How to buy stocks: a complete guide for beginners

Choosing stocks is a lot like buying a car. When you buy a car, you can’t just pick the first one that’s the right color, you need to know that. You want to check under the hood, or at least kick the tires. If you don’t know about cars, bring your brother or your dad or someone who knows. Most importantly, you take your time. If you’re not sure about the mileage or the sound of the exhaust, let it go and wait for a better offer. It’s no different when you choose stocks.

The first thing you need before buying stock in a company is a stock trading account. For this, you need a broker. If this is your first time, I recommend using a discount broker. This type of broker will process your buy and sell orders, and little else. Where do you go to find a stockbroker? Try your bank. There may be other less expensive options, but your bank is a place where you feel comfortable and know how it works. Chances are, if you have an account there, they can help you start a stock trading account easily and cheaply. I trade stocks using online banking.

For your first purchase, you want to buy what you know. Look at 3 companies that you like: companies that you have bought things from or where you know people. Take a newspaper and write these four things:

• Price– If the shares cost $500 each, you might want to skip this one for now.
• Movement of the Year (YM)

– This is how much the stock value grew last year, and a pretty good indication of what the company will try to outperform this year.


• Dividend Yield (DY)

– It is a percentage of the value of each share that the company pays to shareholders each year. Some stocks don’t pay dividends, but make up for it with more growth (if the company doesn’t pay shareholders, you can spend that money on making the company more valuable).


• Price/Earnings (EP)

– This is simply the share price divided by how much the company earned in this fiscal year. This figure can be misleading depending on the current phase of the fiscal year, but basically a low P/E ratio means that the company’s stock is correctly valued for the amount of money the company makes.

Either that or the stock is undervalued and could soar at any moment. If the ratio is high, it means the company has a lot of projected growth, but little actual profit so far. This was common during the “Internet bubble,” when companies had great prospects but hadn’t yet made any money.

Once you have these, it’s time to look at some charts. Go to the company’s website and click on “Investor Relations.” Download everything and look at the graphs of its stock price and dividend payments for the last year, years 3 and years 5. Now read the newspaper. Not the front cover, the boring bits on the back cover about money. Most of these articles are fairly easy to read, and reading them for a few weeks will give you a pretty good idea of ​​what’s going on in the world of high finance.

Choosing stocks is more than knowing the company. It is about knowing what is happening in the world that will affect the company. Now is the time to decide on your goals and make a purchase case. First, write down what you want from your investment. Do you want to accumulate capital in 10 years, or do you want to double your money in a year, but at the risk of losing half? If you are the former, then you are a growth investor. Otherwise, you are a value investor. You may be somewhere in the middle, but since this is a first time purchase, it would be a good exercise to choose stocks according to a strict investment philosophy.

Now your buy case: This is an argument for and against buying stock. In it you need to write:

• What is happening in the company regarding new business, new directors, new companies, new debt, new acquisitions/sales of subsidiaries, etc.
• What’s going on in the world that could affect the company’s ability to make money
• The worst thing you can imagine happening. Think of the one thing that would cause your company’s stock to crash more than anything else.
• All the pessimistic ideas that you can think of why you should not buy this stock.
• Why do you think now is a good time to buy shares of this company?

Lastly, before you buy stocks, ask people. Ask someone who works for the company or ask an investment advisor, even if you have to pay them. If there is even one factor you haven’t considered, your entire stock trading experience could be very painful.

Remember, buying stocks is not gambling if you know the rules. Understand your risks and don’t take any you can’t afford. Avoid start-ups for a first investment: save riskier stocks for when you’re more confident.