Stock Investing for Dummies | A Simple Guide

Do you want to know how to find a profitable business worth of your investment dollars? You do, but you don’t have the spare time to learn how to invest in stocks properly? In this article, you will see our cheat sheet with the necessary aspects you need to consider (and learn!) before investing.

The information below is crucial. Each bullet point gives you information that can help you understand how the stock market works. It will help you distinguish good from bad investing advice. Also, it will guide you through choosing the right stock, bond, or fund. Finding the best broker according to your needs, won’t be so difficult. After all, the more informed you are, the better. So, let’s take a look at the five cheat sheet steps for successful stock investment.

First: What is Your Reason for Investing?

• Understand why you want to invest in stocks in the first place
• Think about your current financial situation, think what your goal is and build a plan
  • Prepare your personal balance sheet and make sure you have an emergency fund
  • Look at your cash flow statement
  • Determine your financial goals and know the difference between long-term, intermediate-term, and short-term goals
• Learn the different investing approaches and find the one that works best for you
• You can start by using investing strategies of successful investors

Second: Understand the Basics of Stock Investing

• Know the risk and volatility involved
  • Consider different types of risks and learn how to reduce the risk (Financial Risk, Interest Rate Risk, Market Risk, Inflation Risk, Tax Risk, Political and Governmental Risk, Emotional Risk
• Recognize the role of emotions such as fear and greed
• Learn what exchange-traded funds, common and preferred stocks are
• Understand the basics of indexes
  • DJIA – Dow Jones Industrial Average
  • Nasdaq Composite
  • S&P 500 Index
  • Wilshire 5000
• Understand how market capitalization affects stock value
• Learn how to recognize the stock value
• Understand dividends, dividend rates, and dividend dates
• Know the difference between dividends and interest
• Why an income stock’s yield is essential?
• Learn reading company’s documents
• Should you invest in a bullish or bearish ETF?
  • Hint: Some ETFs include dividend-paying stocks
• Exchange-Traded Funds vs. Mutual Funds – Differences and Similarities
• Learn to read and understand stock tables
• Understand the different technical and fundamental analysis
• Learn how to read charts and to use technical indicators
• Know how to distinguish sectors from industries
• Learn how to locate stocks or funds with screeners (screening tools)
• Is buying on margin smart?
• What are DPPs, DRPs, and DCA?

Third: Gather Information

• Research the company whose stock you are considering
  • What is the net income of the company?
  • Is the net income higher than it was last year?
  • Are the company’s sales higher than they were the year before?
  • What are the company’s fundamentals and niche?
  • Is the company’s management proper?
  • What is the company’s bond rating?

Remember: Once you invest in a stock, you should keep gathering information about the company. You need to stay informed! So, take notes of the company’s profits, sales, and liabilities.

• Use stock exchanges to get more investment information
• Accounting and economic knowledge is a must. Start educating yourself on this topic
• Follow reputable financial news sources – newspapers, magazines, websites
• Keep annual reports
• Gain insight from past mistakes of other investors, companies, traders or brokers

Fourth: Minimize Your Risk

• Become familiar with the stock market. The more you know, the better
  • How does the stock market work?
  • Which are the factors that affect the stock value?
  • How can you maximize your profits?
  • How can you find the best and most reliable information source?
  • How can I get my financial house in order?
    • Set aside money
    • Reduce your debt
    • Diversify your investments
• Keep your skill and knowledge up to date
• Compare the company’s growth to the industry’s growth
• Look at the effects of politics and government on stocks and find reputable resources

Fifth: Choose a Broker

• What do brokers offer?
• How to select the best broker?
  • Institutional or personal stockbroker?
  • Full-Service or Discount broker?
  • What types of accounts is the broker offer? (Cash accounts, Margin Accounts, Options account)
  • Brokerage commissions
  • Margin interest charges
  • Service charges
  • Banking services offered?

Once you have done in-depth research on the company, and you have chosen a broker, you are ready to invest in stocks. Go through each bullet point in this article to gain the necessary knowledge. By educating yourself and understanding how the stock market works, it would be easier for you to find a profitable business worth of your investment dollars.

However, until you gain experience, consider buying in smaller quantities. By doing so, you will prevent potential future loss of your initial investment. Also, if you want to grow your money, don’t do what others tell you to do! It is better to watch and copy what other people do than to do what they say. So, it is smarter to rely entirely on your own judgment.