What should I be aware of as a young investor?

Disclaimer - I am 51. Not sure how that happened, because I remember being in my late teens like it was yesterday.

I've learned that picking individual stocks is tough. Very tough. For every Apple, there are dozens that go sideways for years or go under.

You don't mention how much you have to invest, but I suggest (A) if you have any income at all, open a Roth IRA. You are probably in the zero or 10% bracket, and now is the time to do this. Then, invest in ETFs or Index Mutual Funds. If one can get S&P minus .05% over their investing life, they will beat most investors.

If you're tending toward stocks because you have a long time horizon, you're looking at them for the right reasons.

I'm twice your age. I have a mortgage -- two of them, actually! -- a wife, and a six-year-old. I can't really justify being terribly risky with my money because I have others depending on my income.

You're nineteen. Unless you've gotten a really early start on life and already have a family, you can take on a lot more risk than stocks. You have time to try things (income things) that I wish I would have tried at that age, like starting a business. The only thing that would push me to do that now would be losing my job, and that wouldn't be the rush I'd like.

That's not to say that you can't make a lot of money with stocks, but if that's what you're looking to do, really dig in and research them. You have the time. Whether the tide makes all boats rise or sink is a matter of timing the economy, but some of the companies will ride the waves. It takes time to find those more often than not.

Which blue chips are likely to ride the waves? I have no clue. But I'm not invested in them at the moment, so it doesn't matter. :)

Don't start by investing in a few individual companies. This is risky. Want an example? I'm thinking of a big company, say $120 billion or so, a household name, and good consistent dividends to boot. They were doing fairly well, and were generally busy trying to convince people that they were looking to the future with new environmentally friendly technologies. Then... they went and spilled a bunch of oil into the Gulf of Mexico. Yes, it wasn't a pretty picture if BP was one of five companies in your portfolio that day. Things would look a lot better if they were one of 500 or 5000 companies, though.

So. First, aim for diversification via mutual funds or ETFs. (I personally think you should probably start with the mutual funds: you avoid trading fees, for one thing. It's also easier to fit medium-sized dollar amounts into funds than into ETFs, even if you do get fee-free ETF trading. ETFs can get you better expense ratios, but the less money you have invested the less important that is.) Once you have a decent-sized portfolio - tens of thousands of dollars or so - then you can begin to consider holding stocks of individual companies.

Take note of fees, including trading fees / commissions. If you buy $2000 worth of stock and pay a $20 commission you're already down 1%. If you're holding a mutual fund or ETF, look at the expense ratio. The annualized real return on the stock market is about 4%. (A real return is after adjusting for inflation.) If your fee is 1%, that's about a quarter of your earnings, which is huge. And while it's easy for a mutual fund to outperform the market by 1% from time to time, it's really really hard to do it consistently.

Once you're looking at individual companies, you should do a lot of obnoxious boring stupid research and don't just buy the stock on the strength of its brand name. You'll be interested in a couple of metrics. The main one is probably the P/E ratio (price/earnings). If you take the inverse of this, you'll get the rate at which your investment is making you money (e.g. a P/E of 20 is 5%, a P/E of 10 is 10%). All else being equal, a lower P/E is a good thing: it means that you're buying the company's income really cheap. However, all else is seldom equal: if a stock is going for really cheap, it's usually because investors don't think that it's got much of a future. Earnings are not always consistent. There are a lot of other measures, like beta (correlation to the market overall: riskier volatile stocks have higher numbers), gross margins, price to unleveraged free cash flow, and stuff like that. Again, do the boring research, otherwise you're just playing games with your money.

Just don't buy any kind of paper and you will be fine :-)

And don't forget most of these 'blue-chip companies' sell marketing garbage which have no real market.

Finally, make all decissions slooooowly and after extensive research.

I'm 39 and have been investing since my very early 20's, and the advice I'd like to go back and give myself is the following:

1. Time is your friend
   Compounding interest is a powerful force and is probably the most important factor to how much money you are going to wind up with in the end. Save as much as you possibly can as early as you can. You have to run twice as hard to catch up if you start late, and you will still probably wind up with less in the end for the extra effort.

2. Don't invest 100% of your investment money
   It always bugged me to let my cash sit idle in an investment account because the niggling notion of inflation eating up my money and I felt I was wasting opportunity cost by not being fully invested in something. However, not having enough investable cash around to buy into the fire-sale dips in the market made me miss out on opportunities.

3. Diversify
   The dot.com bubble taught me this in a big, hairy painful way. I had this idea that as a technologist I really understood the tech bubble and fearlessly over-invested in Tech stocks. I just knew that I was on top of things as an "industry insider" and would know when to jump. Yeah. That didn't work out so well. I lost more than 6 figures, at least on paper. Diversification will attenuate the ups and downs somewhat and make the market a lot less scary in the long run.

4. Mind your expenses
   It took me years of paying huge full-service broker fees to realize that those clowns don't seem to do any better than anyone else at picking stocks. Even when they do, the transaction costs are a lead weight on your returns. The same holds true for mutual funds/ETFs. Shop for low expense ratios aggressively. It is really hard for a fund manager to consistently beat the indexes especially when you burden the returns with expense ratios that skim an extra 1% or so off the top. The expense ratio/broker fees are among the very few things that you can predict reliably when it comes to investments, take advantage of this knowledge.

5. Have an exit strategy for every investment
   People are emotional creatures. It is hard to be logical when you have skin in the game and most people aren't disciplined enough to just admit when they have a loser and bail out while they are in the red or conversely admit when they have a winner and take profits before the party is over. It helps to counteract this instinct to have an exit strategy for each investment you buy. That is, you will get out if it drops by x% or grows by y%. In fact, it is probably a good idea to just enter those sell limit orders right after you buy the investment so you don't have to convince yourself to press the eject button in the heat of a big move in the price of that investment.

   Don't try to predict tops or bottoms. They are extremely hard to guess and things often turn so fast that you can't act on them in time anyway. Get out of an investment when it has met your goal or is going to far in the wrong direction. If you find yourself saying "It has to come back eventually", slap yourself.

   When you are trying to decide whether to stay in the investment or bail, the most important question is "If I had the current cash value of the stock instead of shares, would I buy it today?" because essentially that is what you are doing when you stick with an investment.

6. Don't invest in fads
   When you are investing you become acutely sensitive to everyone's opinions on what investment is hot and what is not. If everyone is talking about a particular investment, avoid it. The more enthusiastic people are about it (even experts) the MORE you should avoid it. When everyone starts forming investment clubs at work and the stock market seems to be the preferred topic of conversation at every party you go to. Get out!

   I'm a big fan of contrarian investing. Take profits when it feels like all the momentum is going into the market, and buy in when everyone seems to be running for the doors.

1. You are your own worst enemy when it comes to investing.
   You might think that you can handle a lot of risk but when the market plummets you don't know exactly how you'll react.
   Many people panic and sell at the worst possible time, and that kills their returns. Will that be you? It's impossible to tell until it happens.
   Don't just invest in stocks. Put some of your money in bonds. For example TIPS, which are inflation adjusted treasury bonds (very safe, and the return is tied to the rate of inflation). That way, when the stock market falls, you'll have a back-stop and you'll be less likely to sell at the wrong time. A 50/50 stock/bond mix is probably reasonable. Some recommend your age in bonds, which for you means 20% or so. Personally I think 50/50 is better even at your young age.

2. Invest in broad market indexes, such as the S&P 500. Steer clear of individual stocks except for maybe 5-10% of your total. Individual stocks carry the risk of going out of business, such as Enron. Follow Warren Buffett's two rules of investing: a) Don't lose money b) See rule a).

3. Ignore the "investment porn" that is all around you in the form of TV shows and ads. Don't chase hot companies, sectors or countries.

4. Try to estimate what you'll need for retirement (if that's what your investing for) and don't take more risk than you need to.

5. Try to maintain a very simple portfolio that you'll be able to sleep well with. For example, check into the coffeehouse investor

6. Pay a visit to the Bogleheads Forum - you can ask for advice there and the advice will be excellent.

7. Avoid investments with high fees.

8. Get advice from a good fee-only investment advisor if needed.

9. Don't forget to enjoy some of your money now as well. You might not make it to retirement.

10. Read, read, read about investing and retirement. There are many excellent books out there, many of which you can pick up used (cheap) through amazon.com.

Consistently beating the market by picking stocks is hard. Professional fund managers can't really do it — and they get paid big bucks to try!

You can spend a lot of time researching and picking stocks, and you may find that you do a decent job. I found that, given the amount of money I had invested, even if I beat the market by a couple of points, I could earn more money by picking up some moonlighting gigs instead of spending all that time researching stocks. And I knew the odds were against me beating the market very often.

Different people will tell you that they have a sure-fire strategy that gets returns. The thing I wonder is: why are you selling the information to me rather than simply making money by executing on your strategy? If they're promising to beat the market by selling you their strategy, they've probably figured out that they're better off selling subscriptions than putting their own capital on the line.

I've found that it is easier to follow an asset allocation strategy. I have a target allocation that gives me fairly broad diversification. Nearly all of it is in ETFs. I rebalance a couple times a year if something is too far off the target. I check my portfolio when I get my quarterly statements.

Lastly, I have to echo JohnFx's statement about keeping some of your portfolio in cash. I was almost fully invested going into early 2001 and wished I had more cash to invest when everything tanked — lesson learned. In early 2003 when the DJIA dropped to around 8000 and everybody I talked to was saying how they had sold off chunks of their 401k in a panic and were staying out of stocks, I was able to push some of my uninvested cash into the market and gained ~25% in about a year. I try to avoid market timing, but when there's obvious panic or euphoria I might under- or over-allocate my cash position, respectively.

If you are going to the frenzy of individual stock picking, like almost everyone initially, I suggest you to write your plan to paper. Like, I want an orthogonal set of assets and limit single investments to 10%. If with such limitations the percentage of brokerage fees rise to unbearable large, you should not invest that way in the first hand.

You may find better to invest in already diversified fund, to skip stupid fees. There are screeners like in morningstar that allow you to see overlapping items in funds but in stocks it becomes trickier and much errorsome. I know you are going to the stock market frenzy, even if you are saying to want to be long-term or contrarian investor, most investors are convex, i.e. they follow their peers, despite it would better to be a concave investor (but as we know it can be hard).

If the last part confused you, fire up a spreadsheet and do a balance. It is a very motivating activity, really. You will immediately notice things important to you, not just to providers such as morningstar, but alert it may take some time.

And Bogleheads become to your rescue, ready spreadsheets here.

As a young investor, you should know that the big secret is that profitable long term investing is boring. It is not buying one day and selling the next and keeping very close tabs on your investments and jumping on the computer and going "Buy!", "Sell!". That makes brokers rich, but not you. So look at investments but not everyday and find something else that's exciting, whether it's dirt biking or WoW or competitive Python coding. As a 19 year old, you have a ton of time and you don't need to swing for the fences and make 50% or 30% or even 20% returns every year to do well. And you don't have to pick the best performing stocks, and if you do, you don't have to buy them at their lowest or sell them at their highest.

Go read The Random Walk Guide to Investing by Burton Malkiel and The Only Investment Guide You'll Ever Need by Andrew Tobias. Buy them at used bookstores because it's cheaper that way.

And if you want more excitement read You Can Be a Stock Market Genius by Joel Greenblatt, One Up on Wall Street by Peter Lynch, something by Warren Buffett, and if you want to be really whacked, read Fooled By Randomness by Nassim Nicholas Taleb, but never forget about Tobias and Malkiel. Invest a regular amount of money every month from 19 to 65 according to what they write and you'll be a wealthy guy by 65.

1. Risk and return always go hand in hand.*

2. Risk is a measure of expected return volatility.

3. The best investment at this stage is a good, easy to understand but thorough book on finance.

*Applies to efficient markets only.

You can't get much better advice for a young investor than from Warren Buffett. And his advice for investors young and old, is:

Put 10% of the cash in short‑term government bonds, and 90% in a very low‑cost S&P 500 index fund.

Or as he said at a different time:

Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees.

You are not going to beat the market, so just save as much money as you can, and invest it in something like a Vanguard no-load, low-cost mutual fund.

Picking individual stocks is fun, but treat it as fun. Never put in more money than you would waste on fun. Then any upside is pure gravy.

1. Cashflow is king - If the investment creates cashflow, you can sit there holding it as long as you need to while you wait for a good price to sell it.
2. Don't confuse the price of an asset with the value of that asset- The price is what people are willing to pay for an asset. The value is what it is actually worth. You make your money by exploiting that difference.
3. You make your profit when you buy, not when you sell- You make a profit by buying at a good price, not selling at a good price. If you are expecting to sell at a good price, you will be dependent on finding a bigger fool. But if you can find an asset that is undervalued and buy it at a good price, you have already made money, because even if the price settles out to a reasonable fair value, you still win.
4. Understand the difference between capital gains investments and cashflow investments- As stated in #1, cashflow is king. Cashflow puts food on the table and pays the rent. Thus, the one and only goal of investing is cashflow. But there are capital gains investments and cashflow investments. Capital gains investments, such as gold, stocks that don't pay dividends, etc., are investments for which the price must go up to make a profit. Cashflow investments, such as rental real estate, dividend paying stocks, and businesses, create income while also maintaining the possibility of capital gains. These are what you want. The only purpose of capital gains investments is to raise the cash for a bigger cashflow investment, such as a bigger apartment building, or another business.
5. Let your runners run, and cut your losses- Understand the time value of money. Money now is worth more than money in the future. Thus, if money isn't moving, it is losing. If the investment isn't creating cashflow and isn't increasing in value, get rid of it, because it is losing money.