funds and I don’t see a reason to weight them more than the index funds do.
I generally follow @Stu2b50 's advice, with one exception. If a big company in the US hits an "all time low" due to some bad news, I buy some stock in that company during the dip. My reasoning is that these companies are treated as "too big to fail" and will be bailed out by the government if things get too bad. I am not necessarily happy this is the case, but since it will be my tax dollars at work, I might as well get my cut.
Example: AT&T had a bad day a few years ago when there was an announcement about lead in their infrastructure. The stock I bought that day is now worth 240% of what I paid for it.
To be clear, I'm not suggesting buying for short term gains. I still intend to hold the stock for a long time. But this way I got into the stock for cheap.
The thing is that everyone else in the market also knows this. It’s not exactly hidden knowledge. And so this factor is already built into the price of large blue chips in the US, in particular ones related to critical infrastructure.
The benchmark isn’t if it will go up at some point. It’s, will it beat the SP500? Because if not, that difference is the amount of money you lost in opportunity cost. It’s not enough for an investment to make money - if it can’t beat an index fund’s own gains, it’s not worth it.
I agree with this but would add the caveat that this is probably a secondary thing to try out after you've gotten a comfortable amount invested in ETFs.
Similarly, the 2008 recession was a great time to buy. But that’s easier to say in retrospect. You don’t want to wait around for another opportunity like that while the stock market goes up. Dollar-cost averaging seems reasonable.
As @stu2b50 said, just put your money in a whole-world ETF. Yes, it's very boring, but that's the way.
This article has a good comparison of EU options (it needs an account but it's free). I use SPYY.
Bogleheads Wiki is a good Wiki on the topic, but it's really not complicated. You just choose your risk tolerance level (this questionnaire can help you with that), and depending on that, put some percentage of your savings into a global stocks ETF, and some into a global bonds ETF.
Picking individual stocks is a losing game because you're betting that you have some information that professional trading companies and HFTs with billions of dollars don't have yet.
You can of course still do it if it's fun for you, but then, as you said, it's not much different from going to a casino.
This is good advice. There’s a reason index investing has gotten so huge. There are lots of books that advocate Bogle’s philosophy but that site or a good article should be all you need. Basically:
Invest in passively managed (low cost) index funds or ETFs (ETFs have lower fees). This gives you exposure to the whole market. Keeping costs low and diversifying risk is the best way to get top quartile returns in the long run.
It’s worth digging a little to see how fees eat into your return over time. 1-2% annual fees kill you the long term. Also, there are plenty of charts and papers showing that no stock picker really knows what they’re doing (at least to the extent that it justifies their fees) and the small number of very successful
ones at the top can be explained by luck and the law of large numbers.
Good luck! This isn’t as complicated as people who make money off you want you to believe.
I strongly believe that insider traders are the ones making most of the money from just trading. There's a market for the super-fast computer stuff, but that's brutally competitive. And I guess some very smart people can work a niche to make some money, but the stats are against them over the very long run. I believe that the big money is being made depending on who you know and how well you can dissimulate, so of course it's pleasant to dress it up as being some real sophisticated thing. For us plebs, index instruments are the way to go.
Eh, anyone can get lucky, so it's more likely that many hedge fund managers are gamblers with wealthy enablers.
Gotta agree with /u/stu2b50
Read up on Bogle style investing. You balance exchange traded funds of different categories, and almost never have to do active management. The key is to keep the management costs as low as possible. I manage all of my family’s retirement accounts like this.
As seemingly everyone else, I came here to write snarky "You don't".
To explain a bit: when you invest in large diversified ETF with low fees, you are betting on the world economy getting a bit better over time. Hopefully that will happen, because if it doesn't, we all got much bigger problems. But when you pick individual stocks, you bet against the market. You pretend to know more that all the other participants (or at least more than half of them), including professionals like hedge fund managers, big institutional investors etc. - and you bet against the price set by them, in a zero sum game against them.
Ok, I feel like people are maybe catastrophizing it a bit too much. One of the reasons the stock market is not a casino is that it's actually not zero sum, it's positive sum. And as a result, people can buy individual stocks and make money - it's like a game of roulettes where on average everyone makes money.
The reason that ETFs are recommended is less extreme than "you'll lose all your money to jane street". The benchmark is a whole market ETF. If you can't exceed the gains of the whole market ETF, then what's even the point? You could have made more money with less time.
But the average edge ETFs have over someone that invests in blue chip stocks is not so high as for it to be impossible just based on luck. OP made some money, mostly by luck. It's like blackjack, if we use "beating the ETF" as the baseline (since blackjack is a zero sum game, and as we've established, the stock market is a positive sum game) - the edge the house has on is between 3-5%, so you can win plenty of times in blackjack, it's just on a long time horizon you lose.
You should still get ETFs, but it's not like you're guaranteed to lose all your money if you don't. In fact, it's very possible someone beats the SP500 in their entire lifetime just by happenchance. The edge is small enough that this is possible.
Compare that with a commodities market like forex or oil futures or something. Now THAT is a zero sum game. Do not enter, this is not a place of honor. In forex, you're competing against the central banks of entire nation states - that's not a battle you're going to win.
Yea I was probably saving my fingers too much and not expanding my thoughts enough. That "advanced game" you would be trying to play - knowledgeable stock picking, "harvesting alpha" or how do the professionals call it - would be zero-sum against the professionals. But while it is entirely possible for you to loose your investment by picking a small set of very bad bets, it is not really probable. As you said, you have market working for you and when tide rises, it brings almost everyone up - including the cranky old ruined barge you might have picked. Point is, don't pick your ships anyway. Don't read their parameters and their news and their reports. Your energy is better invested elsewhere.
Yes, if you make 3-5 bets during your life, they may pan out. If you invest regularly, you want to use rational strategy and not lower the future value of your portfolio with every bet you make.