How to Buy Stocks

Posted by Pierre de la Fortune on December 11, 2015 @ 12:01 a.m.

Written by SloWriter

Buying stocks is not difficult, but you'll need a little guidance if you haven't done it before. On the other hand, making money consistently from buying stock can be very difficult. Most professional funds underperform the index, which means even professionals don't find this easy. So take everything you read with a grain of salt.

1) Do nothing until you know what kinds of stocks to buy and under what circumstances to sell. Go to the local library to find books on stock investing. A few good books to start with include "The Intelligent Investor" by Benjamin Graham, "Secret Code of the Superior Investor" by James K Glassman, and "The Future for Investors" by Jeremy Siegel.

2) Avoid the common mistakes that plague new comers to the stock market, chief among which is speculation in stocks. Speculation takes many forms, including buying and selling too frequently trying to make a fast profit within months, chasing the hottest stocks (stocks with the biggest recent gains), also known as "momentum investing", feeding the dogs (i.e., indiscriminately buying stocks with the biggest recent losses or trading at low valuations), buying penny stocks (stocks of small companies trading at less than $1), buying stocks on margin, short selling, buying options and financial futures. Speculation in stocks is a long-term losing strategy. If you are not yet fully convinced not to speculate, practice trading on paper, ie. do not actually trade stocks, but pretend that you are buying and selling stocks, and record the transactions on paper, or in a computer spreadsheet. Make sure to include commissions and taxes in each transaction.

3) Put your finances in order. Pay off as much debt as you can and minimize the loans you're taking out. Ideally, all high interest rate loans should be completely paid off first, and the only loan, if any, you should have is mortgage on the home you live in. Build three to six months worth of expense in a separate savings account before you start buying stocks.

4) Make a wish list of stocks to buy. These are stocks of great companies that you intend to hold forever through thick and thin. Set a target price to buy for each stock that you can buy and sleep soundly at night. For example, say after doing your due diligence, you decide Minnesota Mining and Manufacturing (3M) is great stock to buy, but the price is selling a little too high right now at $95/share. You would like to buy at $80 or less. Taking a look at the price history (, you see that the stock is selling at an all time high, and was trading around $80-90 last year, and as low as $45 two and a half years ago. So $80/share is quite reasonable a target. Why not make it a tad lower, say $75? The key to successful investing is to stick with your strategy over long period of time. So once you set your target, and the stock hits the target price, you buy, and continue buying as the stock goes lower.

5) Choose a reliable discount broker. Since this is a fast changing field, just search online for "discount stock brokers" and see what comes up. Minimizing fees and expenses is key to successful investing. Most discount brokers charge less than $10 commission per trade, regardless the size of the trade. Some brokers may even offer a certain number of free trades, provided you meet certain criteria, so make sure you read carefully before committing to a broker. The best brokers also offer no fee dividend reinvestment, good customer service, and various research tools for customers. Some brokerages have varying levels of services; pick one that is best for you. 6) Send the broker an initial deposit of funds. (Your broker needs this money to purchase your stocks.) The usual minimum is $2000 but can be as little as $500.00. Some online brokers don't require a deposit at all.

7) Your broker must report your stock trades to the IRS. You will need to fill out the required forms and mail them back to the broker, possibly even before they will allow you to make your first trade. (Your broker will send you the forms.)

8) Select your stock, notifying your broker of the company's "symbol" (a 1-4-letter code), the price you're willing to pay per share, and the length of time for which your offer will be valid (e.g. Single day vs. Good till Cancelled).

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