If you decide that you want to buy stocks, the process doesn’t start by simply entering a ticker symbol and executing the trade. The process actually begins with research.
Unless you’re day trading or high-frequency trading, you probably want to get a handle on the various industries or sectors with tradable stocks within them. From retail to manufacturing, media to tech, there are numerous industries that have publicly traded companies within them. The reason you want to research the industry is to get a handle on the trends and buy stocks that you think are value priced now and have the ability to appreciate. This isn’t as likely to happen in an industry that’s depressed with no forecast of improvement.
After you’ve narrowed your industry choices down, it’s time to look at the performance of the individual public companies within those industries. There are a number of ways to approach this, and the way that you choose will depend on whether you prefer technical analysis or fundamental analysis, and what kind of trader you are. For example, a value trader might look at the company stock’s earnings and price and analyze the resulting price to earnings (P/E) ratio. If they find that the price is low compared to the company’s earnings, they may decide that the position is undersold, making it a solid buy if it’s in an industry with lots of growth potential.
Being a trendspotter is a valuable trait for investors. When you read the news, try to read between the lines and think about how the various stories will effect other industries, products and companies. Analyze this information and think about what it means about the growth potential of various stocks you’re thinking about investing in.
Stocks need to be bought in an account held by a brokerage. There are many different brokerages to choose from. Some are discount brokerages with low commission fees but few bells and whistles while others are high-end firms with lots of opportunity for hand-holding and personal advice. Choose the firm that’s right for you and your personal investing and trading needs and be sure to consider the impact of commissions on the profits you’re trying to gain.
Once you’ve done all your research and chosen a brokerage, it’s time to actually purchase stocks. You will want to make sure you create a well-diversified portfolio with many different industries and types of companies so that if one sector experiences an unexpected drop in business, your entire portfolio won’t crumble. You’ll also need to think about how much risk you want to take on with each individual position, meaning how many shares of each stock to buy.
Buying stocks can open up an entirely new opportunity for asset accumulation, growth and income. However it’s not something that should be taken lightly. Choosing the wrong stocks or making uninformed choices based on spurious tips you’ve read online can take money directly out of your savings and put it in the pocket of another, better-prepared investor. Do your research, find the right brokerage, and trade stocks with confidence.