Joe: Maybe my answer would surprise you, but I only use grade 8 math when it comes to investing: addition, substraction, multiplication, and division. I know that many people are firm believers of technical analysis. However, the stock market is a battlefield. There is no free lunch for everybody. When one gains, another has to lose. So when I think about the presence of smartest and brightest people on Wall Street with supercomputers screaming around them 24 hours with non-stop streaming data from all over the world, I know that my intelligence and resources are way too limited to reap significant profits using technical analysis.

Perhaps my investment philosophy is simpler than you might think. I keep up-to-date with the news everyday, invest in stocks with good fundamentals in growing markets, and subscribe to www.fool.com for a list of recommendations. All the mathematical calculations and complex analysis I leave it to the expert analysts to decipher, and I am willing to pay a fee to have access to all that information that would've taken me days or even weeks to compile.

I know some people are into day-trading, and they sit in front of their computers all days and everyday in hope of benefiting from the +0.50 or +1.00 incremental profits. Frankly, that is not my style and it is way too time-consuming. So, instead of "micro"-managing stocks to determine the exact optimal time to buy/sell a stock down to the second, I tend to "macro"-manage stocks.

So, in response to your question, the accounting skills I am learning now in school are far more useful than the math skills I learned in Electrical Engineering. Balance sheets, income statements, cash flows, costing methods... these are the things that I use to compile portfolio, not vector calculus or 10-dimensional matrices.

To John's friend: thanks for your long and thoughtful comment.

Your thoughts about starting up a business and its potentials to generate $ being far superior to working a day-job coincide with mine. If you ask John, you would know that my eventual goal is to start a business.

Perhaps I made it sound as if I root for the ideas of quitting one's job and solely focusing on investing, or day-trading. I agree with your points about opportunity costs, capital gains tax, and brokerage commissions; that is why I do not day-trade. The difference between investing and day-trading is that, in the former I would select stocks with which I view every downside as a buying opportunity rather than a misfortune, because I know they have the right fundamentals to rise again. I know that, instead of a signal to sell, these price drops are in fact value discounts offered to me by the market, similar to the Boxing Day sales that you see in retail stores. Day-trading, however, is a different entity altogether. It is time-consuming, expensive, and risky, because a downside in these stocks would mean a signal to stop loss and sell. I hope I have made it clear that, day-trading is not my cup of tea.

For example, take Royal Bank (RY: tsx) and Baidu (BIDU: nyse). The former is an investment type stock, while the latter is a day-trading stock. With RY, it consistently rose from $6x to $90 now, amounting to a 30%+ growth per year. As I am sure you know, RY also offers around 3% dividend year on top of that, and it is a blue-chip financial institution that dominates the entire Canada along with the other Big 5 banks. 30%+ growth far exceeds anything that any mutual funds can offer, perhaps with the exception of the Energy Fund this year. But then again, in 2005 if you bought any med or large cap oil stocks you would've made a killing anyway.

Baidu, on the other hand, is the kind of stock that fits your three categories: requires high transaction fees, generates capital gains, and very time-consuming to monitor its movements. That is why I do not touch it.

It makes sense that diversification prevents one to put all eggs in one basket, so when the market goes wrong one would not get entirely screwed. But, there are certain sectors that do not call for the need to diversify on the tse, such as the aforementioned Royal Bank. However, disasters like CIBC in the Enron lawsuit do happen from time to time, and that is precisely why I keep myself up to date with current news to recognize dangers looming in the horizon. If one diversifies excessively, he would most likely generate merely moderate returns. That is why, I do not contribute my hard-earned dollars to mutual funds. Instead, I attempt to track the actions of mutual funds due to their influence on the market, and act accordingly to my maximum benefit.

Now, all these things are done so that the capital will be there when I start a business. When one owns a business, certainly he would benefit from the perks: tax credits due to expenses, flexibility of work hours (tho being a boss, some say, is a 24-hour job)... etc.

And at the end of the day, that is truly the best way to become wealthy. It would be even better to be able to find something in which one is genuinely interested and make money from that, because making big dollars at the expense of happiness is far from being a good cause.

Pretty much :P... j/k...
I like this post as well, including john's friends response. I think though, that you're both correct on some issues... obviously you're more knowledgeable than I am. You have to actually have a good sum of money to get started, that's a given. If you're going Williams' way, how much is one share/stock of royal bank? Sure, banks are your best bet, and the safest (unless the aforementioned scandals occur).

"You have to actually have a good sum of money to get started, that's a given. If you're going Williams' way, how much is one share/stock of royal bank?"

Royal Bank share is $88 / share. And in response to your comment that you need lots of money to get started, my answer to you is: STOCK OPTIONS. Limited risk, but the potential gain is several times the money you put in initially. So now this is no longer a valid excuse for you to stay away from stocks.