How Do I Buy Stocks And Shares?

A Four Step Guide For Beginners

For many people the thought of buying into stocks and shares is incredibly daunting but for those with strong hearts and courage, buying your first stock is easier and quicker than it’s ever been before (although there are still some inherent risks associated with this method of making money).
If this is the first time you are looking into doing this, and consider yourself a first time investor, then you will need to thoroughly prepare yourself both mentally and academically (i.e. studying and learning) for the journey into the volatile markets before you go diving straight in.

Now I appreciate you may be quite excited at the prospect of easy money, or the fact that once an investment has been chosen and purchased you just sit back and see if your decision making was all good, and this is all positive, but hold back on those tingly feelings and realise that things can be equally devastating.

This introductory beginners article basically explains everything in four easy to follow steps to help you get going – sound ok?

You are going to learn how to buy stocks, selecting the right stock, and finally through to making the transaction itself.

Back in the olden stuffy days you would have needed access to a stockbroker and a reputable printed paper to advise on stock picks, but these days there is a huge plethora of informative fully loaded websites that can give as much information as you will ever need.
(In fact it can be a minefield knowing which one is best, but that’s another story!)

There is also a huge range of websites that claim to know everything but sadly are misinformed too, so beware is the motto of the day!

They are often well written, professionally produced and look really slick – so they often do convince people they are genuine, this is why it’s important that you really understand and know where to begin and start.

Step 1: Selecting Your Stocks

The first rule is to remember this magical phrase: there is no such thing as a sure bet.

Honestly.

You will be overloaded with people, websites and newsletters all claiming that the next best stock pick is the one they have got information on.

Only a very few totally unbiased, and reliable sources and publications really exist.

The Wall Street Journal is probably the only major source that is widely respected and trusted for market news and analysis.  In the United Kingdom, the Financial Times is the most respected.
Another well known website is called the Motley Fool and a lot of budding investors enjoy using the site due to the fact it’s unbiased and believes most investors are capable of making their own decisions – probably a wise move!

Visit Stockscouter – a service offered by MSN money. It’s a regular financial blog that can rank various stocks for you, identify top ones and even runs an ongoing portfolio that you can trade along to if you wish.

Keep your ears and eyes open for new trends. Often when banks have big news, or new companies come out with innovative products their stock prices can change dramatically one way or another.

It’s worth using services like Google news to keep up to date. You can set up a Google news alert which will send you an email whenever an article or news item comes in relating to whatever phrase you type in to the alert system. This is a great source.

Step 2: It’s Time To Analyse Your Stocks

Yep, this is the section that requires some effort and due diligence on your behalf. I understand you would rather have the easy way, but there is no quick way to profits.
The real road to profits is laid out for those who are prepared to grab the bull by the horns.
So, you should by now have picked out 2 or 3 possible choices. Now that there is the possibility of you investing some of your own money, I hope you can stay motivated enough to ensure you do proper and thorough research.
You can do your own analysis, which is the best option(as it teaches you more about it) or you can rely on third part analysis undertaken.

You can actually combine both of them to come to your own decision later on. For now though I’d recommend you do your own analysis and then compare your findings with those of others.

Initially I’d suggest you make some additional reading a high priority.
Take a look at an introductory guide written on the motley fool website or use the Yahoo! Finance stock tracking service which again, is a better way of learning.

Go to the Yahoo! Finance website, and enter the company name in the field labeled “Get Quotes”.

Write down the stock ticker symbol, a 4 letter abbreviation.

Write down the price of one share of this stock. Its current price will be listed as “Last Trade”.

Looking at this stock price, you can use this to work out if it is a suitable stock to work into your own personal budget.

You don’t want to buy stocks at $40 each when you only have $30 to invest, for example.

If you look at the change field you can see how much it lost or gained on this trading day.

Click on the chart or graph on the right hand side. You can then take a look at the chart to get a visual picture of what the stock has done on this day. The chart also has options at the bottom to review this stock over different time periods. For instance, is the stock on its way down or up?

Be sure to take a good note of the stock’s one year “target estimate” (which is displayed as: 1y Target Est. on the bottom left).

This figure reflects the price of individual stocks, as projected by market analysts, for one share, one year from now.  Please remember though that this is not always accurate, and is based on a mathematicallypredicted
value.  Market analysts can often be wrong!

The “Price/Earnings ratio” (displayed as: P/E)
The P/E ratio is another tool you can use to help gauge what is worthy of investing in compared to what is not. It’s used to project the possible earning potential of shares in your chosen stock. In other words it’s a sort of estimate of its “bang for the buck” based on its current market price shown.
If your stock is showing a high P/E ratio, it is suggesting that investors are expecting higher growth in the future compared to companies displaying a lower P/E ratio.

Reading Third-Party Stock Analyses
As mentioned earlier, it is vital that you actually get yourself immersed yourself and refer to other peoples opinions as an after thought that may aid you in a final purchase decision.  Refer to the main places that people trust in primarily, like the Wall Street Journal, the Financial Times etc, and a few reputable online sources like Forbes etc.

Step 3: Decide How to Invest

You can choose to invest direct with the company or through a broker. There are two types of broker – a full service broker and a discount broker.  As long as you stick to trusted sources you will be ok. Sometimes, sadly, there are some unscrupulous companies out there who claim to be brokers, and are actually scam artists who will gladly take your money and not even invest it!

Full Service Brokerage
This is the easiest hands-off option that anyone could undertake, but be warned, it costs money and can be expensive! Its suitable if you have little time and a lot of money to invest.  You will get professional personal brokers assigned to deal with your money and do all they can to grow it for you. The will often advise and help with many other financial items too.

Sadly though it’s likely that you will pay often $150 or so per transaction so choose wisely!  Plus the brokers are often on a commission basis, so sometimes their advice could be biased if it means they will earn more money out of the deal.

Just look on Yahoo’s directory listings or search for recommended services in printed publications or from reputable sources.
Discount Brokerage
Basically these are simplistic brokers like Scotttrade who offer written advice articles and the ability to buy and trade yourself.
You will also be given access to various software tools designed to assist you. At the end of the day, the better their service is to you, the more likely you are to stay using them, so they make more in the long term.

Competition for your business between discounted brokers is fierce!

You will save money per transaction as their commissions are very small in comparison to a full service broker.  Also the minimum amount needed to invest is also smaller.  Great for most people who want to learn it all for themselves!

The downside is that of course, you really need to ensure you are at the top of your game, and set up systems to ensure your money is protected.

Having A Direct Investment Plan
As mentioned earlier, you could invest directly with businesses, but it is quite rare to do so now.  Relatively few companies offer this option and very few investors know about it.

The good points are that your transaction costs are going to be very cheap, as there is no “middle man” or broker to take their cut.

The downside is that hardly any companies do this, and this could impose limits on your ability to pick good stocks.

Step 4: Invest

Well hopefully by now you’ve done ALL your research. I mean it. If you haven’t then don’t make any rash decisions.

Countless people have literally wiped out their savings overnight when making poor decisions.

If you’re still not sure then study more before you invest. Paper trade – i.e. make pretend trades and track how much you would have made. This is always an eye opener, and often proves how things can go wrong!
Invest only 5% of your allocated money, and try it for 2-3 months before investing any more. This way, as your confidence increases you can increase your funding.

Why wipe out 100% of your money when you can get away with wiping out just 5% if your decision was wrong?

For an incredibly good guide / system to follow, I recommend you take a closer look at Secrets Of Successful Traders.  They ahve got an enviable profit record and I think the information will be a usefuil addition in your quest to financial security.