5 Steps to Start Investing in Stocks
Step 1: Learn as much as you can about investing
Read as many books about investing as you can, follow these 5 steps to start investing in stocks. Make your own decisions on what you are going to use. Learn about discounted cash flow analysis. Learn how to make inferences about management and industries from public information.
– Security Analysis by Benjamin Graham and David Dodd
– Contrarian Investing: the Next Generation by David Dreman
– The Aggressive Conservative Investor by Marty Whitman
– Buffettology by Mary Buffett
Step 2: Determine what your investment strategy and time horizon are
Determine what type of strategy or strategies you think you will do well with and are comfortable with. The shorter your time the less aggressive your strategy should be. You might want to start off with multiple strategies. Common strategy themes are ‘Safe and Cheap’, ‘Growth at a reasonable price and ‘High dividend yield’, ‘Cash Cows’, ‘Profitable, but unloved’, ‘Blue Chips’, ‘Low priced growth stock, “Insider interest’ etc. Themes like ‘hot stocks’, ‘explosive penny stocks’ etc. are very hit and miss.
You should set your portfolio’s parameters:
– How large your portfolio will be
– What type of stocks you will buy (market, industry, market cap, etc.)
– How many stocks will you own
– What will make you buy a stock
– What will make you sell a stock
Step 3: Become familiar with a set of finance websites
There are a number of fantastic online resources where you can research individual stock. Yahoo finance and Google finance are two excellent free resources. Morningstar is another good online resource, though you’ll have to pay for premium access.
Sometimes very useful information is hidden or not easily accessible. Mutual fund holders and insider transactions could provide interesting information.
Step 4: Learn from your mistakes
Every time you pick a stock make notes about why you chose that stock. Go back and review your picks and notes periodically. Do you do better with industries or companies you know well? Do you sell too early when the market is volatile? Questions like these make you understand how you react to certain conditions and can help you recognize biases that hurt your profit.
Creating a mock portfolio, on sites like xearn.com will help you learn without risking actual money.
Step 5: Choose a stockbroker
Research stock broking companies. Check out commissions, execution service levels, access to research, interest rates as well as other features. Popular brokerages are Schwab, E-trade, Ameritrade, Scotts Trade and Fidelity.
Now you’re all set to being a better investor than most!