Beginners' guide to investment

There is a lot of detailed reference material on this site, but those new to finance and investment may find it hard to know where to begin.

The list below starts with the most important things, and goes on to cover enough to give the reader a fairly good understanding of investment.

The most important thing is to get a clear grasp of the range of ideas presented. You will probably absorb the concepts better by reading a little at a time, rather than reading through in one go. It is also probably a good idea to follow any interesting links you come across while reading, rather than sticking rigidly to the suggested list.

The concepts of finance

  1. The time value of money
  2. Risk aversion
  3. The risk free rate of return, risk premia and yield spread
  4. Diversification
  5. NPV and DCF valuation
  6. Dividend yield and flat yield.
  7. Internal rate of return and yield to maturity
  8. Compound growth

Valuation

  1. Earnings per share, the PE ratio and earnings yield
  2. Depreciation, amortisation and exceptionals
  3. Adjusted EPS
  4. Prospective PE
  5. CAPM and beta
  6. Enterprise Value, EBITDA and EV/EBITDA
  7. Free cash flow
  8. Dividend discount valuation model
  9. Sum-of-parts

Growth, trends and product markets

  1. Cyclical
  2. Defensive
  3. Organic growth
  4. First mover advantage
  5. Market penetration
  6. Barriers to entry
  7. Oligopoly
  8. Network effects

Accounts

  1. P & L
  2. Balance sheet
  3. Cash flow statement
  4. Statement of total recognised gains and losses
  5. Continuing operations
  6. Pro-forma
  7. Accrual principle
  8. Associate company
  9. Fair value and impairment
  10. FIFO and LIFO
  11. Notes to accounts
  12. Revenue recognition
  13. Off-balance sheet financing
  14. Creative accounting

Investment strategies

  1. Active investing
  2. Growth investing
  3. The size effect
  4. Value investing and the value effect
  5. Bottom up stock selection
  6. Income investing
  7. Top down asset allocation
  8. Momentum investing
  9. Contrarian investing
  10. Passive investing
  11. Mechanical investing
  12. Core and satellite
  13. Life cycle investing
  14. Unit cost averaging
  15. Ethical investing
  16. Bubbles, crashes and greater fools

More financial theory

  1. Arbitrage
  2. Capital structure irrelevance
  3. Dividend irrelevance
  4. Efficient markets
  5. Random walk
  6. Portfolio theory
  7. Behavioural finance

Complex and risky investments

  1. Futures
  2. Options
  3. Contracts for difference
  4. Market neutral strategies
  5. Pair trade
  6. Hedge funds and proprietary trading
  7. Day trading
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