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How to Buy and Sell Stocks |
Stocks are a lot like sex in high school: Everyone pretends to know
everything, few actually know anything, and nobody ever lets on about
what they don't know. Here's what to look for, and how to build a stock
portfolio that's right for you.
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Steps: |
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1.
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Understand how stocks operate. Stocks are a form of equity investing,
because when you buy shares of stock you actually get partial ownership
of that company. When a company does well, its value increases, and so
does the value of the shares. |
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2.
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Clarify your investment goals. Do you need to stockpile funds for your
retirement or are you looking to purchase a house within two years? Or
are you looking for investments that produce income? As a general rule,
the longer the investment time frame, the more aggressive you can
afford to be. |
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3.
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Determine how stocks fit into your
overall portfolio. Stocks, like all investments, should take up a limited
portion of your assets according to your master financial plan. Construct an
asset allocation for your entire investment portfolio, decide how much of it
should go to stocks, and stick to that percentage. As stocks gain and lose
value, you may need to buy or sell to maintain your planned mix. |
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4.
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Start with simple parameters. Pick companies that you know and products
that you're familiar with. Do you use them? Are they good? |
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5.
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Review stock analyses from research firms like ValueLine and
Morningstar, which sell subscriptions to their reports. Local libraries
typically carry recent issues. |
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6.
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Calculate the stock's price-earnings (P/E) ratio. This ratio divides
the price per share of the stock by its earnings per share. This shows
you how expensive a stock price is when compared with the company's
actual earnings. As a rule, the higher the P/E, the more the potential
of the company may already be priced into the stock. |
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7.
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Get professional help. The most traditional avenue is through a
brokerage house, where you can get firsthand advice from a broker. But
you'll pay a commission for any transaction. |
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8.
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Look at online brokerages and discount houses. The commissions are low,
the trades are quick, and the research resources are often extensive,
but you won't get any hand-holding. |
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9.
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Match your stock to your needs and temperament: Invest in risky stocks
only if you have the stomach and the time to ride out market
fluctuations. |
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10.
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Diversify for greater safety. When buying several stocks, mix things
up. Buy stocks from different industries, and balance aggressive stocks
with more conservative choices. |
