How to Choose a Good Stock: 10 Steps for Beginners
If you’re just getting started with stock trading, choosing stocks can seem like an overwhelming task. The term stock covers such an immense amount of different financial instruments and shares that it can be hard to figure out where to start or how to know if you’ve found a good stock. If you’re still new to stock trading and want to learn how to choose a good stock, this 10-step guide will help you get started.
Step 1 - Learn About Stocks
Learning about stocks can seem complicated, but it doesn't have to be. In order to start investing in stocks you must first learn about them. This is why the first step is learning what stocks are and how they work. Start by reading The Intelligent Investor by Benjamin Graham and The Little Book of Common Sense Investing by John C. Bogle. From there, you'll be ready to move on with your research as you learn more about companies that interest you and their stock price movements over time.
Step 2 - Create a Watchlist
A watchlist is a list of companies that you want to keep an eye on. You might decide to create one when you find out about an interesting company and want to keep track of its progress. To add stocks from the Watchlist, simply click Add next to the stock symbol or name. You can also search by company name or ticker symbol from the top navigation bar.
Step 3 - Start off with Blue Chip Stocks
If you're just beginning your investing journey, then it might be best to start off with blue chips stocks. These are the highest-ranking stocks available on the market, and as such they tend to have relatively low volatility. This means that they don't see nearly as much fluctuation in their prices compared with smaller companies that are still unproven in the market.
Step 4 - Track your Progress
Tracking your progress is important. It will help you stay on track and let you know what's working and what's not. You can use an excel spreadsheet, google docs spreadsheet, or even just a notebook that you keep handy. Whatever works best for you! As long as you're keeping track of it somehow. The two most important things are how much you've invested in the stock (or in this case - the company) and how much profit it has made over time. So if we want to be real basic, if we invested $1,000 in a company and it made $100 from there - our rate of return would be 10%. If we had only invested $100 in that same company and it made $10 from there - our rate of return would be 100% (in percentage terms).
Step 5 - Buy and Sell in the Same Day
This is called day trading, and it can be risky. But if you are careful, you can make money doing this. The key is to buy low and sell high. If the stock does not go up by the end of the day, then sell it at the same price that you bought it. If the stock goes up during the day then wait until the market closes before deciding what to do with your shares.
Step 6 - Understand what makes up a good company
There are many aspects of a company that make it good. But these can be narrowed down into three categories: the company's fundamentals, its valuation, and how the company is managed. We'll focus on those first two in this section.
Before you buy any stock, you need to understand what makes up a good company. To put it simply, there are many things that make up a good company but these can be boiled down into three categories: fundamentals, valuation and management.
Step 7 - Look at Industry Sectors
The final step of the process is looking at industry sectors. There are tons of great companies that are in sectors that may not be your first choice, but the company will be a good investment because it does well in other areas. For example, if you don't like the oil and gas industry, then you could still invest in Exxon Mobil because they also do well in other industries.
Step 8 - Use Fund Management Companies
A great way to get started is by using fund management companies. These companies pool together the money of many investors and invest it in various funds that cover different types of investments. The advantage is that you don't have to worry about doing all the research yourself and they provide advice on which funds might be best at any given time.
Step 9 - Be Patient When Trading Stocks
One of the best tips is to be patient when trading stocks. It can take time to find out if your investment has been a good one, but patience will pay off in the end.
Step 10 - Think Long-Term
If you're in the market for stocks, it's important that you think long-term. The stock market is notoriously volatile, and one good month could be followed by months of losses. To protect yourself from this volatility, you should only invest money that you don't need within the next five years. With this strategy in mind, your portfolio will have time to recover from any fluctuations and give back more than if you had invested without thinking about the long-term effects.
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