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.
 
Steps:

1. 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.
 
2. 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.
 
3. 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.
 
4. Start with simple parameters. Pick companies that you know and products that you're familiar with. Do you use them? Are they good?
 
5. Review stock analyses from research firms like ValueLine and Morningstar, which sell subscriptions to their reports. Local libraries typically carry recent issues.
 
6. 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.
 
7. 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.
 
8. 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.
 
9. 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.
 
10. Diversify for greater safety. When buying several stocks, mix things up. Buy stocks from different industries, and balance aggressive stocks with more conservative choices.

Bull and Bear Markets