So You Want to Invest in Stocks? 2 Things to Consider When Getting Started

Investing is such a broad subject with many layers, which is what makes it scary and confusing for many. There are various kinds of investments (stocks, mutual funds, real estate, insurance, commodities, precious metals) and individual stocks are just the tip of the iceberg. There are also different kinds of investment strategies, buy, hold, and pray (long term), buy and sell (trade), option buying and selling (trade) and the strategy you choose depends on your goals and risk tolerance. No one is an expert on everything and investing means different things to different people. The problem most people have is taking the plunge and getting started. I have always been a fan of baptism by fire. Sometimes there’s nothing to it, but to do it. Unfortunately, when it comes to the stock market there are so many ways to lose and only a few ways to win.

Two questions most people have when getting started are: Where do I buy stocks? What do I buy?

1. Where do I buy stocks?

When you are ready to take action and start investing in stocks, you must first choose a broker/brokerage house such as E-trade, TD Ameritrade, Sharebuilder, TradeKing, Scottrade, etc. I choose based on price per trade and required account minimums, among other things.

My favorite online broker is Sharebuilder. I find it to be very easy and affordable and there are no account minimums. Once you have opened a new individual share builder account you can make a one time manual investment which is $6.95 per trade or you can set up automatic investments for a fixed dollar amount for $3.95 per trade(recommended once you know what you want to invest in regularly). You can buy as many or as little shares as you choose, but the more the better. Keep in mind that you are paying each time you place an order. For example, buying one share of Apple stock will cost you the same $6.95 as buying 50 shares at once, therefore it is cheaper to buy as many shares as you can. If you can only invest a small amount that is ok but you may want to consider making weekly automatic transfers from your bank account into your brokerage account and then once you have enough to buy multiple shares, take the plunge.

2. What do I buy?

Determine where you will invest. There’s a lot of research that goes into deciding what to invest in. I prefer a “buy what you know” strategy in the beginning. This simply means that I begin by investing in industries and companies that I am familiar with. Buying individual stocks can be fun and is one of a plethora of wealth building tactics but it is also very risky. Be careful not to invest in too many individual stocks. Choose 1 to 5 per year and continuously invest in those and watch those. Start by making a list of the industries that interest you. My favorites are Biotechnology, Household & Personal Products, Pharmaceuticals, and REITs (Real estate stocks). There are MANY different industries to choose from.

Before I choose a stock I evaluate the company. I also ask myself “are people likely to continue buying what this company offers? why?” and “will investors always want to invest in this company?” If the answer is yes then I may have a company that will do well long term. As you start to invest, a simple trip to the mall becomes a probing experience because you begin to pay attention to which stores have the longest lines and are able to pick up great stock ideas that way. For example, the Apple Store, Teavana and Starbucks always have lines that wrap outside the store when I visit my favorite mall. Oprah just partnered with Teavana to offer her own chai tea. Teavana is a Starbucks company therefore the partnership could have a very positive effect on the company and positively impact Starbucks’ stock performance. I know from observance that these companies are making money. A company that makes money can make me money especially if they are making money off me.

Instead of running out and buying the hottest handbag or pair of shoes, start looking into the companies behind these goods. Who are their customers? Are those customers likely to continue to buy? How well are these companies performing in the market? What other products and developments does this company having coming down the pipeline? Remember, urban dollars brought the True Religion brand back from the brink of collapse YET very few of those dollars went toward buying the underlying stock as opposed to buying the $300 jeans.

Pondering these types of questions and scenarios helps you to choose which stock ideas you invest in. Building your stock portfolio is really about building a portfolio of IDEAS. Find your own ideas, research them and make a move. Don’t just choose a stock because it is a hot topic or because someone told you to. It is imperative that you do your own research and make purchases that you can explain because after all, this is YOUR money on the line.

Until Next Time!

-@YourFaveRPh