Stock investing is easy to get into. Many people seem to think stock investing is only for the rich. That is wrong! Anyone can be involved in stock investing. Some people seem to think that stock investing involves sitting at a ticker, buying and selling all day long. That’s not stock investing. That is stock trading. Stock trading is more like gambling than investing.
The first thing you to do to become active in stock investing is to set up a brokerage account. Getting one of these is no more difficult than getting bank account. I recommend finding an online broker. I use BuyAndHold.com, but they are many online stock brokerage. Just try to find a reputable online broker.
You will probably need to send them some money to start off with, to cover your first trades. You might be able to start off with $250, or $500. Some brokerages have minimum starting balance requirements.
Once the money is in your account, you are ready to start.
My stock picking strategy is this. I think of all the companies that I regularly do business with, or who’s products I use, etc. Grocery stores, soft drink manufacturers, banks, online stores, brick and mortar stores, service providers, etc. I make a list of them in a little notebook. Then I go to Yahoo Finance, and do a symbol lookup. I write the stock symbols next to the company names. Not all company’s have stock symbols. Some are privately owned.
Once I have gather a list of companies and their symbols, I think of which ones will are industry leaders. Coke and Pepsi would both be industry leaders, but RC Cola would not be. Try find which companies on your list are head and shoulders above their competitors. Which companies will likely be around in 10 years? Which companies will still be industry leaders 10 years? Google is the current search engine leader, but 10 years ago, the didn’t even exist. Alta Vista was the industry leader then, now where are they?
Once you have narrowed the list down to industry leaders that will likely still be industry leaders in 10 years, it’s time to research them. Go again to Yahoo Finance, and get a stock quote for the company. We really don’t care about the stock price at this point. Look at the P/E ratio. Is it 10? 20? 30? The lower the number the better. If a company has a P/E ratio of 40, that means that at current earnings, it will take 40 years to earn enough to match what the stock is selling for. Thats a long time.
Click on key statistics. Look at the PEG Ratio. If this is below 1, the stock MIGHT be undervalued. If it is significantly over 1, it MIGHT be overvalued. A Return on Equity above 20 is good. A Qtrly Earnings Growth of 15% or higher is good. A Qtrly Revenue Growth of 15% or higher is good. The higher the % Held by Insiders, the better. I also look at the charts for various lengths of time, and compare it to the S&P 500. I try to get as much information on the companies as possible. If I think the company has good long term prospects, and is currently solid, and I like the company, then I will seriously consider it for stock investing. Don’t just invest in a single company either. It is dangerous to invest in too few companies. It is also bad to invest in too many companies. I have read that maybe 10-20 companies in a variety of industries. Make sure you are well diversified. Investing in Intel, Dell, Microsoft, and CompUSA may be a variety, but it is NOT diversified! You would be too tied to a single product type (computers).
I some lessons the hard way. I don’t invest in companies when they are down, hoping they will come back. When I have done this, I have ended up losing my money. More and more
When it comes to stock investing, take your time. Don’t be in a rush to invest in a company. Don’t react to every piece of news. Find the companies that you like that have number indicating solid growth potential, and invest in them. Keep adding to your position in these stocks over time. You are in it for the long haul. Buy stocks that you would feel comfortable owning if you were away for 10 years. If there are any doubts as to whether the company will be there and still competitive in 10 years, then keep looking. There are literally thousands of companies out there. And there are always funds! More and more I find myself switching to exchange traded funds.
Have fun stock investing!