getting started
The first step is to get a good stock broker. There's about five of the most popular ones to choose from. They mainly vary in the tools they offer, commision rates, fees, and convenience. You must also choose a broker according to your trading style. If you plan to go into day trading, then you don't want to be clobbered by expensive comission fees. The cheapest broker is probably the best way to go, but you must also make sure that the broker provides an easy and fast way to trade online so you don't have to put up with any delays. If you do not plan to trade frequently, then I recommend getting a broker that doesn't charge extra fees for membership maintenance, which is usually charged to those who make too few trades in a given amount of time.
top discount brokers:
- Ameritrade:
$10 per trade
great online interface
nice tools for Apex members including stock screener
- Lowtrades:
very cheap - $5 to $3 per trade
- E-trade:
- Scottrade:
not a bad price - $7 per trade
tools are not as good as Ameritrade though
do your homework
If you are a new to investing, then I recommend you read a few books before you dive into it. Here are some of my recommendations:
- Rich Dad Poor Dad by Robert Kiyosaki - Great motivational books that gives you guidelines to live by if you are committed to becoming wealthy. Also a good introduction to the breathtaking potential of value investing and real estate. Instead of working for money, make money work for you!
- Beating the Street by Peter Lynch - Emphasizes the superiority of buying stocks as opposed to bonds and money market funds. Goes into a deep discussion of investing strategies.
- To the Right of the Decimal: Understanding Penny Stocks by Peter Leeds - I strongly recommend this short book. Penny stocks offer the greatest potential for fast and highest gains. Peter literally spells out exactly what you need to do to be successful in trading penny stocks. Discover the power of knowing investing strategies in the most rewarding area of investing there is - penny stocks! If you apply his concepts, you will successfully more than double your money every year.
why invest at all?
Could it possibly be because you want to be rich? Every beginning investor should know his/her investment goals. It is also important to know your horizon (how much time you have to achive your financial goals). How rich do you want to be? How fast? Only after that assessment, you may choose your trading strategy, whether it is safe and steady or aggressive and risky. The former approach will generally yield smaller gains than the latter.
what do I get out of it?
You are about to embark on a very exciting journey. At first it may be a very discouraging one, but hang in there and keep applying what you learn. Never give up on your dreams and passions. You have the power to make your quest enjoyable. Remember, happiness is the journey, not the destination. A little something that will help you along the way is regularly rewarding yourself. For example, I have made a promise to myself that when I make my first million I will buy myself a Lamborghini Gallardo or its equivalent. Of course that may take a while so I will also reward myself with smaller prizes like going to the most expensive restaurant in the city when I make my first 10 grand. Well, you get the idea so be creative when you pick your rewards and be sure to write them down so you don't forget what you're working for! Be careful though not to make your reward too excessive. You don't want to spend all your money once you have it.
investing in stocks is EASY
Don't know which company to invest in? It's not as hard as you might think. It is important to pick the stock that is very likely to go up, especially if the stakes are high, but very few people can see the future so what do you do? First of all, many people may think that buying stocks is like gambling. If you agree with them, immediately pound that though out of your head! Chances are that whoever says that it is gambling doesn't know the first thing about investing. Therefore, they are not the best source of advice or any sort of wizdom for that matter. Investing in stocks is only gambling if you pick them at random or use the dart-throwing strategy where you close your eyes and throw a dart at the business section of your newspaper. Choosing stocks doesn't have to be like that. There are a number of factors that directly correlate to a company's success. Here are some of the factors to watch out for when picking stocks:
- Look at how many customers are buying the company's product. You don't want to invest in a company if half of their product is being bought by one customer.
- Litigation risk - patent infringements, shareholder lawsuits, environmental violations, employee lawsuits, etc.
- Product Diversity - make sure the company produces a decent variety of products and evaluate the marketability of the product. Who will use it? Will it continute to be used? Evaluate the market and potential obsoleteness.
- Real Estate - check how much real estate the company owns and whether it really owns it or just leases it. Analyze the value of the real estate.
- Patents - check what patents the company owns and when they expire.
- Management Experience - analyze how much experience the senior management has with Yahoo finance or Reuters. Excessive salaries are a warning sign. Check biographies of managers and track down the investment banking firm that took the company public.
- Stock Dilution - make sure the company doesn't habitually dilute their stocks. That decreases the value of it.
- Keep track of the news. If the company seems to be doing very well, chances are that it really is. Verify that with the earnings report. Make sure the future prospects are good. Keep an eye out for new product releases, management changes, and business deals with other companies.
hire someone else to do the legwork
Most of the information listed above can be found in the company's quarterly earnings report. Unfortunately all this research requires a large time investment as well. Most people simply don't have the time or desire to keep track of so many companies that are in their diverse portfolio. The good news is that there are people out there that will do all the homework for you (for a price, that is).
One such service is www.peterleads.com. That is the service that I have signed up for. I recommend checking it out and deciding whether a $170 per year membership is worth it. What they do is have a team of analysts research various companies and publish two stock picks per week. They do a good job of explaining why they thing it is a good pick and they keep you updated with the companies' headlines so that you may decide when is the best time to pull out.
They boast average gains of 150% and an accuracy of over 90%, which I think is an eye opener so I decided to check their record for myself. After looking through their weekly stock pick archive, it is easy to see that generally, they do a good job of predicting the future. I am actually impressed with their ability since most of the time, afer profiling a company, their chosen stock does go up significantly. Sometimes it goes up in less than a month and sometimes it takes half a year for their pick to go up. Other times however, their pick may go down before rebounding to a new high, but all in all, I'd say that they are pretty good. And it makes a lot of sense why they are right most of the time. Simply put, they pick companies that have good prospects. In any case, it is important to be patient. If one of their stock picks actually goes down in the short term, just stick with it, wait it out and eventually you will be amply rewarded.
Another stock-picking service is rollercoasterstocks.com. I have not signed up for it yet but they boast 175.60% average gains with 98.37% accuracy. You may try it out for $179.95 and receive two stock picks per month for a year.
cold feet?
Still hesitant about put your hard earned cash on the line? When it comes to that, it is always a good idea to test the water before diving in. You may start to develop your trading strategies without risking a single penny by creating an imaginary portfolio. With quote.com, you can create and manage your own portfolio by entering in your buying price, and the number of shares. It automatically keeps track of share prices and does all the math for you. You may conveniently check the performance of your entire portfolio and the performance of each individual position. Just to be realistic, use a reasonable amount of money that you will probably end up investing and incorporate a commission fee. For example, if you choose your commission fee to be $10 per trade, that means that it would cost you $10 each time you buy a position and $10 each time you sell, making the round trip a total of $20 in fees. That is why it is usually a good idea to buy a large amount of stock at a time, so that commission fees will be almost negligible.
useful links
Quote.com - Check stock prices and you may create and manage your portfolio for free.
reuters.com - Good source for historical stock price charts.
riskgrades.com - Find out the risk factor of any company's stock.
Pink Sheet Stocks - check out the microcap companies
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