sophie Profile picture
Oct 18, 2022 19 tweets 4 min read Read on X
“i’m going to learn about investing” journey

phase 1: intelligent investor

> ben graham & warren buffet, value investing, some peter lynch stuff, maybe even some greenblatt & klarman if you’re adventurous

“ok i’ll buy good companies at fair prices, what else is out there?”
phase 2: computers & math for investing

> david shaw & jim simons, “the man who solved the market”

depending on your proficiency w math, this may be heaven for you & you’ll dedicate your life to generating quantifiable alpha. this is a very noble pursuit but its competitive
phase 3: academic finance

> the efficient market hypothesis & attempts to make equations that describe market behavior & optimal portfolio construction

youre curious about if alpha exists & how the leading academics think about markets & their theories for building portfolios
(phases are not necessarily in a strict order)

phase 4: macro & market wizards

> after learning about what academics have to say, you’re curious about “who” has consistently beaten the market over long periods of time & what you can learn about how they’ve done it. this leads
folks in a few directions as there’s lots of (reasonably) popular literature that documents the lives & careers of managers who have generated consistent returns. you might read “market wizards” & some historical accounts like “inside the house of money” or “more money than god”
you’ll inevitably come across george soros & may read “the alchemy of finance” you’ll probably go down a rabbit hole & watch all the stanley druckenmiller interviews you can find. you might read about the history of hedge funds, AW Jones, the commodity trading advisors & OG Tiger
again this won’t necessarily happen in a particular order but along the path you may even develop a fascination that borders on an obsession with debt crises & financial crises more generally. you’ll want to learn about the history of money. you’ll talk to people about rai stones
you’ll also inevitably come across ray dalio’s books. you’ll develop a curiosity about how the world was different pre/post gold standard & youll learn about how Ray created a synthetic chicken feed future from corn & soymeal, that led to McDonald’s launching the chicken mcnugget
at some point you’ll wonder “what if some of the best minds came together figured out a foolproof strategy for returns?” and someone will point you towards “when genius failed” and you’ll learn about LTCM & the perils of overleveraged relative value trades. you’ll be curious abt
derivatives in general during this phase & youll learn about the black scholes model, options & volatility. this may well be your calling (& youll quickly end up following fintwit’s best & brightest who are treasure troves of info abt this stuff) or youll think “here be dragons”
phase 5: private markets

> you might be intrigued about how private markets function, you’ll learn about PE & VC. you’ll read “barbarians at the gate” & “caesar’s palace coup” you’ll probably also read “zero to one” and you’ll wonder why more funds don’t do public & private
this might also lead you to doing research about crossover funds & the events of recent years and debates around alpha vs levered beta & if private investors do in fact generated superior returns or if the volatility looks smoother because they don’t mark their books as often
it’d be impossible in today’s world to learn about investing w/o hearing about crypto. depending on your technical proficiency you might read the bitcoin white paper & learn how that led to vitalik creating ethereum & the evm. you might watch genslers mit lectures abt blockchain
at this point you’ve made it to the end of the relatively popular stuff. there’s still an infinite amount of information out there but you’ve at least began to develop your own worldview. you’ve either convinced yourself you could prob find a consistent edge & you love the game
or you’ve become jaded & red-pilled about markets & you commit to only ever dollar cost averaging into index funds. as i sit here now i can’t rly remember why i decided to write all this but maybe subconsciously i wish there was some overview of “how to learn about investing”
that someone could’ve sent me when i started my own journey so yeah threads are dumb but maybe this will help one person get a sense of what’s out there & if people have resources to share that helped them feel free to post them in the replies & talk about how they helped you
i didn’t even intend for this to be serious whatsoever when i started, it started as more of a shitpost but i do think the more people who know stuff about capital markets the better & there’s not many games in the world as exciting trying to understand reality & betting on it
that being said if anyone ever asks me (& even then it’s totally Not Financial Advice™️) i’m like you should almost definitely just index 99.9% of the time but if you want to set aside a small amount to gamble w then be ok w losing 100% of that & do at least a bit of research
someone told me “no more threads” i hope they like this one

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what’s a dcf?

there’s probably already a million threads on this but oh well

sophieconomics 101 - valuing a business

a dcf is a discounted cash flow model that we’ll use to get a sense of what we should pay for an asset today based on the cash it will earn in the future
big picture - were going to calculate free cash flow available to the business this year & use data + our best judgment to project cash flows for the next 5-10 yrs and then discount the value of those cash flows back to today (because we’d rather have $1 today than $1 next year)
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not only is it a key indicator of the financial health of a business but it also allows the company to increase shareholder value through buying back shares, paying a dividend, paying down debt, reinvesting in the company or making acquisitions
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