Summary How should a new investor begin? How can you get the fullest use out of Seeking Alpha? What have I learned in over 900 days of writing for Seeking Alpha? Seeking Alpha – Completely Unofficial User’s Guide* *See comment section for someone asking if this is an official user’s guide. Welcome to Seeking Alpha. If this is your day one using this site, here is an unofficial welcome along with my thoughts and encouragement as someone who has written on it over the course of the past few years (day 1,000 coming up shortly). You can use it as a guide with the caveat that it is simply what worked for me. My one overriding message is to think for yourself. That message holds true here as well as elsewhere on the site. Approaching The Start Line Seeking Alpha is largely about the topic of security selection. This is an interesting, important, and often fun topic. However, it is not the most important topic and does not come first. To be ready for day one investing and to get the fullest use out of the ideas on security selection, there are eight steps that are crucial to have taken. They include: paying off any bad debt, setting a careful and frugal budget, setting up any tax-advantaged accounts that you can access, funding an emergency fund, funding a down payment for a home, setting up a brokerage for taxable investments, funding your healthcare, and simplifying each aspect of your financial life. If these are not first taken care of, the topic of individual security selection is premature. Once you have taken those steps, then you are ready to approach the starting line. Protecting You From… You It is good to learn from your mistakes, but far better to learn from others. So, while you are new, it is probably best to be thoughtful about how much you are willing to expose your financial life to the ideas – even the best ideas – that you read about on Seeking Alpha and other similar sites. Some articles are designated as “Top Articles” and others as “Editors’ Picks,” but you can never safely outsource thinking for yourself or managing your own risk. How much should you risk on your favorite ideas? This is a question that you should ask yourself before you get enthused by something you read here or on similar sites. In particular, you can protect your financial life from amateur (or professional) errors by diluting the amount of resources that you give yourself access to. I fully (maybe even over-) fund the following, diverting a substantial amount of resources away from what I put to work on Seeking Alpha ideas: life insurance, cash, pre-purchasing appreciating assets that I eventually want, education for my kids, and additional capital for my kids’ investments and entrepreneurship. After those five priorities are funded, I am left with a substantially reduced amount of capital for my own ideas. This reduction protects me from me. Besides taking money off of the table to reduce my downside to an acceptable outcome, it also reduces the daily stress to have less at risk. I don’t mind if I risk turning my 21st century life into a pleasant 19th century life, but I want zero chance of turning it into a 14th century life. After the above steps, I have far less ability to hurt myself and those I most love. I have protected my downside and can go to work on my upside. Navigating The Site Profile Page Now that you are ready to start, where do you begin? On day one, I started by setting up my profile . Once you do, too, then you become a part of the Seeking Alpha community. If you are new to investing, you can begin the process of identifying what kind of investor you are. Like-minded investors can follow what you write and you can follow them in turn. Home Page The home page offers a lot of information; sometimes it can almost be too much. Except for top articles , articles are mostly organized chronologically, so they come and go quickly. Early on, I would simply read articles based on titles that interested me. Later, I was able to make judgments about who I considered some of the best writers , who I then followed and read their subsequent articles. Instablog Instablogs are less formal, sometimes fun sites that individuals set up to discuss their ideas. I use them for ideas that are not perfect fits for articles, but are still interesting to me and might be interesting to others. Since articles are organized around specific companies, Instablogs can be useful for more generalized content and content outside of the public equity markets. Premium Authors A recent addition to the site in the last few months has been its premium author program. That is where you can subscribe to what Seeking Alpha describes as: Value-added investment services from top SA contributors It is not necessary and it is not for everyone. However, you may choose to check it out. If it is not a good fit, you can subsequently cancel it and get a refund on the balance of your subscription. Incorporating Seeking Alpha Into Your Investing Strategy I am probably as enthusiastic about Seeking Alpha as anyone, but even for me, it is only a small part of my investing strategy. Even Seeking Alpha’s founder blogs on a separate site . How does it fit into other online resources and an overall financial plan? Vetting authors – how do Seeking Alpha stock picks measure up? Who can you rely on? This is a question that I have often asked myself . I have five criteria, including: money – someone who has made some, flexibility – writers without a narrow mandate, introspection – ignorance is fine if it is not covered up, proximity – a writer close to his subject in the real world, and performance – this is the big one. In terms of number 5., where do you find performance data? While it is only a crude instrument, I have found TipRanks to be a useful supplement to Seeking Alpha. Past performance is the best predictor of success. – James Simons Executing Ideas Once you find an idea that you like, you will need a way to put it to work. So, in addition to Seeking Alpha, you will need a broker that you like and trust. My primary criterion is price with a secondary consideration for the strength of its online trading platform. It is a fairly commoditized business. Different investors have different preferences. Something to consider: if you have a significant retirement account at Vanguard, it comes with a large number of free trades. With a $1 million balance, you get 25 free trades. With a $10 million balance, you get 500 free trades. I also like Charles Schwab (NYSE: SCHW ), in part because it is able to take delivery of paper certificates, which I often use. Goldman Sachs (NYSE: GS ) has the best service, in my experience, but it is looking for clients that generate a substantial amount of annual trading commissions. Leucadia’s (NYSE: LUK ) brokerage, Jefferies is a fine compromise for smaller accounts than are of interest to GS. Interactive Brokers (NASDAQ: IBKR ) is great on price, great on its trading platform, and almost comically inept at customer service. Picture trading with a brokerage that learned efficiency and charm from the DMV. Goal A common goal is to beat the S&P 500 (NYSEARCA: SPY ) over a three- to five-year time horizon. SPY serves as a convenient standard – if you are not going to be able to beat it or do not want to try, you can always buy it instead. What is SPY and how hard has it been to beat it? Here are SPY’s major pluses, minuses, and attributes that an active investor needs to beat. “+” 1.) Performance In terms of performance, the SPDR S&P 500 Trust ETF has returned over 600% since inception. In terms of dividend growth investing, SPY has had a growing dividend over that period. In percentage terms, the SPY yield is currently under 2%. Over the long term, SPY has beat most asset classes and trounced the average investor returns. “+” 2.) Cost The net expense ratio for SPY is an extremely low 0.0945%. The extremely high liquidity in SPY shares means that you pay a tiny bid/ask spread when buying and selling. “+” 3.) Diversification SPY is diversified across hundreds of shares, so permanent impairment of capital is unlikely over the very long term. It is certain that at least one SPY component company will go bankrupt. It is unlikely that all five hundred will. In that unlikely event, you will probably have greater concerns than the return on your investment portfolio. “-” 1.) Hyperactivity How is it possible that SPY could have a multiple of the average investor returns, as shown in the above chart? Almost any passive exposure outperforms the average investor. Part of the answer is hyperactivity. SPY trades over 16 million shares per day. Which side of these trades has edgy information about the market’s direction? Most frequently, neither side does. But average investors attempting market timing frequently buy and sell at the worst possible times. Market timing efforts typically buy when markets appear certain and sell when markets appear to be uncertain. In doing so, they tend to pay a high price for the comfort of greater certainty. “-” 2.) Reconstitution There is a pronounced S&P 500 inclusion effect. Average SPY constituents cost about 9% more than non-constituents. This impact might be durable and could impact you both when you buy and sell SPY. But the SPY value including dividends is reduced proportionately. “-” 3.) Forced Selling SPY, by definition, owns equities in the S&P 500. So, when a SPY constituent member is involved in a corporate transaction that creates a security that does not qualify, then SPY’s managers have to sell it. The trading of components in and out of the S&P 500 is often constrained and sloppy. It is not the S&P 500 managers’ jobs to trade such securities with any price sensitivity. Such trading often follows the narrow, specific mandates of SPY at the expense of getting the best prices. Once you contemplate the salient pluses and minuses of SPY, you can then ponder whether or not this is something worth trying to improve upon. Even the great investor Warren Buffett favors a passive investment very similar to SPY for most of his wife’s trust. He did not select Berkshire Hathaway (NYSE: BRK.A ) (NYSE: BRK.B ) as the investment vehicle. Instead, he said: My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers. You may want to do the same with some or all of your money. Only once you have determined if you want to select securities do you need to bother with sites such as Seeking Alpha. As for me, I do some of each – some passive and some active management of my assets. Conclusion If this is your first day on the site, I hope that some of what I have learned and passed on will be of benefit to you. It took me almost one thousand days to learn. It is what I wish I knew on day one. Seeking Alpha can be a fun, useful, and lucrative part of your financial life. If you think for yourself and find ideas worth putting to work, you can both learn and profit. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.
