If you 're new to buyting stocks, theres a lot to learn and the more you read and study, the better you'll get a handle on things.
For example, eventually you'll run across the concepts of Fundamental vs. Technical analysis. Sounds complicated but it's not.
Fundamental analysis is the study of the stocks and the companies themselves. Their value, their profitability, their earnings and price, their P/E ratios and PEG's and generally how strong a company is. It also includes how strong or weak the markets are in general, as well as sectors.
Remember sectors are the groupings of stock companies. The Food Industry sector, the Utility sectors, the Transportation sectors, the Medical sectors, etc.
Fundamentalists suggest the best way to buy stocks is to look how strong the company is financially and go from there. Are they making money? Are they coming up with new products? Are they growing? Sounds reasonable, right?
Not so fast, say the Technical Analysists.
"Tech-ies" (nobody else but me calls them that) believe that that's all well and good but thats not what the Stock Market is about.
Technical Analysis is the study of people and human behavior's influence on the Marketplace, that is, the psychology of trading. They believe human behavior is fairly constant and predictable enough that certain patterns and trends can be identified in the marketplace.
Technical analysis is more apt to look at charts rather than just a company's internal makeup. They look at "trends" to help them identify "buy and sell" points and go from there. They also look at earnings and split announcements and tend to keep an eye out for IPO's and such.
Day and swing traders are usually big on Technical Analysis. Long term investors tend to be more fundamental in their approach.
Technical Analysis is not a perfect science by any means. It's more of an art and "probability" is their cornerstone. They are more satisfied with taking a 5 to 8% "hit" and move on, rather than the 10-15% long term goals of the investor.
The truth is, both sides have something to offer the investor. Depending on your style and whether youre a "trader" or "investor," both sides are deserving of considerable study.
Certainly the technician would be well served to know how strong and profitable the company he or she is trading is, as it often makes a difference in the return of the trade, no matter how fast it takes place.
And the fundamentalist would be in a better position overall if he or she can read Candlestick and other chart styles in order to understand the language of the marketplace. Certain patterns like "Cup and Saucers (with a handle!)" or "Head and Shoulders" within these charts seem to matter. Or they at least can predict (again within some probablity) whether a stock goes up or down.
Like the farmer who tends his garden, knowledge and action lead to success. Study and research make a smarter investor and trader. Learn how to do both fundamental and technical analysis and the money will follow.
Thursday, August 4, 2011
Saturday, July 2, 2011
Buying Stocks
Now that we've picked our on-line broker and we're aware of our other money gardens, it's time to take the plunge and buy some stocks.
But which ones?
With over 15,000 stocks listed and more coming everyday, how can one possibly know which ones to buy?
Maybe you're reading some of the "hot sheets" (Barrons, The Street, Standard & Poors, Investors Daily, etc etc) and you have a few that you're considering already.
Before you buy a single stock you should consider the question: Am I an investor or am I a trader?
An investor is someone who is looking to buy stocks for investing, that is, to sock away money and let it grow over a long period of time, like a savings account.
A trader is someone who is looking to jump from one stock to another, looking for that great deal that's going to make some fast money. In fact a day trader is someone who might buy a handful of shares one hour and possibly sell them the next, sometimes it goes that fast.
If you're going to be a trader and your new at this, here's a guarantee: You're going to lose a lot of money, fast. You might want to consider the Lottery instead, you're chances are about the same.
Day traders are usually players who have been in the game a long time, maybe even someone whos actually worked as a stock broker or money manager.
In fact broker houses have certain requirements to even be a daytrader: The house we use, TDAmeritrade, requires a $25,000 account and registering with them as a day trader, else youre only allowed 3 day trades in a 90 day period!
If youre new at this, day trading is not for you, at least right now.
But after saying that, since you are new at this, you might indeed buy a stock, sit on it a few days and change your mind. You're in the learning curve and right now, that's ok. In fact, that's one reason why some brokers give you 30 or 60 days before they start charging their per transaction fees.
Some of this depends on how much time you have to actually sit in front of the keyboard and buy stocks. If you have a full time job and you're not able to keep a close eye on your stock activity, you might want to consider going straight to the big "Blue Chip" stocks, those stocks that are a little more stable.
Another consideration is dividends. Some stocks pay their investors back money for their investments, in addition to the actual profits or gains from stock growth in the market. It sounds like a good idea, and it is actually, but some stocks don't pay dividends and that's fine, too.
I know a few folks who have been doing this a long, long time and now they live on their dividends as their regualr "income." Sweet.
Let's consider buying your first stocks.
If you google "blue chip stocks," you'll probably come up with a list that might be a good start for a beginning investor.
Stocks like Dupont (DD), 3M (MMM), Honeywell (HON), IBM (IBM), Microsoft (MSFT), even McDonalds (MCD) are just examples of stocks that aren't going to disappear overnight. The list is long and your choice is your own. But its a good place to start.
In choosing a stock, we're primarily interested in a few things: Growth and profitability.
Get to know your broker's research tools. TDAmeritrade has an excellent research and resource web site but it's certainly not the only one. Yahoo Finance is also a good resource. And here's a good rule: Check out the charts!
Reading charts (and this takes time) is probably the most important factor in considering a company's growth potential. There are charts for the last day, the last week, the last month, the last 3 and last 6 months, the YTD (Year to Date), the last years, the last 3 years, the last 5 years, the last 10 and even the last 20 years growth. Whew!
Study and get to know these charts well. If you can read a company's chart accurately, you will get a good sense of where that company's going.
There are other factors as well to become acquainted with in choosing the right stock. How many stocks does the company have for sell? A billion shares at $25 a share is probably not equal to a company that has a million shares (or less) at the same value!
A company's "Valuation" is something you should read and learn as much as possible. Do your homework! Learning about a company's P/E ratio and other factors all help veteran stock buyers make a better decision...usually.
Not all the time, but usually.
For now, a general good rule to follow as we assume you're still a beginner, is to choose a stock whos chart suggests their on the "upswing" and have been around awhile, especially the bigger Blue Chip Stocks.
Finally, a word about diversity. Buying all restauraunt stocks or all utility stocks or all high tech stocks is not advisable. If one group of stocks all go down together (and they often do), you want stocks in another group to stabilize your losses.
Pick a food/restaurant stock (for example MCD, YUM, SBUX, etc), then a utility (SO, BIP, ETR, etc) then a generally diverse company (DD, HON, MMM), then a high tech or science (MSFT, GOOG, AAPL, ILMN, etc), and so on and so forth, with the idea of becoming more well rounded, more diverse in your choices.
Jim Cramer has an excellent segement on his "Mad Money" Show called "Am I Diverse?" where he examines a caller's stocks and lets them know if they're well rounded enough. Look for it and consider why this is important.
A lot to think about, yes. Remember, buying stock is easy to do, but it takes a lifetime to master.
Good luck!
But which ones?
With over 15,000 stocks listed and more coming everyday, how can one possibly know which ones to buy?
Maybe you're reading some of the "hot sheets" (Barrons, The Street, Standard & Poors, Investors Daily, etc etc) and you have a few that you're considering already.
Before you buy a single stock you should consider the question: Am I an investor or am I a trader?
An investor is someone who is looking to buy stocks for investing, that is, to sock away money and let it grow over a long period of time, like a savings account.
A trader is someone who is looking to jump from one stock to another, looking for that great deal that's going to make some fast money. In fact a day trader is someone who might buy a handful of shares one hour and possibly sell them the next, sometimes it goes that fast.
If you're going to be a trader and your new at this, here's a guarantee: You're going to lose a lot of money, fast. You might want to consider the Lottery instead, you're chances are about the same.
Day traders are usually players who have been in the game a long time, maybe even someone whos actually worked as a stock broker or money manager.
In fact broker houses have certain requirements to even be a daytrader: The house we use, TDAmeritrade, requires a $25,000 account and registering with them as a day trader, else youre only allowed 3 day trades in a 90 day period!
If youre new at this, day trading is not for you, at least right now.
But after saying that, since you are new at this, you might indeed buy a stock, sit on it a few days and change your mind. You're in the learning curve and right now, that's ok. In fact, that's one reason why some brokers give you 30 or 60 days before they start charging their per transaction fees.
Some of this depends on how much time you have to actually sit in front of the keyboard and buy stocks. If you have a full time job and you're not able to keep a close eye on your stock activity, you might want to consider going straight to the big "Blue Chip" stocks, those stocks that are a little more stable.
Another consideration is dividends. Some stocks pay their investors back money for their investments, in addition to the actual profits or gains from stock growth in the market. It sounds like a good idea, and it is actually, but some stocks don't pay dividends and that's fine, too.
I know a few folks who have been doing this a long, long time and now they live on their dividends as their regualr "income." Sweet.
Let's consider buying your first stocks.
If you google "blue chip stocks," you'll probably come up with a list that might be a good start for a beginning investor.
Stocks like Dupont (DD), 3M (MMM), Honeywell (HON), IBM (IBM), Microsoft (MSFT), even McDonalds (MCD) are just examples of stocks that aren't going to disappear overnight. The list is long and your choice is your own. But its a good place to start.
In choosing a stock, we're primarily interested in a few things: Growth and profitability.
Get to know your broker's research tools. TDAmeritrade has an excellent research and resource web site but it's certainly not the only one. Yahoo Finance is also a good resource. And here's a good rule: Check out the charts!
Reading charts (and this takes time) is probably the most important factor in considering a company's growth potential. There are charts for the last day, the last week, the last month, the last 3 and last 6 months, the YTD (Year to Date), the last years, the last 3 years, the last 5 years, the last 10 and even the last 20 years growth. Whew!
Study and get to know these charts well. If you can read a company's chart accurately, you will get a good sense of where that company's going.
There are other factors as well to become acquainted with in choosing the right stock. How many stocks does the company have for sell? A billion shares at $25 a share is probably not equal to a company that has a million shares (or less) at the same value!
A company's "Valuation" is something you should read and learn as much as possible. Do your homework! Learning about a company's P/E ratio and other factors all help veteran stock buyers make a better decision...usually.
Not all the time, but usually.
For now, a general good rule to follow as we assume you're still a beginner, is to choose a stock whos chart suggests their on the "upswing" and have been around awhile, especially the bigger Blue Chip Stocks.
Finally, a word about diversity. Buying all restauraunt stocks or all utility stocks or all high tech stocks is not advisable. If one group of stocks all go down together (and they often do), you want stocks in another group to stabilize your losses.
Pick a food/restaurant stock (for example MCD, YUM, SBUX, etc), then a utility (SO, BIP, ETR, etc) then a generally diverse company (DD, HON, MMM), then a high tech or science (MSFT, GOOG, AAPL, ILMN, etc), and so on and so forth, with the idea of becoming more well rounded, more diverse in your choices.
Jim Cramer has an excellent segement on his "Mad Money" Show called "Am I Diverse?" where he examines a caller's stocks and lets them know if they're well rounded enough. Look for it and consider why this is important.
A lot to think about, yes. Remember, buying stock is easy to do, but it takes a lifetime to master.
Good luck!
Saturday, June 25, 2011
Introduction to Buying Stocks: Be Aware of Your Other Gardens
Using the garden analogy, as we pick our e-trade stock broker account (with Scottrade, TDAmeritrade, whatever you choose) and prepare our checking account to funnel money into our new trade account, we are like the gardner preparing the ground for a new place to plant seeds for growth.
They say money doesn't grow on trees but we're going to prove them wrong about that!
But as we prepare our new garden where we will grow stocks (and money) an obvious question must be asked: What about your other gardens?
What good is it to have a brand new garden growing brand new sprouts when our other gardens around the yard are overgrown with weeds and in disarray?
In other words, what good is it to gain money in one area, only to see it lost in another?
It doesn't mean we can't start our new garden in the meantime. One can move from one garden to the other, that is take care of one area of personal finances while addressing another, right?
Specifically, we're talking about debt. Credit card debt, student loan debt, etc etc.
Is our other gardens of financial interests overgrown with weeds, neglected or even out of control? As we move through the arena of buying stocks, it makes sense to keep a close look at money in our other financial gardens.
Credit cards are a necessary evil in todays world, but having cards that have 20 to 30% interest on them (or even more!) are not. Student loans, which can never be erased with even a bankruptcy, have to be addressed and dealt with first and foremost.
Our bills and financial obligations must be manageable before we start putting significant monies into stocks, else we will be soon be overrun with the weeds of one garden over another.
Again, it is not to say that one can be done and not the other entirely. Even if you have serious credit card debt, your home is underwater, you have bills to pay, etc etc., you can still open an e-trade account and begin to buy stock. Its just that you need to look at why you're buying stock in the first place.
To save and make money, right?
Seems obvious then that plans must be made to get your other financial gardens in order while you progress and move on. We want the right hand to be working with the left hand.
If you have $3000 on a credit card with sky high limit, pay it down some and move it over to another card with a lower interest rate. Work out a plan to pay off your student loans as soon as possible. Refinance your home if its at 7% and increase your monthly payments, if you can.
The bottom line is this: You used to find joy in spending money and buying things. Now you have to find that joy in saving and making money.
Losing money wastefully is for losers. Using money wisely and using it to make more money is for winners.
It's time to get your house, your garden in order. It's time to win.
They say money doesn't grow on trees but we're going to prove them wrong about that!
But as we prepare our new garden where we will grow stocks (and money) an obvious question must be asked: What about your other gardens?
What good is it to have a brand new garden growing brand new sprouts when our other gardens around the yard are overgrown with weeds and in disarray?
In other words, what good is it to gain money in one area, only to see it lost in another?
It doesn't mean we can't start our new garden in the meantime. One can move from one garden to the other, that is take care of one area of personal finances while addressing another, right?
Specifically, we're talking about debt. Credit card debt, student loan debt, etc etc.
Is our other gardens of financial interests overgrown with weeds, neglected or even out of control? As we move through the arena of buying stocks, it makes sense to keep a close look at money in our other financial gardens.
Credit cards are a necessary evil in todays world, but having cards that have 20 to 30% interest on them (or even more!) are not. Student loans, which can never be erased with even a bankruptcy, have to be addressed and dealt with first and foremost.
Our bills and financial obligations must be manageable before we start putting significant monies into stocks, else we will be soon be overrun with the weeds of one garden over another.
Again, it is not to say that one can be done and not the other entirely. Even if you have serious credit card debt, your home is underwater, you have bills to pay, etc etc., you can still open an e-trade account and begin to buy stock. Its just that you need to look at why you're buying stock in the first place.
To save and make money, right?
Seems obvious then that plans must be made to get your other financial gardens in order while you progress and move on. We want the right hand to be working with the left hand.
If you have $3000 on a credit card with sky high limit, pay it down some and move it over to another card with a lower interest rate. Work out a plan to pay off your student loans as soon as possible. Refinance your home if its at 7% and increase your monthly payments, if you can.
The bottom line is this: You used to find joy in spending money and buying things. Now you have to find that joy in saving and making money.
Losing money wastefully is for losers. Using money wisely and using it to make more money is for winners.
It's time to get your house, your garden in order. It's time to win.
Introduction to Buying Stocks: Picking a Broker
You've decided to learn how to buy stocks and save up some money for your retirement or whatever. Good for you, congratulations!
Buying stocks in the past used to be shrouded in mystery, something the average lay person could never learn how to do. Only a specialized few could do it and if you wanted to buy stocks, you handed your money over to a broker, made your requests and spent a lot of time on the telephone, usually trying to chase the guy down!
Not anymore! Today buying stocks is a rapidly growing and exciting field for newcomers (due primarily to e-trading on the internet, yayyy!) and obviously, as more and more people realize they can do it themselves, folks like you (and me) are jumping in, money in fist, ready to beat the 1 to 3% interest offered by savings accounts and money market accounts at your bank or credit union.
TV personalities like Suzy Orman and Jim Cramer have been preaching for years that you don't need a hedge fund or money broker, that "you can do it yourself!" Indeed you can.
The dirty little secret is, you can find out all you need to know about money markets in just a few weeks or even a few days. As soon as I say that, I hear gufaws and rightly so! Because learning about the money market follows this simple rule: Easy to learn, a lifetime to master.
It's a bit like swimming, or playing golf, or any other sport or activity for that matter. You have to educate yourself enough not to drown right away, but then you jump in (in the shallow end of the pool, right?), swim around a bit, and then educate yourself more as you go along.
Believe me, no matter how old you are, teenager or grandpa, you can do this.
Before we get started, one simple but important rule: While you're learning, NEVER INVEST MORE THAN YOU CAN AFFORD TO LOSE!
The key here is, while you're just starting out, you're not stupid (else you wouldn't be here), but you are ignorant. You need to learn the game. And while you're learning, YOU WILL LOSE SOME MONEY!
In fact, losing money is easy. Even the pros do that, with some regularity. And you will, too. Got it? As a beginner, as a novice, it's inevitable: You will lose some money as you move along, guaranteed.
If you can't afford to lose at least a little money, put your money into a savings account or into the mattress of your bed. It's that simple.
Assuming you will lose some money initially (and later, too, from time to time) we can now move forward in our quest to MAKE MONEY!
So...
How do we buy stock? Assuming you have a computer (you're reading this on a PC, I hope) we open an e-trade account, which is very much the same as a bank or checking account. In fact a lot of e-trade services have regular checking accounts, savings accounts, IRA's etc.
But let's assume you have a seperate checking &/or savings account in a bank or credit union somewhere. When you open up our stock e-trade account, we will then connect to our regular checking &/or savings account to the e-trade account, which we will funnel money into. Much like paying your bills on line.
Unless we're setting up our e-trade account as our primary checking account, we'll be feeding money into the Stock account, via the main checking account we use. After we buy some stock we like, we'll be feeding monies into our stocks as time goes by, probably for the rest of our lives!
Because simply put, our stocks will become our secondary and maybe even our primary savings account. A savings account with dividends and interest no bank or credit union can even get close to matching!
Ok, let's get started. First, we have to pick a broker service.
Obviously there are many servies to choose from. First, there are full service brokerage firms like Merrill-Lynch or Wells Fargo, who will be glad to advise you and give you (sometimes good) recommendations, as well as charge you as much as $35 to $100 per transaction! Some firms even charge a percentage of what you buy, which, if you put in thousands of dollars, can really be expensive.
There's a better way. On line accounts like TDAmeritrade, Scottrade, Charles Schwab, Fidelity, Sharebuildre, Ameritrade, E-trade, Vanguard, etc. can offer you trading services as low as $3.99 a transaction with an average of about $10 a trade.
We like TDAmeritrade. It offers a full range of services and some pretty good research tools at $9.99 per transaction. With $2000 start up, we get 30 free days of transactions as we get going, which many of the services offer as well.
We're not advocating any of these services. Do a little research and pick the best one for you. If you need a little help, go to Forbes.com or go to Google and type in "best e-brokers" and see what pops up.
You pick your stock broker and now you're ready to jump in.
Opening the account will probably include the e-trader having to send a small amount of money into and then out of your checking account (usually a few pennies) just to see if the path is valid and reliable. This will take a few days.
If you've decided to open up an IRA account at the e-trade site, just remember you won't be able to take that money out until your 59 and 1/2 years old without significant penalties. Otherwise you'll be opening a regualr account, which we'll be paying taxes on at the end of the year. We'll talk more about that later, but it's important to know.
In the meantime, this might be a good time to do a little background reading. Nothing too heady or you'll get discouraged. Mad Money's Jim Cramer books are pretty good to get started. William O'Neil's book's are highly rated.
Get acquaintd with some of the newsletters. Barron's. Standard & Poor's. Investment Business Daily. And of course, the Wall Street Journal.
If you don't understand most of what you read, don't worry about it. Eventually you will.
You're starting a garden here and right now, you're picking a piece of ground, preparing the soil, and getting ready to plant some seeds. We haven't picked out the seeds yet, we're just getting the ground ready.
Ready to make some money!
Buying stocks in the past used to be shrouded in mystery, something the average lay person could never learn how to do. Only a specialized few could do it and if you wanted to buy stocks, you handed your money over to a broker, made your requests and spent a lot of time on the telephone, usually trying to chase the guy down!
Not anymore! Today buying stocks is a rapidly growing and exciting field for newcomers (due primarily to e-trading on the internet, yayyy!) and obviously, as more and more people realize they can do it themselves, folks like you (and me) are jumping in, money in fist, ready to beat the 1 to 3% interest offered by savings accounts and money market accounts at your bank or credit union.
TV personalities like Suzy Orman and Jim Cramer have been preaching for years that you don't need a hedge fund or money broker, that "you can do it yourself!" Indeed you can.
The dirty little secret is, you can find out all you need to know about money markets in just a few weeks or even a few days. As soon as I say that, I hear gufaws and rightly so! Because learning about the money market follows this simple rule: Easy to learn, a lifetime to master.
It's a bit like swimming, or playing golf, or any other sport or activity for that matter. You have to educate yourself enough not to drown right away, but then you jump in (in the shallow end of the pool, right?), swim around a bit, and then educate yourself more as you go along.
Believe me, no matter how old you are, teenager or grandpa, you can do this.
Before we get started, one simple but important rule: While you're learning, NEVER INVEST MORE THAN YOU CAN AFFORD TO LOSE!
The key here is, while you're just starting out, you're not stupid (else you wouldn't be here), but you are ignorant. You need to learn the game. And while you're learning, YOU WILL LOSE SOME MONEY!
In fact, losing money is easy. Even the pros do that, with some regularity. And you will, too. Got it? As a beginner, as a novice, it's inevitable: You will lose some money as you move along, guaranteed.
If you can't afford to lose at least a little money, put your money into a savings account or into the mattress of your bed. It's that simple.
Assuming you will lose some money initially (and later, too, from time to time) we can now move forward in our quest to MAKE MONEY!
So...
How do we buy stock? Assuming you have a computer (you're reading this on a PC, I hope) we open an e-trade account, which is very much the same as a bank or checking account. In fact a lot of e-trade services have regular checking accounts, savings accounts, IRA's etc.
But let's assume you have a seperate checking &/or savings account in a bank or credit union somewhere. When you open up our stock e-trade account, we will then connect to our regular checking &/or savings account to the e-trade account, which we will funnel money into. Much like paying your bills on line.
Unless we're setting up our e-trade account as our primary checking account, we'll be feeding money into the Stock account, via the main checking account we use. After we buy some stock we like, we'll be feeding monies into our stocks as time goes by, probably for the rest of our lives!
Because simply put, our stocks will become our secondary and maybe even our primary savings account. A savings account with dividends and interest no bank or credit union can even get close to matching!
Ok, let's get started. First, we have to pick a broker service.
Obviously there are many servies to choose from. First, there are full service brokerage firms like Merrill-Lynch or Wells Fargo, who will be glad to advise you and give you (sometimes good) recommendations, as well as charge you as much as $35 to $100 per transaction! Some firms even charge a percentage of what you buy, which, if you put in thousands of dollars, can really be expensive.
There's a better way. On line accounts like TDAmeritrade, Scottrade, Charles Schwab, Fidelity, Sharebuildre, Ameritrade, E-trade, Vanguard, etc. can offer you trading services as low as $3.99 a transaction with an average of about $10 a trade.
We like TDAmeritrade. It offers a full range of services and some pretty good research tools at $9.99 per transaction. With $2000 start up, we get 30 free days of transactions as we get going, which many of the services offer as well.
We're not advocating any of these services. Do a little research and pick the best one for you. If you need a little help, go to Forbes.com or go to Google and type in "best e-brokers" and see what pops up.
You pick your stock broker and now you're ready to jump in.
Opening the account will probably include the e-trader having to send a small amount of money into and then out of your checking account (usually a few pennies) just to see if the path is valid and reliable. This will take a few days.
If you've decided to open up an IRA account at the e-trade site, just remember you won't be able to take that money out until your 59 and 1/2 years old without significant penalties. Otherwise you'll be opening a regualr account, which we'll be paying taxes on at the end of the year. We'll talk more about that later, but it's important to know.
In the meantime, this might be a good time to do a little background reading. Nothing too heady or you'll get discouraged. Mad Money's Jim Cramer books are pretty good to get started. William O'Neil's book's are highly rated.
Get acquaintd with some of the newsletters. Barron's. Standard & Poor's. Investment Business Daily. And of course, the Wall Street Journal.
If you don't understand most of what you read, don't worry about it. Eventually you will.
You're starting a garden here and right now, you're picking a piece of ground, preparing the soil, and getting ready to plant some seeds. We haven't picked out the seeds yet, we're just getting the ground ready.
Ready to make some money!
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