An investing primer for my daughter

My daughter, who is approaching 30 to give you some context, is still unsure of her ultimate career. She recently asked me whether I thought she could invest “full-time,” for a career, and asked how she would go about doing that.

This is a little primer that I wrote for her in response to her questions. What I wrote back to her is the following, slightly edited. It certainly isn’t complete or all encompassing. Just what I wrote before I ran out of steam.


Sweetheart, It’s really a complicated question. You don’t just decide that you want to invest full-time and go out and start doing it two or four hours a day. You first have to learn what it is all about. That requires reading a huge amount (if you are interested I can give you some places to get started). You have to learn a lot of terms. You have to have an idea what to look for in the stocks you are looking at. You have to have an idea where to look for good stocks, and who you can rely on and who to ignore. You have to decide what your goals are. Are they to just preserve your capital and make enough gain to equal the S&P’s gain, or are you trying for greater gains (which entails greater risk, usually). Then you pick a few, four or five, of (what you think are) good stocks, to start out with. And maybe invest 25% of your funds in them. And you invest the other 75% in what you have been led to believe are good Mutual Funds or ETFs, to attain your goals. You are young and you have time to get this right.

If, after a year, you see that your stocks are significantly beating the funds, you might increase your self-managed part of the portfolio to 40%, and after another year, if you are still out-performing, up it to maybe 55% (and six or seven stocks).

I purposely didn’t define terms like S&P and ETF. These are an example of terms every investor will know. You should simply google them or read about them on wikipedia.

When I first started doing this in 1989, it was a different world. You got ideas from your “full-service” broker who was basically a salesman working for the brokerage firm. There were no earnings reports and conference calls available to the general public. Companies didn’t have “Investor Relations” departments on their websites with all sorts of present and past information. (There were no “websites” in 1989.) All of that has changed for the better. There are huge amounts of information available, and necessary to read. Now you can find out online what the price of your stock is every minute (whereas when I started out you looked up the high, low and closing in the physical NY Times newspaper the next morning).

To invest like this you have to love it as an all-consuming game. If it is boring, or uninteresting, or work, for you, you are much better off having a group of funds manage your investments for you. If you can’t stand volatility and seeing your great company’s stock decline by 20% or 30% over a week or two for no particular reason, you need to stay out, because it is scary and you will find yourself selling out at the very bottom with a major loss.

When I first started out, I read public stock boards on Yahoo, but they were useless. Some people would “pump” worthless stocks with little information attached: “You’ve got to get on board XYZ! It’s bound to go up to $1000 by the end of the month!” And other people who were shorts (that means that they are shorting the stock) would attack a stock nonsensically to sow fear: “You better sell out of this piece of crap! It’s going to zero!” I quit looking at that kind of board many years ago.

Then I started using The Motley Fool. I’ve had subscriptions to Motley Fool Rule Breakers (more aggressive) and Motley Fool Stock Advisor (more conservative) for many years. In general their recommendations beat the averages but there are things that you should keep in mind. Number 1 – You have to keep in mind that they are a business, after all, whose goal is to make money for the founders. Number 2 – They aren’t a real-money portfolio, they are a recommendation service. What is the difference? Each newsletter recommends two stocks every month, so that after a few years, if you invested in all their picks, you’d have hundreds of positions, so you’d have a little mutual fund of your own, and you would probably do a little better than the averages, but not much.

With so many companies they really can’t follow all of them very well, even if they try, and they rarely tell you to sell any. That’s partly because they preach long-term buy-and-hold, but also partly because of the difficulty in paying attention to hundreds of companies. This is very different than a focused portfolio of stocks where real money is involved on a day-to-day basis. The good news though is that the Fool makes some VERY good recommendations from time to time, and I have got some of my best ideas from them over the years. But you have to figure out which are the really good recommendations.

At the current time my portfolio includes usually just 9 to 12 stocks. Some people have 200 stocks, all in small amounts. I’m sure they can’t remember what most of the companies even do, and have no idea how successful the companies are. When, for a while I had 30, I found myself occasionally not even remembering what the company name was for some of the stock symbols, much less the details of their earnings and business, and I certainly couldn’t follow all of them intelligently.

With my current 10 stocks, I have them all listed with Schwab, my on-line broker, and I get immediate news stories on all of them whenever any news comes out. I also get alerts from Seeking Alpha, which is a news and commentary source of information that has both a free and a paid side. I pay for a basic subscription. I can set up a “portfolio” with them, and they send me an email link whenever there is an article by one of their writers about one of my stocks. They also send email alerts whenever there is news about one of my stocks, usually with a link to the actual news article or press release by the company.

That way I get the news, plus all the quarterly earnings reports, immediately. Right after the earnings report, each company has a conference call where management gives a summary and then analysts ask questions. You can listen to the CC live, or later recorded, and Seeking Alpha also provides a transcript you can read. It takes an hour to listen to an hour-long conference call, but I can read it in 15 or 20 minutes, skimming over parts that don’t interest me or are repetitive. I can also copy and paste important quotes from the CC, in my own Microsoft Word information sheet on my computer, on each company, which often grows to 50 to 100 pages, or more, after a few years.

Some of the Seeking Alpha articles are very useful. Others are just puff pieces or articles by people who are short the stock, so you have to read with care, and get to know the good authors. The best Seeking Alpha I’ve found is Bert Hochfeld, who also has his own little inexpensive newsletter with a real-money portfolio of a dozen stocks or so, which partially overlaps my own. He’s an expert on tech stocks, so I also subscribe to his newsletter, which is called Ticker Targets.

One of the best sources of information is the discussions on my Board (Saul’s Investing Discussions). I have gotten a lot of my companies from some of the very bright men and women who post on my board, and write excellent presentations of a company. Here’s a link to my board (which now has over 50,000 posts on it now) and to my most recent end of the month summary.…

You asked if I actually end up reading back over the 50-100 pages on each stock? And how do I keep track of so much info? That’s a good question. Here’s the way it works: When I get an article about I new stock that I think I might seriously be interested in, I copy the article and paste it in a Word document, and change it into a font that’s easy to read, and dark black (some articles are in a faint grey font, for instance, which is hard to read). It is usually 3 to 12 pages when transferred to a Word doc. I read it and edit it down to half the length usually. I put a date on top and who wrote it (Mar 2019 – Introduced to Board by Chris), and title the page with the name of the company and its symbol:

Abracadabra Inc ABC

and save the page by the symbol (ABC) as a file in a folder on my computer called Active Stocks, which automatically lists the files in alphabetical order. Remember though that I usually on have about 10-12 active stocks at a time, and maybe a few that I am looking at. (If I eventually decide against it or buy in but then sell out, I move it to a folder called Inactive Stocks, where I keep it for a couple of years, in case I change my mind and buy back in, or am even thinking about it, and want to read up on it).

Then I’ll look and see if Motley Fool has a recent recommendation on the ABC company, and I’ll copy and paste that add that too, on my ABC document, also edited down, so I can learn more about the company. And I check to see if Bert Hochfeld has written about ABC (and copy and paste). Or if there’s any recent article on Seeking Alpha that seems worthwhile. I also look at the most recent earnings report, copy and paste, and pare that down too. (I find the most recent earnings by googling Abracadabra Investor Relations, then look under Earnings or Press Releases on the company’s website). Then read through the Conference Call associated with the earnings report because they often say a lot more than what’s in the earnings report. That takes just 10 or 15 minutes but I copy important remarks and paste them at the end of the earnigs report on my company document. I also look to see if the company had any recent important press releases about new products, etc. So at this point I have maybe 20 pages, but it doesn’t take more than 10 minutes to read back through. If anyone writes something important about it, I copy and paste it in, and 3 months later the next earnings report, etc. I some times make my own comments: “Earnings report looks great. The only thing I’m worried about is xxxx”. I usually bold my own comments in blue and in a slightly smaller font size so I will recognize that it’s my own and not what I copied. That saves me time in reviewing, as I don’t have to come to a conclusion all over again.

So two years later, if I’m still in the company, it can easily be well over 100 pages or more. If I want to review I usually just go back over the last three to four months though. I could go back through and delete old earnings reports that are over 9 months or a year old, and sometimes I do, but usually I don’t bother.

I also make a graph for each of my stocks. I start with a sheet of paper on which I list my 10 or so stock symbols down the left side of the page, and each day I get the closing quotes which I put to the right. Getting the quotes for all of them off the Schwab website takes me no more than 2 minutes a day. Then if I look at Okta, for instance, for last week, I see that it had closed the week before at $82.73, that it reached a high Weds at $89.35, and closed Friday at $86.83.

Then at the end of the week I make a simple line graph, on centimeter graph paper, which really gives me a visual picture, with vertical lines that are the movement for the week and a little horizontal crossbar where it closed for the week. You can look back over a couple of scotchtaped pages and see that I bought it a year and a few months ago at about $30 and that it’s gone fairly steadily up. I also use one scale between $10 and $20, cut it in half between $20 and $40, cut it in half again between $40 and $80, etc. That way a 10% move stays roughly the same size at different prices. I also put little “B”s in blue ink to mark purchases and little “S”s in red ink to mark when I sell some for cash.

In 2015, I compiled all my best ideas into what I call my Knowledgebase which is on my investing Board. It’s in three parts and has topics like:

Basic Rules of the Board

My Historical Results

My General approach and Philosophy

Evaluating a Company

Portfolio Management

Adjusted vs GAAP Earnings

What is My Buying Policy?

What is My Selling Policy?

Calculating Portfolio Returns

Dips and Downturns

On Insider Trading

Thoughts on IPO’s and Secondaries

Investing Ethically


Professionally Managed Money

Teaching Investing to Kids

Investment Primer

It’s definitely worth reading through. Many people on my board have said they have read it through three or more times. Here are links to it.………

In the past the only types of companies you could invest in were ones that sold things: cars, TV’s refrigerators, apples, groceries, software on disks, computers, clothes, buildings, computer chips, insurance, etc. I looked for companies that were growing revenue, and 20% per year revenue growth was great! Enormous! And I wanted ones that had a P/E ratio (stock price divided by earnings per share) of 20 or less.

The problem was that to grow sales by 20% per year, next year you had to sell all the groceries/ refrigerators/ computers/ software discs, that you sold this year, plus 20% more. And the year after, you had to sell 20% more, compounded, on top of THAT! It becomes almost impossible to do that for very long, because of compounding. (By the 5th year you have to sell 250% of what you were selling at first, and by the 6th year it’s 300%, etc.)

And then along came the Cloud, and selling Software as a Service (abbreviated as SaaS). Most of the companies I am invested in now (but not all) are SaaS companies. What do they do? They don’t sell their software. They sell subscriptions to the software to their customer companies, and supply it through the cloud. The subscriptions are usually one to three years, paid yearly in advance, and the SaaS company manages the software over the Web and through the Cloud.

How is this better for the SaaS company? They have all this guaranteed revenue coming in that they can count on, that they don’t need to sell again. Once a customer starts running his business on your software, there is very little likelihood that he will pull it out unless there is something really wrong. It would disrupt the running of his business terribly and be very expensive. So next year the SaaS companies don’t have to sell this year’s 100% of “groceries” to start growing. They START with this years 100% of revenue (subscriptions), and grow from there!

Not only that, but they have a land-and-expand model. They may start by selling to one division of the client company and expand to more divisions next year, or may sell more doodads to the same customers next year, so that revenue from that customer grows.

This is called “dollar-based retention rate” or “…expansion rate” and most of these companies have rates of 120% to 150%, meaning that last years customers spend 20% to 50% more this year than last year. Thus the best SaaS companies usually are usually growing total revenue by 40% to 70% per year, a rate which was unimaginable just four or five years ago.

Another tailwind for them is that now it’s not just tech companies that they are selling to. Every company, from General Motors, to Walmarts, to Colgate Palmolive, feels they have to have a cloud presence, and cloud security, etc.

And how is this better for the customers? They don’t have a big capital outlay for the software all at once, but just pay for a subscription one year at a time. Often there is expensive hardware they don’t have to buy because the SaaS company is running the programs on its own hardware and on the cloud. The customer also doesn’t have to pay expensive salaries for smart people to run the software, and update it. Updates come over the web to all the computers at once, and noone has to go around to 3000 computers to install updates, etc. And, for instance, if there is a security issue that needs to be amended, the SaaS company can install it everywhere overnight.

I have explained why my investing criteria have changed, and why the Market is now different in two posts which I link to here:……

and finally, a link to a post explaining what I look for in a stock to invest in.…

I think that that’s it until you have questions.




Saul / Board,

This is my first post.

Wow, I have 2 daughters in college and I have been trying to peak their interest and prepare them for a lifetime of investing, but you just schooled me again. Thank you!

I have to say, I have an MBA, I was a stock broker in the 1980s, but I faded in and out of self investing vs focusing on my career and just making / saving money. I got lucky by working hard, being in the right industry (healthcare), saving a ton and then getting some stock options in a great industry, so I will most likely retire soon in my late 50’s.

So why am I posting today? 1) I want Saul & this board to know you have taught me more about investing than my past 35 years, including many paid newsletters & books, thousands of podcasts, many paid investor symposiums, etc, etc, 2) this board has given me the returns and confidence that I can retire when I want to! 3) I want to make sure Saul and all the regular posters know the impact you are having on so many people’s lives and 4) that we all hope this board keeps going for many more years! 5) I wanted to thank Motley Fool for supporting this board! Note - I am a Motley Fool One member and I plan to be one for many more years.

One last thing, even with my background and 30+ years experience with investing, I think you should know, this board is intimidating! I hope to contribute something soon.

Thanks, Scott


I was taken by your thoughtful and loving response to your daughter. And what struck me most was the words :“Sweetheart” and “Love, Dad”. To me those words say it all. Whose crying…I’m not crying…you’re crying.




They say that investing is an art: the numbers are vitally important but one must be able to read the numbers to build the picture.

Your letter to your daughter is filled with facts, how to’s, when’s and why’s. But through all the facts, what bleeds through is your deep love for your child. It is no wonder how you are so skillfully able to blend the hard and soft skills necessary to become a world-class investor.

You are truly a rich man.

My best to your daughter, and deepest thanks to you.

Mr. Sideshow


I would also suggest she read this board and NPI daily.
Just read.
You have attracted many brilliant people that wish to add and participate in your phenomena.
Especially if she is still keeping a day job going at the same time.
Reading everyone’s convictions and fears allows one to glue together all the “howto” information.

are a must read

over on NPI:
(even though they seem to act like 2-year-olds at a wedding reception, there are incredible words of wisdom buried in their posts)


Saul, thanks for sharing this with us.

When a novice asks me about the investing path I like to share the insight of Aswath Damodaran - Ask them if they would be willing to spend a lot of hours per week pouring over reports and data and most people say yes. Ask them if they can imagine looking down 30 years into the future and finding that their gains were about the same (or even lower) as a major index like S&P500, how would they feel? If that sounds terrible to them, then they should probably leave stock picking be, because they will most probably panic after their first major downturn and sell out or turn to leverage and options to make up for the losses.

You have to find a passion for the process rather than passion for gains.


Saul, what sound advice for your daughter. I’m sure she will benefit from this enormously.

I hope you will consider adding this valuable write-up to the Knowledgebase.

But just in case you don’t, I will print/save it for my young sons.

Thanks as always,

– This…is the MaineReason


Saul, your documented process is, at best, daunting. I don’t go to quite the manual lengths you do, but I read A LOT (and mostly the same places you do). Hopefully my brainpower continues to allow me to remember most of what I’ve digested, and if not I guess I’ll adopt your documentation process down the road.

I openly share my own investing successes and failures with my three brothers, often in real-time. Two of them are financially in roughly the same income space and one is maybe a notch lower – we’ve all been successful and very blessed. As smart as we all are, none of them have yet been willing to do the legwork required to self-manage a portfolio. I hear “I don’t have time to read all that stuff” or “it takes too long/too much work” quite a lot.

A big thank-you to Saul and many others (Tinker, Denny, Bear, and so many others I’ll fail to even think of if I try to add more names) for making this board what it is and providing a massive value to me. When (not if) I retire [quite] early relative to that magic number 65, it will undoubtedly be due to much of your sharing. Thanks for making my family’s world a little better.


Hi Saul,

This is my first time posting on your board. I am brand new at managing investments for myself and have ZERO qualifications. I have been following your board and reading your knowledge base and trying to piece it all together…feeling a bit lost and too intimidated to ask beginner questions.

And then you posted this letter to your daughter :slight_smile:

I just want to thank you, and the others that share their insights on this board. You are shaping me and many others and changing our futures.

Bless you sir


Thank you doesn’t really cover it. By bringing this board to life, you and the many intelligent and insightful posters who have become steady contributors have very literally changed my life. I retired about three years before I originally planned because changes in the company where I worked made going to work a chore. I had previously pretty much looked forward to going to work as my job was interesting and challenging. Changes in the relationship between management and staff didn’t so much change my job, but it changed the work environment. What had been a cooperative environment turned into an adversarial one.

When my mother died, I inherited a moderate sum of money. I figured between the money I had in savings (401), the inheritance, social security and a pension, I could probably get by OK so I retired. I fumbled around with investing, both self managed with the assistance of TMF and the horrible blunder of letting Edward Jones “help” me for a few years before I found this board.

I was well paid in my job compared to an average American. Currently, it’s not that unusual to see my portfolio go up by maybe half a year’s worth of my salary when I retired. I’ve had a few days when my portfolio has gone up by as much as year’s salary. Of course, I’ve seen pretty traumatic down days as well. But over the time I’ve been following this board, my portfolio is up an astonishing 238%, actually more in that I did not adjust for withdrawals. In the three+ years that I have been following your technique (imperfectly I might add) my moderate nest-egg has become quite substantial. Shall we say, I’ve entered a legacy position. No one can predict the future, but I’m pretty confident at this point that my wife and my daughter will have financial security after I’m gone if they can appropriately manage the funds.

So, why do I relate this in response to the message to your daughter? Because I’m in a similar situation. As you know from my many previous posts, my wife is Chinese. She has been in the country only a few short years and her command of English is not great. There’s just about zero chance of her picking up where I left off. My daughter has an MFA in writing from Columbia. She’s pretty smart and has a great command of the language. I thought she might be a good candidate to take over the portfolio . . .

But, there’s an old saying, you can lead a horse to water, but you can’t force him to drink. As a published author, you are probably aware that making a living as a writer is not an easy road to riches. I spoke to my daughter and her husband about investing. They were both pretty enthusiastic and my daughter quickly asserted that she would do the work as her husband was too busy just making a living. That enthusiasm quickly wore off as she determined how much work was required and how little she was interested in doing it. Can you imagine? She thinks reading conference call transcripts is boring . . .

I don’t blame her. I retired early for a different reason, but it boiled down to the fact that work had become drudgery. Really not such a different reason after all. So, I’m stuck with a dilemma. I really don’t know at this point how to pass along my financial legacy in such a way that it won’t be quickly squandered. I’m working on it.


Shall we say, I’ve entered a legacy position
So, I’m stuck with a dilemma. I really don’t know at this point how to pass along my financial legacy in such a way that it won’t be quickly squandered. I’m working on it.

I went to a talk by some of the Rothschild family. One of the European branches. They mentioned how fortunate it was for their family that the drive to enter investing/banking skipped two generations, spanning over the 30s and WW2. They joked that if it hadn’t, the family fortune may have disappeared by the time they took over the reins.

Simple investing and the ability to handle money, budgeting…etc, should be taught to everyone. It really should be part of schooling. E.g. the effects of compounding, how bad going into debt and paying interest can effect you, the necessity of budgeting. But doing what we do here, listening or reading hours of CC transcripts. It’s not for everyone. Keeping things simple, investing in vanguard ETFs/market trackers, is good enough for most.

People need to live their lives, gain experiences and connections. How completely and utterly boring for the soul to leave schooling and go into investing. Get some life experience first! Doesn’t have to be decades. A lot of you guys and gals here have had fantastic careers before fully delving into the nitty gritty of investments. Others here are still in the middle or towards the end of their careers, have reached a certain level of mastery and thus able to retain enough energy and brain power to delve into the stock market.

Having a career you love, gives you a sense of purpose and pride, a drive to master, and pays the bills, is amazing and should be encouraged whatever it is. Knowing that your parents have built up a legacy is a great gift that gives them that freedom to pursue it, and you never know, they may get good enough to get paid well for it!

Stay healthy, encourage them to give you grandkids, then teach them how it’s done :slight_smile:


Thank you !

Thanks for this post Saul.
Ever thankful for Saul & fellow board members.
Love the process and put in the work and keep a level head in days like 10/30/2020 and we will do very well.


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