The first link above gives a somewhat complicated approach. There's a simpler way to make ferromud here on Youtube. You just mix some olive oil and some fine iron powder like the stuff you can get at a welding supply shop. (Apparently a true ferrofluid uses ferrous materials ground into nanoparticles, so this coarser stuff is really ferromud.) There's also an excellent information source and list of different ferromud-making guides on the personal site of a guy named Dan. And, of course, you could just buy some.
Here's how to make a ferrofluid. A recent post on a certain blue filter you may have heard of was deleted because the poster fell for a hoax, seriously linking to a video that purports to explain how to make a ferrofluid at home