Stock Market Investment Basics

I spent about a year and a half reading all the great books of stock and bonds investing. I was not trying to be a stock or bond guy. Rather, I noticed that each of the various investment fields including gambling and insurance had strengths and weaknesses. 

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My main field is real estate investment by mom and pop millionaires. That is, not institutional real estate (Trump stuff). Real estate investors suck at risk management. Stock and bonds guys are better at it and insurance is great at it. Real estate is great at letting you manage the business.

Behavioral economics

One if the great books on investing is by Daniel Kahneman. He and Amos Tversky invented behavioral economics. My most recent book, the American Principal Residence Is The Most Advantaged Investment on Earth: Maximize Yours, has a chapter on behavioral economics, which is mainly being aware of your own stupid biases to make sure you are not screwed up by them.
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https://johntreed.com/collections/real-estate-investment/products/an-american-principal-residence-is-the-most-advantaged-investment-on-earth-maximize-yours
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One is people value what they own, like a share of Nvidia, more than an identical share of Nvidia that they could buy. Dopey.
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One of Kahneman's observations is we would all be better investors if we just made fewer decisions. The index fund greats like Warren Buffett and John Bogle restate it as buy an index fund then forget about it. Do not look at it every day to see what it is worth. Kahneman invested in index funds.

Diversification

Another big principle is diversification. Do not put all your eggs in one basket. Lack of diversification implies you can predict stock or bond prices. No one can. Lack of diversification means your net worth will probably fluctuate more wildly. Higher highs and lower lows.
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A 1985 book, The Stock Market Theories and Evidence by Lorie, Dodd, and Kimpton, said most of the value from diversification comes from the first 15 or 20 different stocks. If the acquisition and/or management fees of the index fund increase as you add more and more stocks, you can have too much diversification because the additional costs of operating the fund exceed the benefits of the diversification.
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Unless you are so rich that lower lows are irrelevant to your happiness and financial health, you should not be risking lower lows. Investing for most of us is not a parlor game like crossword puzzles. It is possibly losing your life savings.
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I am annoyed at so-called financial planners regarding diversification. They seem to think the only diversification that matters is among securities that you can buy from licensed securities dealers. What about your home, which is the MAIN financial asset for seniors who do not have 401(k)s? And commodities? They are an uncorrelated asset to a large extent. Their values move in relation to US inflation, other commodities, economic growth. But the only way licensed securities dealers understand commodities is a futures options. Bull! Take delivery and own and store bullion coins. They will protect your from USD inflation. Do NOT buy commodity futures contracts. They expire, They are risky. They are complex.

No bonds

Professional investment advisers say you should have part of your savings in bonds and the older you get, the higher your percentage of your net worth should be in bonds.

That is total bulls***. It is pre-1929 advice. When the Depression started, the U.S. debt-to-GDP ratio was 17%. US bonds turned out to be one of the best things to own in the Great Depression. Also US Postal Savings Accounts (which no longer exist).
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No more. Today, the U.S. debt-to-GDP ratio is 124%, the record highest it has ever been. The U.S. government is daring America and the world to start refusing to accept U.S. Dollars. I expect America and the world will do just that. That is called hyperinflation. The most famous was in Germany, Austria, and Hungary in 1921-1923. Wheelbarrows full of paper German marks were needed to buy a small bag of groceries.
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Who suffered the most during that hyperinflation? seniors who owned government bonds, who were on pensions, and non-profit institutions who held their endowment in the form of government bonds.

Uncorrelated asset diversification

Combining uncorrelated assets to diversify portfolios lets you reduce your exposure to the risks inherent in certain assets and smooth out fluctuations in your portfolio as a whole. This strategy lets you mitigate risk and therefore get a more smooth and stable performance. 
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Correlation between assets can change over time so you have to reexamine if periodically.
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Malkiel’s recommendation
Malkiel’s stock recommendation: 82% top 50 US and 18% top 50 international

The Efficient Market Hypothesis

I have been assuming readers are well aware of the efficient market hypothesis (EMH) underlying the advice to only buy index funds in the stock market. That is very Harvard MBA of me. There, where I first heard about it, everyone knows what it means.
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EMH says that there is no point using analysis to predict stock prices, because the zillion-person world market instantly reacts to relevant information about each stock and drives the price up or down accordingly.
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Also, there is the issue of whether a stock is “good” or “bad.”
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“At what price?” is the only sensible answer.
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That is why I discuss gold, silver, and nickel in terms of their long-term average real price. Real means adjusted for inflation. Gold is currently way over priced; silver somewhat over priced, and nickel not overpriced.
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One book I read about gold said it is impossible to overpay for gold. He’s nuts.
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It is relatively easy to look at the fundamentals of a stock, current earnings, likely future earnings, sales, new products. And easy to make forecasts of future fundamentals. But the fact that such metrics indicate that the corporation will continue to be profitable does NOT mean that it is a good idea to buy that stock now. It may be, and often is, true that the price has been bid up so high that although it is a good company, its stock is NOT a good investment.
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Many, maybe most, Main Street stock market investors run around trying to jump on various overcrowded band wagons like AI and Internet and EVs. This is childish nonsense and the road to lower net worth and loss of savings.
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Put 82% of your stock money into an index fund of the top 50 (market cap) corporations, like XLG and 18% into an index fund of the top 50 foreign corporations, like FEZ. That is my interpretation of Burton Malkiel’s advice in his most recent edition of his classic book A Random Walk Down Wall Street. (page 202 hardcover 50th anniversary edition).

Depression

Stock pushers are fond of claiming the S&P 500 averaged 12% annual return or some such in the 20th century. I am not going to check that. It’s too hard. For one thing, the S&P 500 changes to get rid of the bad stocks in hindsight. That is a bit of nonsense called survivor bias. If you just look at the stocks that stay in the S&P 500, it looks like it earned a higher return than it did.

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I will tell you something the stock market did in the 20th century: fell 95% from 1929 to 1932. They did not have index funds then. But if they did they would have fallen 95%. AT&T did the best then. They only lost 75% of value.
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Can you protect yourself from that? Yes, by diversification of your entire net worth into things like your home, foreign currency, bullion coins. The thing to own in the Depression was US government bonds as mentioned above. But that was because the debt-to-GDP ratio in 1929 was 17%. Now it is 125%. 

ESG?

Can you do well by doing good?  In other words, is investing in stocks chosen for their purported virtue signaling about their Environment, Social, and Governance good not only for society but also likely to earn you a higher return?

No.

For one thing, the various organizations that rate corporations with regard to ESG cannot agree on which are good on ESG. 
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DSI is the only ESG fund with a long track record. It produced a lower return rate than Vanguard Total Stock Market Index which invested in all stocks regardless of how much they sucked up to liberals.