How To Buy Your First Stock explained by professional forex trading experts the “ForexSQ” FX trading team.
How To Buy Your First Stock
Investing in the stock market is not as simple as going into the store to make a purchase. Buying stocks involves setting up a brokerage account, adding funds, and doing research on the best stocks before tapping the buy button at your broker’s website or app.
If you have your brokerage account set but you’re not sure what to buy first, consider these investments as good introductions to the world of stocks.
Blue Chip Stocks
In investing, the term “Blue Chip” reflects the stocks of companies that are strong, long-time market standbys that are unlikely to have any major negative news stories in the near future. And even if they do, they are old, sturdy companies that can weather the storm. Blue Chips are great for newer investors as they tend to move with the market in a predicable way and have lower risk than most other stocks.
A great example of a Blue Chip stock is Walmart. The store has a history going back to 1962, has a huge market cap of $236.4 billion, and is relatively stable compared to the market as a whole. In the most recent year, Walmart did over $480 billion in revenue, earning it the number one spot on the Fortune 500 list. Look for other Blue Chip investments on the Fortune 500 and other lists of the largest companies in America.
Examples of Blue Chip Stocks:
Walmart (WMT), Coca Cola (KO), JPMorgan Chase (JPM), Exxon Mobil (XOM), Boeing (BA), Caterpillar (CAT), and General Electric (GE)
Value investing is the idea that you can analyze the finances of a company and predict a fair stock price, and if you look hard at enough companies you will find such an undervalued company that looks like an attractive investment. Made famous by Professor Benjamin Graham, a British-born economist and teacher who spent time at both Columbia and UCLA, value investing is the mantra of many successful investors including Warren Buffett, Irving Kahn, and Bill Ackman.
The bible of value investing is Graham’s 1949 book The Intelligent Investor.
Finding undervalued stocks is not always easy. One of the most useful metrics to look at are the company’s book value per share, which shows the assets of the company compared to the current share price. Website ValueWalk published a Graham-Dodd stock screener that uses value investing insights to find potential investments in this category. Be sure to look out for smaller companies, however, as they are more risky and more volatile than older, stable value stocks. Also look out for companies who went through a recent major price swing, as current news may influence various ratios and valuation methods.
Using price to book and other ratios, here are a few examples of value stocks to get you started.
Examples of Value Stocks:
Transocean (RIG), Nelnet (NNI), Navient (NAVI), American Airlines (AAL), Gilead Sciences (GILD), Wells Fargo (WFC), Expedia (EXPE)
Some investors put their money into the markets in hopes of increasing share prices over time, but other investors care more about earning cash flow from their investments. If you want your stocks to pay you, dividends are the name of the game.
Dividend stocks typically pay a small cash dividend per share to investors every quarter.
On occasion, companies pay a one-time dividend, as happened with Microsoft in 2004 when it paid out $3 per share, or $32 billion, to investors in its stock.
When looking for dividend stocks, look for a trend of steady dividends or growth over time. Dividend cutting is looked upon very negatively by the markets, so any stocks that have cut their dividends in the past should raise a red flag for you as an individual investor. If dividend yields are too high, it could be a signal that investors expect the share price to fall in the coming months. Any stock paying more than 10% should be looked at with healthy skepticism.
Examples of Dividend Stocks:
Verizon (VZ), General Motors (GM), Phillips 66 (PSX), Coca Cola (KO), United Parcel Service (UPS), Proctor & Gamble (PG), Phillip Morris International (PM), and Monsanto (MON)
Large companies struggle to grow as a percentage, as they are trying to grow a very big base. Walmart, for example, is unlikely to see double digit gains in sales on top of its current $480 billion revenue. Smaller companies and newer companies are riskier, but offer interesting opportunities to grow in the near future.
Growth stocks can come out of any industry, but lately high tech companies in Silicon Valley and other have great growth prospects. These stocks can be companies of any size. Larger growth stocks are typically more stable and less risky, but provide lower returns than the smaller, newer businesses on the market.
Examples of Growth Stocks:
Netflix (NFLX), Amazon (AMZN), Facebook (FB), Priceline (PCLN), Skyworks Solutions (SWKS), Micron Technologies (MU), and Alaska Air Group (ALK)
Beware Risky Investments
While some of the companies listed above will perform well and offer big market returns over the coming months and years, odds are some stocks from this list will go down. One might find itself in a major scandal, accounting problem, or news story that sends the stock into a nosedive. To avoid major losses, make sure to invest in a diverse portfolio of stocks across multiple industries and locations.
The majority of stocks mentioned in this article are solid companies with great financials, but don’t just take our word for it! Before you buy any stock, review its recent financial performance, analyst opinions, competitors, and the future landscape for the company’s business model. If you think it is a solid business with good management and great prospects, it is a buy. But if you have any worries or reservations, skip clicking the buy button and wait for a safer investment to come along.
How To Buy Your First Stock Conclusion
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