Buying stocks is not difficult, but you'll need a few days lead time if
you haven't done it before.
Sign up with a stock broker on their website. A broker is registered
with one or more "stock exchanges" (e.g. NYSE, NASDAQ, etc.) to execute
stock trades on your behalf within that exchange's market.
Send the broker an initial deposit of funds. (Your broker needs this
money to purchase your stocks.) The usual minimum is $2000. But can be
as little as $500.00. Some websites don't require a deposit at all.
Your broker must report your stock trades to the IRS. You will need to
fill out the required forms and mail them back to the broker, possibly
even before they will allow you to make your first trade. (Your broker
will send you the forms.)
Select your stock, notifying your broker of the company's "symbol" (a
3-4-letter code), the price you're willing to pay per share, and the
length of time for which your offer will be valid.
Instead of offering a specific amount (and a timeframe) for the stock,
you may purchase the stock "at market value", which executes immediately.
Although you should "diversify" your stock portfolio by owning stock in
several industries, buy stock primarily in industries you are familiar
with. (tech stocks if you're a geek, auto stocks if you read a lot of
car magazines, etc.)
Search for "online discount brokers" on a search engine to find a list
of brokers that you can use to buy and sell stocks online. Scottrade,
Etrade, and TD Waterhouse are just a few of the many options. Be sure to
compare their fees and see if they have any hidden fees before signing up.
"If in doubt, do naught".
The stock exchange is rarely a place where anyone 'gets rich quick'.
Sure, some occassional stocks and shares will rise quickly making their
owners money, but rarely will you become rich. Bear in mind that if an
investment doubles in one year (which is pretty rare) you needed to be
already wealthy to make a lot of money. If you invested a thousand, you
will have just 'made' a thousand. You aren't wealthy or rich yet.
Investment risk is lowered by knowledge. Every time. If you are buying
shares on the stock exchange, what does the seller know that you don't?
What do you know that the seller does not? You can bet your life that
the buyer or seller opposite you in any transaction has done some
serious research. If you don't do yours, who do you think will win? You
or the market?
It might help to find areas in which you have useful knowledge already.
Either that or decide on an area and slowly become an expert. For
example, if you worked in a bank for 10 years, you must know something
about banking. When you read an annual report from a bank, do you laugh
and see through the waffle or does it make real sense? If you can see
through the waffle of some far off CEO and CFO, you can start to compare
the relative prospects in the same market of competing firms. Hey - that
could be an opportunity!
Try to understand why you want to invest. This is the hardest thing -
looking at yourself.
Search for an area where you hold some intellectual strength. It is
tough enough to make money in the markets at the best of times, so why
disadvantage yourself by investing in things that you don't understand?
You will have areas of expertise that fund managers don't. Use that
advantage if you can. Warren Buffett describes this as his 'circle of
competence'.
Do plenty of research. Then do plenty more! There is more valuable
information available online than we can possibly imagine.
Learn to think independently. This is the biggest skill you can learn
towards becoming a successful investor.
Don't forget about dividends. Studies show that dividends make up most
of an invetors return over the long term. Find a way to reinvest those
dividends for improved returns.
Look for investments, not gambles. Learn to understand the difference.
Before buying stocks, make sure you have a decent idea of how to choose
which stocks to buy.
There is plenty of free advice from reputable people. I recommend
listening to Jim Cramer on MSNBC (see external links).
Make sure your broker is registered with the SEC. Stick to the brokers
advertising on network TV if you are unfamiliar with the industry.
Depending on the brokerage fees, it will be difficult (or take a long
time) to recoup an investment of less than $1500 on any single stock
purchase.
In addition to the price-per-share that you offer for the stock, your
broker will charge you a flat transaction fee, as well as an SEC
insurance fee. The SEC fee is about $5. You pay these extra fees when
both buying AND selling a stock.
realize that people who promote a stock often do so because they want to
sell it. In other words they hype a product in order to sell it. This
way of looking at things is called "Contrarianism". So when people say
"BUY", its actually time to "SELL", or if you don't hold stock already,
it maybe not the time to buy at all! Always DYOR (Do Your Own Research)
and then some.
It isn't easy. If everyone could become a billionaire by investing,
Warren Buffett would not be famous. It takes time, study and effort and
most importantly - independent thought. Not everyone has the will or
stamina to carry that through. Who doesn't suffer setbacks and
confidence knocks?
Though it may be a 'hobby', it isn't 'fun'. The world of investment is
dominated by investment banks and their bankers. They do all the big
deals, float companies, issue bonds, trade stocks, bonds, currencies and
commodities and make lots of money. They employ some of the world's
brightest young MBAs to figure out new and improved profit making
ventures. They do all this because it is a business, with real money and
real profits. Nobody is playing around.
If you want to be successful, you too need to view it as a business.
Here is big tip number one: if you are interested, go and do some
reading about Benjamin Graham. Buy his books and digest. It will take a
while, but it is the proper place to start. It was Ben Graham that first
coined the idea successful investment is businesslike.
If you really want to do well in investment on the stock exchange, then
you need to approach it as if it were your own business. A part-time
business perhaps, but still a business. That also means taking your
information sources seriously. There are many portfolio tracking systems
online, some free and others require monthly payment - get registered to
one! There are magazines that follow and report on stock markets and
shares each week - subscribe to one!
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