4 Tips On Stock Investing For Beginners

4 Tips On Stock Investing

 

 

 

Question 1: What are the best sites to find the BP (Book Price) for companies?

 

Tip 1: There are a lot of great sites for research. I like Yahoo FinanceMotley Fool and the info available from my brokerage firm.

 

 

 

 

Question 2: Being that investing in companies you’re sure won’t go belly up is the best route, is a person safer choosing a large long lasting company like Nike, Coke, etc or would someone make more money on an up and coming company?

 

 

Tip 2:  The larger more established companies like the ones you mentioned, would be considered large cap stocks. These are stocks that are well-known and generally have a worldwide presence. The benefit of these stocks are they typically have a dividend (they give stock owners a small percentage of there profit) and they are less volatile then smaller stocks. Also because they are already worldwide they don’t have a lot of room for growth beyond the population growth, a change in consumer habits or by buying smaller companies.

 

You can also invest in mid cap, small cap, international or speculative companies. Mid cap companies can be companies you have heard of but are smaller than large cap. Typically they have physical or large presence 1 or a few countries, in addition they have 2 to 10 billion of market capitalization. These stocks generally have the ability to grow faster than large cap since they arent everywhere yet, but they are likely have more competition around their size and maybe larger. As such, they can lose out market share to them, generally go out of favor or be the next big thing.

 

Think Under Armour to Nike. Small cap stock have market capitalization of 300 mill to 2 billion. These can be companies that are big in one region or distribution method but have the potential to grow significantly (nationwide, worldwide) . They have a much greater potential for growth, but they can also be stomped out completely by a larger competitor copying their general formula for success, or creating competing products or services in the areas they are not in to slow or stop their growth. Think Shake shake or blue Buffalo (pet food company) going against McDonald’s or Alpo.

 

 

With speculative or international stocks (not covered under large or mid cap) you have a great chance or growth but an equal or better chance of failure. These are generally the stock you hear went up “50% this quarter” but you are also more likely to hear about accounting irregularities, lost a lawsuit or so the stock is down 30% or that they never panned out.

 

LONG STORY Short the smaller the company the greater the volitility.

 

 

Question 3:  I see you and many others suggest long term investing opposed to selling right when u see the stock get high. What’s the difference of me selling my stock the first time I see it go high compared to me selling it high 3 years from now?

 

 

Tip 3: There’s a number of reasons why people choose long term investing as opposed to short. First you are taxed at different rates. If you sell a stock that you have had for less than one year the profit will be taxed at your ordinary rate. For 2017, that was 10 – 39% but if you kept that same stock for more than 365 days the tax rate on your profit could have been 0-19%. Additionally you have to consider that most people pay about 10 dollars for each buy or sell they make (total, not per stock). With that stated if you find out a major reason why you bought a stock has changed negatively. You may want to sell regardless of any of the implications. Example, If NBC, Fox and CBS Got together with Colombia, paramount and Universal pictures and decided they wound no longer sell movies/TV to Netflix and instead would be buying Hulu and using them exclusively. That would be a reason to cut and run.

 

 

Question 4:  If the stock plummets what happens to my money?

 

 

Tip 4:  When stocks go down so does your money. Example you buy 100 JC Pennys stock for $4/share. At that moment your position is worth $400 ($4×100}. Well, if JC Penny’s releases news the next week that sales are down by 50% year over year and they are still looking for a plan to stop the decline. JC Pennys stock may go down to $2.00 per shave in minutes after the announcement. So if you wanted to cash out. The $400 of shares you had last week are now only $200 (plus the cost of selling the stock).

 

 

 

I WOULD HIGHLY RECOMMEND you save money in a low cost index fund before you invest in individual stocks. Index funds are many stocks rolled up into one investment. Some represent all or most of the market as a whole, large/med or small cap stock and others are one particular industry (Healthcare, banking, gas/oil, restaurants, biotechnology, consumer electronics, alternative energy, etc.. ). With those you are betting on growth of that industry. For example, if you think the President, Congress and the Federal Reserve are going to deregulate banks /raise interest rate. You might pick up a banking index fund. Since you are not betting on just one company you don’t have to worry about bad loans from 5 years ago or shady practices being exposed. As the industry as a whole moves up so does your investment.

 

 

You can also invest in index funds that are even larger that represent the whole market, or all/most med or small cap stocks. For instance one I would recommend is VTI or VTSAX. Both represent Vanguard Total Stock Market Index, which is basically the entire US stock market in one fund. It only has a .04% annual expense (96% lower than the average) . And since 2000 they average a return of 7%.

 

Author – 703Lexus

 

Here’s a few stock investing books for beginners.

 

Also don’t forget to check out the business section in our forum.

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