The first step is to learn how to buy a stock. Many investors jump right in learning investment strategies and adopting techniques that worked for others, before learning the simple steps to buying a stock. Without a good understanding of the rules of buying a stock, it becomes impossible to make the strategies work.
The strategies do work but only when the investor chooses the right stocks for their own portfolios. The strategies do not tell investors what to buy and when to sell. They are only meant to tell investors how to manage their stocks. First, the investor must buy some stocks.
Step #1: Read the Wall Street Journal
The Wall Street Journal is not the only paper that can help investors. The business section of your local paper can often offer tips that will never make it into the Wall Street Journal. However, The Journal can teach new investors the lingo, and the basics of the markets. The more you read, the more familiar the markets become, and the easier it is to research stocks.
Step #2: Pick Industries
No one expects an investor to build a portfolio with a few stocks from mining, a couple from manufacturing, a drug developing company, a foreign natural resource harvester, and a marine biology firm. This is foolish investing. Instead, investors should focus on one or two industries and learn everything they can about that industry.
There are many places to research. Sometimes a simple place like finance.yahoo.com or Morningstar.com can provide all the resources needed to find an industry you will not tire of.
Step #3: Decide How Much to Invest
This is one of the hardest parts of investing. Many people have a set amount to invest. They experience some success and hit ?pay load.? Then the temptation sets in. If they had invested $10 000 instead of $1 000, their payoff would have been 10x higher. What if they had of invested $100 000? This type of thinking is dangerous.
Never invest more than you can lose is a nice mantra, but in the real world, resisting temptation is much harder. As the years past, some investors start counting up the intangible money they ?may have? earned if they invested more. This leads to frustration instead of joy when a stock does well.
Eventually, they start investing more than they can afford to lose. Then, they lose it -
Step #4: Avoid the Crowd
Some new investors believe the best way to buy a stock is buy whatever is ?hot? at the moment. They skip through websites and financial papers until they find something that is ?hot.? Unfortunately for them, they have not yet met the Bull or the Bear.
Buying hot stocks is only for people who are able to determine why that particular stock is hot at the moment. Buying on an impulse or gut feeling is just as dangerous. By the time a stock is hot, the ?real? investors have already bailed, having made their money, and are leaving before the crash.
These four steps will help a new investor buy a stock which should perform well, instead of buying a stock that bottoms out within a few weeks.
If you're looking for a quick explanation of how to pick the perfect stocks and see returns immediately, you won't find one. It does take time, and it does take research. But this is why many people also enlist the services of a stock broker who can advise them when to buy and when to sell, and in what quantity.
One good starting point for investing is looking around at the products that are popular, the ones you like to use, and the ones you believe have potential moving forward into the future. The companies that make those products are likely to do well and are worth investing in.
However, it is not guaranteed that this simple approach will work. Contrary to your instinct, not all companies that make good products are on the rise at every given moment. The last things you want to do are randomly or flippantly picking stocks that ?might? do well. You need to investigate, and there are systematic ways of doing so.
One way to find out more about a company's financial history and patterns is to visit their website or contact their investor relations division. What you need to look for (or ask for) is the company's 10Q (quarterly), DEF 14A (proxy statement), and 10K (annual) documents. These are released freely to the public and you can look them over at any time. In these documents, you will not only learn the financial status of the company, but also its plans and approach.
Once you have established the overall outlook of how a company is doing business (management strategies, future plans, etc.) you are in a better position to determine the growth potential of their stocks. At some point it does become a judgment call, but it should be an educated ?guess? (to use the term loosely), not a mere unqualified speculation.
On an everyday basis, you'll need to keep tabs on your stocks and see how they are performing. Are they doing as well as you were hoping they would? If not, perhaps you made the wrong decision. That doesn't mean sell right away, unless you believe they will be declining at an alarming rate for some reason (such as a sudden burst of bad PR in the news).
Another attribute to look for in a company before investing is whether they are strong in terms of competition. Look around at other companies who do the same thing they do, or something similar. How do they compare? If the company you're considering investing in has a history of being overshadowed by a particular competitor, maybe it's time to invest in the competitor instead!
Watch financial news and read publications each day to stay abreast of what is happening, not just with your stocks but with all stocks (especially those pertaining to your industry of interest). Remember the risk involved with investing, that you can lose money! So never invest more than you are willing and able to lose without damaging your personal finances or your family's well-being. That should come as common sense, but you'd be surprised!
Both Mark Walters & Gabriel Adams are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Mark Walters has sinced written about articles on various topics from Marketing, Modelling and Real Estate. Mark Walters is a third generation entrepreneur and author. He offers free training and investing videos designed to speed you towards financial independence at. Mark Walters's top article generates over 90500 views. to your Favourites.