Online Investing For Beginners Guide: How To Do Stock Research

So by now you read our first guide about how to open an investment account and you are ready to put some real money in to the market. Congratulations on making it this far, some of your less tech savvy counterparts may have given up on investing online at this point and have already called a broker for help. So now that you’re ready to actually plunk down some dollars on a stock, you might be wondering how to choose a stock to buy. Good news, part two in our online investing for beginners guide is how to do stock research.

To be honest (and a bit wishy washy) stock research can be as complex or as simple as you want it to be, but the more research you do on a company and its stock, or on a mutual fund, the more you can be sure that you found the right investment for you, and that it will provide the return you were looking for at an acceptable risk level for your portfolio.

One of the simplest steps you can take to choose a stock is to pay attention to everything around you. Being more specific, let’s say you notice at the gym that nearly everyone is wearing a hot new brand of shoe that came out just a few weeks before. Later in that day you go to the mall and notice that the shoe store is sold out of that brand… that should be a key to you that this company is a stock to research.

Now to be fair just because a company’s product is selling like hotcakes doesn’t mean its stock is doing well, after all they could be losing money on the deal, but as a general rule popular products usually lead to successful companies and an increase in stock price. As soon as the IPod took off so did Apple’s stock. If you got in on that train you would be enjoying your money rather than reading this article.

Now looking around you and finding popular products is a good start, but once you find the company what should you do next? Well first start with a popular free investment research site and do some digging. Sites like Yahoo Finance and Marketwatch do a great job of providing every information that you need to figure out if your stock is worth buying or not.

The first thing I usually do when I am researching a stock is look at the most recent news about the company. If any major changes like the resignation of the CEO or a product recall appears I immediately stop looking. A dramatic news headline is great for the local news broadcast but it isn’t great for your investment, even if it is good news. But wait, why would a good news story be a bad thing? I’m glad you asked.

There is an old saying in stock market investing that you should buy low and sell high, and I don’t think anyone would disagree (well, except maybe short sellers but that’s another topic for another day). By the time you are reading that good news headline 90% of the investment community is already all over that stock. When CNBC or another financial news network talks about the stock going through the roof that is probably the stock’s highest point, or at least close to it. If you were to jump in and buy the stock now you probably would be buying high, and when the stock cools down and investors take gains (sell stocks at its high point) then you’ll have lost money on the stock. Hopefully that makes sense. The real trick is to buy the stock BEFORE the news hits, which can be tricky to do.

Once you have browsed the news on your company, you want to take a look at the company’s financial history. Now I don’t expect most of you to be breaking down income statements and balance sheets, but you should look to see whether the company has actually made money in the past and see what kind of track record their managers have. It’s entirely possible that a company with a poor history is about to break through, but as a beginner online investor you should play it safe with your money and go with an established stock or mutual fund. I typically look for at least a couple years of positive income.

The last thing you should do for basic stock market research is to look at the financial outlook of the company. Since you’re not Warren Buffett you probably won’t get a personal tour of the company and a presentation of how they are doing but you can find this information in other ways. If you look you can find a combination of press releases by the company itself, as well as opinions of various financial market analysts. Take the time to read and understand these statements and judge for yourself whether you agree with them or not. You want to make sure that you are investing in companies that at least have a semi-positive outlook for their future.

Typically companies will have a rosy outlook on their company, with a positive spin on a bad outlook sometimes, but by law they cant lie to investors so there is some truth in their press releases. Personally I put more stock in what the investors have to say, since they are usually unbiased. Whenever possible I try to get the opinions of more than one investment analyst who is following the company (and if you are investing in blue chip stocks then you should be able to find many analysts) and get a general consensus on the company’s outlook. When I find one that looks generally positive across the board it might be time to buy.

So there you have it, a beginners roadmap to investing. Now this advice is very general, and there is a lot more research you can do if you’re so inclined but generally speaking these three steps will give you a good foundation on which stocks to buy.

© 2010 Online Investing For Beginners

No related posts.

Online Investing For Beginners Guide: Open An Online Trading Account

So you’re new to online investing and you want to get started? That’s great because over time stocks have outperformed nearly every major investment option out there, provided you pick the right ones. Before you rush out and buy some online investing for dummies book, we’ve put together a guide to online investing for beginners so we can take you through all the steps you need to get started online investing, and the best part is it’s free. Let’s get started shall we?

How To Open An Online Investing Account

There are literally hundreds of online investment companies out there that would be happy to have your business and believe me they’re doing everything they can to lure you in from making their online investing interface easier to use to lowering commissions so investors who want to buy stock with little money can play in the market too. There are about a dozen online investment companies that I refer to as “power brokers”, companies like ETrade, Scottrade and Schwab… powerhouses in the online investing arena.

As a first time investor I would highly recommend starting with one of these companies rather than someone smaller. My reasoning for this is that these companies get a large percentage of their business form beginning investors so they know how to provide the right online investment services and support. They know how to support new investors either with technical advice or answering questions about online investing. This is not to say that smaller investing companies don’t know how to handle these questions, but as a beginner investor you have a bit of an uphill battle to begin with so why would you want to make things more difficult than they are? I hope that makes sense.

Which is the Best Online Investing Company?

This is a question I get asked often and not to sound like a fence sitter or anything but figuring out which online investing company is the best is a matter of personal preference, largely based on your financial situation. For example, if you plan on making lots and lots of stock trades in your account then you would most likely want to deal with a company that had the lowest commissions so you weren’t charged an arm and a leg for making all of your trades. On the other hand if you were only planning on buying a handful of stocks or mutual funds then you should pay closer attention to fees such as account maintenance fees and minimum balance fees and paying a couple of extra dollars for commissions might be worth it in the long run.

You should also look beyond the fee structure when deciding which online broker to go with. There are a lot of determining factors when choosing a broker like the level of support they provide for beginner investors. Are they available 24 hours a day? Do they charge for support? As a beginner investor you will need support, so you want to make sure you aren’t going to wind up paying extra for asking questions.

You should also consider the level of research information that the broker provides before signing up for an account. Most companies will give you basic information like the current stock quote price (usually 15-20 minutes delayed) and basic financial statement information but do they provide any support in deciding what stocks to buy? Do they provide any risk analysis tools so you can figure out which investment options are right for you? These types of options will vary greatly from broker to broker so you want to figure out which of these you might want and which you don’t feel are very important. Think long term though, just because you don’t think you will use things now doesn’t mean you won’t find a use for them in the future as you become a more seasoned investor.

Learn The Broker’s Online Investment Tools

No matter which online investing company you go with, you need to learn how to use their online investment tools properly. Not only will it benefit you in the long run by learning how to use these tools to do proper investment research but learning the stock purchasing tools will make sure you buy the stock you intended to buy and at the price you intended to buy it at. Online investing mistakes can be costly so be sure you understand what you’re doing. Most brokers will have a detailed tutorial for their online investing tools so be sure to take advantage.

© 2010 Online Investing For Beginners

No related posts.