Picking stocks is an endeavor that takes practice, patience, and preparation.
The Stock Market
“A man must believe in himself and his judgment if he expects to make a living at this game.” Reminiscences of a Stock Operator by Edwin Lefevre.
The stock market is a fantastic invention. It allows investors to buy a piece of something bigger than themselves.
I was introduced to the stock market by reading several of Jim Cramer’s books and watching CNBC. But I didn’t get into the market until Robinhood removed the commission barriers. Robinhood allows anyone with a smartphone and five bucks the opportunity to buy and sell stocks – commission free.
Why Stocks?
Most employers no longer offer a paid “railroad” retirement and with the uncertainty within social security most Americans are left to invest via their 401(k) at work, IRA’s on their own, and brokerage accounts. Most investors are seeking capital conservation or growth. That stock market has proven itself to be a great investment over the long run.
Along with stocks many investors use real estate as an investment vehicle. With the advent of crowdfunding platforms, investors can now invest in real estate without buying a rental property.
Value vs Growth Stocks
As you attempt to invest there are several different strategies you can follow. Many investors fall into one of two camps. Value investors or growth investors. Value investors are normally looking at stocks with a low PE, (price to earnings ratio) sustainable dividend, and a stable history of being a market leader. To learn more about value stocks you need to read about Warren Buffet and his investing philosophies.
An investor seeking pure growth is looking for innovation. This usually comes from a newer company that is trying to implement new technology or disrupt an existing industry. When I think about growth I see a Tesla driver going down the road with an iPhone in his hand while he is searching for something on Google and checking Facebook.
Fundamental Analysis
To pick stocks, it helps to have some sort of financial education. I’m not referring to college but more of an in-depth understanding of financial statements, ratios, and jargon. Fundamental analysis involves looking at quarterly earnings, market analysis, economic reports, and financial statements. A fundamental stock analyst is attempting to project the future value of a company and how that would relate to the current stock price.
Technical Analysis
Technical analysis is used by stock traders that like to study the price movement of stocks at different time frames. You can learn about momentum, support, and resistance, candlestick patterns, and numerous chart indicators. An indicator is something you can add to a stock chart. Technical traders study the stock’s average price and watch how it relates to other factors like volume or momentum and try to predict what a stock will do next.
Buy the Market
The popular John C Bogle, the founder of Vanguard, introduced us to index funds. His stock picking philosophy is based on low-cost funds that hold small positions in many companies. Many of his followers seek to own only a couple of Vanguard funds that basically represent the whole US stock market, the US Bond market, and can include international stocks too.
Getting Help with Stocks
If you are new at picking individual stocks to invest in it would be wise to seek some guidance. Reading and studying the markets are great. The internet is full of advice and free information.
Some of my favorite sources include:
If you want to learn more about chart patterns, indicators, and price action I suggest checking out TradingView.
After you open an investing account with SoFi or Robinhood it might be beneficial to looking a third-party stock-picking company.
The Motley Fool would be an excellent choice to try. The Motley Fool was founded in 1993 and despite the unique name they do offer some great advice. The Motley Fool runs several different subscription services that give investors stock picks, historical research, and best of all access to a community of other investors trying to pick stocks like you.
Morningstar is another excellent company for stock research. Their reports are included with some brokerage accounts and used by many institutional investors. Morningstar compiles a lot of data and shares it with investors seeking to pick stocks.
Follow this link to try out Morningstar.
If you enjoy learning about technical analysis and chart patterns then TrendSpider might be a company you would want to look into. Technical analysis can be a bit overwhelming at first. TrendSpider monitors stock chart patterns and provides some of the analysis for you.
For a seven-day free trial check out TrendSpider here.
Conclusion
As you dive into the financial markets and attempt to pick winning stocks it is important to remember the basics. Always try to only invest with a clear idea of your goals, and budget, and have a plan.
