There are two ways to purchase stocks: either through a stockbroker or by directly buying shares from select public companies. A stockbroker is a licensed professional who can execute buy and sell orders on your behalf, providing you with access to a range of investment options and expert advice. On the other hand, some public companies allow you to purchase shares directly from them, bypassing the need for a broker. However, it’s important to research and understand the risks and benefits of each method before making a decision. Additionally, it’s essential to have a clear understanding of the stock market and investing basics to make informed decisions and achieve your financial goals.
Before you can begin investing in stocks, you’ll need to establish a brokerage account. This process typically takes about 15 minutes and involves completing an online application with a brokerage firm. Once you’ve created your account and added funds, you’ll be ready to start investing. To purchase stocks, you can conduct research to find companies that align with your investment goals, and then make your selection through your brokerage platform. From there, you can invest in individual companies by placing buy orders through your brokerage account. It’s important to note that investing in individual stocks carries risks, and it’s crucial to conduct thorough research and consult with a financial professional before making any investment decisions.
Although the process may appear complicated initially, purchasing stocks is actually quite simple and easy to understand.
STEP 1: SELECT A STOCKBROKER
To purchase stocks, the simplest method is to use an online stockbroker. With this option, you can easily buy stocks through the broker’s website in just a few minutes after creating and funding your account. Alternatively, you could opt to use a full-service stockbroker or buy stocks directly from the company. Opening an online brokerage account is a straightforward process that is similar to setting up a bank account. You are required to fill out an application form, provide proof of identification, and choose whether you want to fund the account through mailing a check or transferring funds electronically.
STEP 2: LEARN THE STOCKS
Once you’ve established and funded your brokerage account, the next step is to begin researching the stocks that you’re interested in buying. A good starting point is to look into companies that you already know about from your experiences as a consumer.
It can be overwhelming to navigate the abundance of data and real-time market fluctuations during your research. However, your objective should remain simple: you’re searching for companies that you would like to have ownership in.
As Warren Buffet famously said, “Buy into a company because you want to own it, not because you want the stock to go up.” This approach has proven to be successful for him.
After you’ve identified potential companies, it’s time to conduct thorough research. Start by reading the company’s annual report, especially the management’s letter to shareholders. This letter provides a general overview of the business’s current state and puts the numbers in context.
Most of the information and analytical tools that you need to evaluate the business are available on your broker’s website. Examples include SEC filings, conference call transcripts, quarterly earnings updates, and recent news. Many online brokers also offer tutorials and basic seminars to assist you in selecting stocks.
STEP 3: SELECT THE STOCKS YOU WANNA BUY (START SMALL)
If you’re new to buying stocks, there’s no need to rush into purchasing a large number of shares or investing heavily in a single stock. Instead, you can start with paper trading, which uses a stock market simulator to allow you to practice buying and selling stocks using pretend money. Alternatively, you can dip your toes into the water by purchasing a single share of a stock to see what it’s like to be an individual stock owner and gauge your ability to handle market fluctuations with minimal stress. As you gain confidence, you can gradually increase your position over time.
For those interested in investing in pricey stocks but don’t have a lot of money to spare, fractional shares can be an option. Fractional shares allow you to buy a portion of a stock rather than the entire share, making it more accessible for smaller investors. Some online brokers, including SoFi Active Investing, Robinhood, and Charles Schwab, offer fractional shares.
To help investors figure out how many shares they can buy with a specific dollar amount, many brokerages offer a conversion tool. This can be useful for investors who have a set amount they want to invest and want to know how many shares they can buy with that amount.
STEP 4: DIFFERENT TYPES OF STOCK ORDER
If you’re feeling overwhelmed by the complex terms and numerical combinations on your online broker’s trading page, don’t be discouraged. To help simplify things, refer to this basic stock-trading cheat sheet:
| Term | Definition |
| Ask | The price that sellers are willing to accept for the stock, for buyers. |
| Bid | The price that buyers are willing to pay for the stock, for sellers. |
| Spread | The difference between the highest bid price and the lowest ask price. |
| Market order | A request to buy or sell a stock immediately at the best available price. |
| Limit order | A request to buy or sell a stock only at a specific price or better. |
| Stop (or stop-loss) order | An order to execute a market order to buy or sell a stock when the stock reaches a certain price, the “stop price” or “stop level.” |
| Stop-limit order | An order to convert into a limit order when the stock reaches the “stop price,” and is filled up to the point where the specified price limits can be met. |
Although there are more complicated trading moves and order types, investors can have successful careers buying stocks with just two order types: market orders and limit orders.
If you use a market order, you’re telling the broker to buy or sell the stock at the current market price available. Since there are no price limits set for a market order, your order will be filled immediately and completely, except in situations where you’re trying to buy a large number of shares or if the stock has little trading volume. It’s possible that the price you end up paying or receiving may differ from the quote you saw a few seconds earlier because bid and ask prices are constantly fluctuating throughout the day. It’s recommended that market orders be used when buying stocks that don’t experience significant price swings, such as larger and more stable blue-chip stocks rather than smaller and more volatile companies.
It’s also important to note that market orders can be subject to slippage, which occurs when the price at which the trade is executed differs from the expected price. This can happen in fast-moving markets or when there is a large imbalance of buyers or sellers. Slippage can result in a higher purchase price or lower sale price than expected, which can impact returns.
Additionally, market orders may not be suitable for all trading strategies, such as those that require precise entry and exit points or those that aim to limit potential losses with stop orders.
It’s always a good idea to understand the risks associated with different types of orders and to consider your investment goals and risk tolerance before placing a trade.
A limit order is a type of order that provides investors with more control over the execution price of a trade. With a limit order, investors can set a maximum purchase price or a minimum sale price for a stock. For example, if a stock is currently trading at $100 per share and an investor wants to buy shares at no more than $80 per share, they can place a limit order to buy the shares at the desired price level.
On the selling side, if an investor owns shares of a stock and wants to sell them for no less than $120 per share, they can place a limit order to sell the shares at the desired price level. This means that the broker will only execute the trade once the bid price reaches the specified price level.
Limit orders are useful for investors who want to buy or sell stocks with more precision, especially in markets where prices can be volatile. They are also a good tool for trading smaller company stocks that tend to have wider spreads and experience more volatility in their stock prices.
Investors can also set additional conditions on their limit orders. An “all or none” (AON) order will only be executed if all the shares requested are available at the specified price limit. A “good for day” (GFD) order will expire at the end of the trading day, even if the order has not been fully filled. A “good till canceled” (GTC) order remains active until the order is filled or the investor cancels it, which can be anywhere from 60 to 120 days or more.
It’s important to note that while a limit order allows you to set a specific price for your trade, it does not guarantee that the order will be executed, or that it will be fully filled. Limit orders are processed on a first-come, first-served basis and may only be executed if the stock stays within the set parameters for the broker to execute the trade.
Investors should also be aware that limit orders can be more costly than market orders, as a limit order that is not executed in full during a single trading day may result in additional transaction costs each day that a trade is made. Additionally, if the stock does not reach the specified limit price by the expiration of the order, the trade will not be executed.
STEP 5: BE UPDATED ON YOUR STOCK PORTFOLIO
Optimizing your stock portfolio is an ongoing process that involves monitoring your investments and making adjustments to improve their performance over time. Here are some tips to help you optimize your stock portfolio:
- Diversify your holdings: A well-diversified portfolio can help mitigate risk by spreading your investments across multiple asset classes and sectors. This means investing in a mix of stocks, bonds, and other securities, rather than putting all your money into one or two stocks.
- Consider your investment goals: Your investment goals should drive your portfolio strategy. If you’re saving for retirement, you may want to focus on long-term investments that provide steady growth and income. If you’re looking to make a quick profit, you may want to focus on more volatile stocks with higher potential returns.
- Monitor your holdings regularly: It’s important to keep an eye on your investments and track their performance over time. This can help you identify opportunities to buy or sell stocks based on market trends, economic conditions, and other factors.
- Rebalance your portfolio periodically: Rebalancing involves selling stocks that have become too large a portion of your portfolio and reinvesting the proceeds into other stocks or securities. This can help ensure that your portfolio remains diversified and aligned with your investment goals.
- Stay up-to-date on market trends and news: Keeping up with market trends and news can help you make informed investment decisions. This includes reading financial news, following market analysts, and monitoring economic indicators that may impact the performance of your portfolio.
SOME IMPORTANT QUESTIONS:
- BEST STOCK?
When considering which stocks to buy, there are several factors to take into account. First, it’s important to understand the company’s financials and performance, including revenue growth, earnings, debt levels, and cash flow. Additionally, consider the company’s competitive position in the industry, as well as any potential regulatory or legal risks.
Other important factors to consider include the company’s management team, its track record of innovation and growth, and any upcoming catalysts or events that could impact the stock’s performance.
It’s also important to diversify your portfolio across different industries and sectors, rather than putting all your eggs in one basket. This can help mitigate risk and provide more stable long-term returns.
Overall, investing in individual stocks requires careful research and analysis to make informed decisions that align with your investment goals and risk tolerance.
- WHEN TO BUY? BEST TIME?
It is possible to buy stocks without a broker, although the rise of online brokers has made it easier for beginners to invest. Online brokerage accounts are the most popular way for new investors to enter the stock market. However, for those who still want to invest without a broker, direct stock plans may be an option. These plans allow investors to buy shares directly from the company for a low fee or no fee at all, and often allow investments to be made in dollar amounts rather than individual shares. Recurring investments can also be set up with these plans.
Another option is a dividend reinvestment plan, which enables investors to automatically reinvest dividends back into the stock rather than receiving them as income. Like direct stock plans, investors need to research and find companies that offer these programs.
- CAN YOU BUY STOCKS WITHOUT A BROKER?
It is possible to buy stocks without a broker, although the rise of online brokers has made it easier for beginners to invest. Online brokerage accounts are the most popular way for new investors to enter the stock market. However, for those who still want to invest without a broker, direct stock plans may be an option. These plans allow investors to buy shares directly from the company for a low fee or no fee at all, and often allow investments to be made in dollar amounts rather than individual shares. Recurring investments can also be set up with these plans.
Another option is a dividend reinvestment plan, which enables investors to automatically reinvest dividends back into the stock rather than receiving them as income. Like direct stock plans, investors need to research and find companies that offer these programs.
- MINIMUM AMOUNT NEEDED?
To invest in stocks, you don’t need a large sum of money. If you choose a brokerage account with no account minimums and zero transaction fees, you can start with just enough to purchase a single share. While some stocks may cost as little as $10 per share, keep in mind that cheap stocks may not always be a good investment option.
In addition to purchasing full shares, some brokerages allow you to buy fractional shares. This means that even if you have a limited amount to invest, you can still own a portion of a higher-priced stock like Google, which typically trades for over $1,000 per share. However, it’s important to note that the more money you invest, the greater your potential returns over the long term. You can use an investment calculator to understand how compounding returns work and how your investment can grow over time.
- STOCKS VS SHARES SAME?
Yes, stocks and shares generally refer to the same thing, which is owning a portion of a company’s equity. The terms are often used interchangeably, but “shares” is typically used to refer to a specific number of ownership units in a particular company, while “stock” can refer to ownership in a company in general. For instance, an investor may say, “I own 100 shares of Google stock,” or “I have stocks in several tech companies.”
- NUMBER OF STOCKS?
In addition to the above advice, it’s also important to consider your investment strategy and time horizon. If you’re a long-term investor, you may be more comfortable holding a larger number of stocks in your portfolio to maximize diversification and potential returns over time. On the other hand, if you’re a short-term trader, you may only want to focus on a handful of stocks with high volatility or strong momentum.
Ultimately, the number of stocks you buy should be based on your personal goals, risk tolerance, and investment strategy. It’s important to do your research and make informed decisions, rather than making impulsive trades based on emotions or the latest market trends.
- CHEAP STOCKS?
One way to find potentially undervalued stocks is to look for companies with strong fundamentals, such as a healthy balance sheet, a history of consistent earnings growth, and a competitive advantage in their industry. These companies may have a temporary dip in their stock price due to market volatility or other external factors, but are likely to bounce back in the long term.
Another approach is to focus on industries that are currently out of favor or overlooked by the market, but have strong growth potential. For example, renewable energy and technology companies may be attractive options for investors looking for long-term growth opportunities.
It’s important to do your research and consider a company’s financials and overall performance before making any investment decisions. It’s also important to remember that investing always involves risk and that there are no guarantees in the stock market.
- BEST TIME TO SELL STOCKS?
In addition to considering market volatility and potential capital gains taxes, it’s important to also keep an eye on the fundamentals of the company you’ve invested in. If the company is experiencing financial troubles or if its future prospects don’t look promising, it may be a good time to sell your shares. Similarly, if the stock has reached your target price or if your investment goals have changed, it may be time to sell. It’s important to regularly review your investments and make adjustments as necessary based on changes in the market and your personal financial situation.
These are indeed good rules of thumb to keep in mind when buying stocks. It’s important to remember that investing in the stock market involves risk and requires careful consideration before making any decisions.
To elaborate further, finding an easy-to-use broker is important because it will make the process of buying and selling stocks much simpler. Researching the stocks you’re interested in is crucial, as it will help you make informed decisions about which companies to invest in. Additionally, you should consider factors such as the company’s financial health, competitive advantages, and growth prospects.
When deciding how much to invest, it’s important to remember not to invest more than you can afford to lose. Setting a budget for your investments can help you avoid making impulsive decisions.
Choosing an order type that makes sense for you is also important. A market order will execute immediately at the best available price, while a limit order allows you to set a maximum price you’re willing to pay or a minimum price you’re willing to sell for.
Finally, monitoring your stocks is important, but it’s also important not to become too fixated on short-term fluctuations in the stock market. Investing for the long term and having a diversified portfolio can help you weather any market fluctuations and achieve your financial goals over time.
