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How To Choose Your First Stock Right - Investment For Beginners

Your First Step To A Chance To Get Rich

21 st  Nov 2012

Choose Your First Stock RightPicking your first stock right is always a challenging task. It is a challenge every investor will face irrespective of whether they are a novice or a seasoned professional. If you do not have the confidence in your ability to find a good stock yet, you should consider getting some help from a traditional full- service broker or some seasoned investor.

The following are steps that can be very helpful to assist you in your very first in identifying potential winners.

1. Have A Budget

Have a budget with money you can put aside and not use for the next 12 months or longer, depending on your investment strategy. In other words, invest as much money as you can afford to lose. This helps you stay focused and disciplined when you ride through the market changes or explosion. Costly mistakes can be avoided when you stay calm and level headed.

Your budget will dictate the type of stocks you buy. A big budget allows you to go for blue chips i.e. larger, established and stable companies with proven track records and management team. All is not lost if you have a few hundred dollars to start with. You can search for cheaper “penny stocks” that can offer you returns too.

2. Establish Your Strategy

Decide whether you are going in for the long haul or quick gain.

If you are into it for long term gain, research and identify companies with stable historical growth, good management team and a future for potential growth. While past and present performances do not guarantee future earnings, it does indicate a good foundation for you to put your bet in these companies.

With this strategy, you ignore the market noise and stay focus when the market swings.

The other strategy on the opposite end is going in for quick returns. Some investors betting to strike rich quickly look for volatile or cheap stock that is likely to generate large returns within a year. Very much closer monitoring of the price swing is necessary to catch the buy and sell decision to make a profit here. And obviously, this strategy is not meant for people who do not have the time to monitor their investments.

Mistakes investors make here is their reluctance to exit when the market swing in the opposite direction. Instead of cutting losses, these investors end up at the deeper end of their mistakes.

3. Know Your Investment

Understand what you buy is absolutely important as it helps you stay focus on the strategy you go in for.

Do your research on what company to buy stocks in. Look into their financial records, management continuity, nature of business etc. And it is certainly an advantage to you to choose industries which you are familiar with.

Another statistic you may want to check out is the price-to-earning ratio. This, more commonly known as PE ratio, is one of the most widely used measure by many investors to value a company share. It measures the current share price of the company against its earnings per share. Generally, a lower PE ratio would indicate that a company stock is under-valued and hence suggest a "good buy".

Other than the PE ratio, it has to be emphasized that more financial statistics are necessary to support a “good buy” decision. Other financial statistics will probably uncover why the PE ratio is lower compare to other companies in similar industry.

4. Manage Your Investment

While you may not have the leverage to change the course of the company yet, you have at least the full control on when to exit for a good profit or to cut losses, depending on your strategy you had established earlier.

Monitor what is going on with your investments. Keep abreast with the latest corporate updates, check for news alerts on the stocks you bought. Another good practice is to constantly compare your stocks performance to the industry as a whole. This enables you to differentiate between market ‘noise’ versus real market upheaval coming ahead.

 

 

Related Articles :

Stock Investment For Beginners

10 Top Investment Mistakes To Avoid

What Are Shares

What Are Shares Classification 

  

 

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