Are you looking to get started in the stock market but don’t know how? Do you feel overwhelmed by all of the information out there and don’t know where to start?
This guide will walk you through everything you need to do to get started buying stocks. We’ll cover the 3 phases you’ll need to go through as part of your routine.
So whether you’re a complete novice or just need a refresher course, keep reading for everything you need to get started in the stock market today!
Phase 1: Make Sure You Are Financially And Mentally Ready
Be prepared (emotionally and mentally)
Take it slow and learn all that you can before investing your money to help minimize the risks that are inherent in buying stocks. Failed investments are often due to psychology and lack of preparation (and experience). Preparation must include an understanding of biases such as:
- Anchoring bias — This comes in many forms such as ‘absolute historical values’, which is when investors hold on to an idea that a stock must stay or exceed a certain price (such as the acquisition price) while ignoring fundamentals that may suggest otherwise. It tends to go hand-in-hand with confirmation bias (see below).
- Commitment bias — Otherwise known as the ‘sunk cost fallacy‘, which tends to show itself when investors have bought into poorly performing stocks and decided to hold on to them with the hope of it recovering, despite all signs pointing towards letting go.
- Fear of missing out — In other words, getting caught up with emotions of greed and either buying into stocks too early, or blindly following ‘stock hype’ generated by media/friends/family.
- Confirmation bias — When investors seek out only information that supports their beliefs while ignoring information that contradicts them.
You should also be ready for your emotional response when a stock falls after buying, and learn to manage emotions of fear and greed — the 2 emotions often responsible for all the psychological biases listed above.
➜ Related Article: 9 Common Investing and Trading Mind Traps (Ignore Them At Your Own Risk!)
You must create a safety net and pay off debts first.
An important task to take care of before you can begin buying stocks is to set up an emergency fund or safety net and to pay off your debts including credit cards and high-interest rate loans. You should try and maintain a fund with enough cash that can sustain you for a minimum of six months should you experience a job loss or unexpected expenses like large medical bills. You also don’t want to be paying more interest than what you receive in returns of your investments so it’s best to pay off all debts first.
➜ Related Article: How To Save Money in 10 Simple Steps
Set up an online brokerage account
A brokerage account is set up just like a bank account, but rather than showing your cash balances, it will show what stocks you own and how much they are worth. The brokerage account is where you conduct all of your buying and selling of stocks. There are fees associated with a brokerage account since brokers charge a commission to act on your behalf. And one of the things people don’t realize until they actually start buying and selling stocks via brokers is the ridiculous fees you can rack up – which then end up eating into your profits and capital gains.
For example, in Australia, brokerages tend to overcharge on their fees and personally, I hate seeing that.
So make sure when you start investing or trading, aim to find a brokerage that is less than $5 dollars a trade especially when you’re investing overseas or in the U.S. markets. You must find one that is low in cost and can minimize the number of trades you make. Not choosing the right broker can take a significant bite out of any returns.
A simple google search will help you identify the best one for you.
Phase 2: Research and Buy Stocks
Decide what stocks to buy
The ultimate goal is to invest in high-quality companies that you plan to stick with for the long term. You want to buy them when they are trading at a discount to their intrinsic value.
In other words, you want to maintain a margin of safety.
As beginners, aim to invest in large, high-quality companies known as the ‘blue-chip’ companies. Stay away from the less established companies, known as ‘small-caps’, as well as biotech companies until you have some more experience under your belt.
An important piece of advice is to ignore hype as much as possible. Investing in companies that tend to show up repeatedly in the business news and are touted as being a good stock or industry may increase the likelihood that you will be overpaying.
➜ Free Tool: If you’d like some help identifying what I consider the top 1% of companies to research further for your investing, I highly recommend downloading a FREE copy of our 10 Must-Have Stock Checks. It’s saved our students hours of research everyday, and only requires 5 minutes to implement.
Ensure the market is somewhat stable
When the markets are more volatile, it will have a greater impact on the value of your stocks – both positively and negatively. So as a beginner, you want to ensure that the markets are in good shape before you start buying into any stocks.
Check things like:
- The overall stock market trend (is it going up or down?)
- The unemployment rate
- Interest rates
You can find all of this data online or in the business section of most newspapers. If you want to dig a little deeper, you can look at the level of volatility in the markets.
➜ Free Masterclass: If you’d like some help with analysing the market, you can check out our FREE 90-minute Online Masterclass. It’s specifically designed for beginners wanting to start investing and will give you an overview of the markets, what to look out for, and some actionable steps you can take today.
Execute the buy orders
Once you’ve decided on a stock to buy, it’s time to actually make the purchase. This is a pretty simple process.
If you’re using an online broker, simply find the stock ticker symbol in the search bar and hit ‘buy’.
You will then need to specify how many shares you want to buy and at what price. The order should be executed almost immediately. If it’s not, contact your broker.
A couple of things to remember when buying stocks, are position sizing and diversifying properly – this basically means not putting all of your eggs in one basket/stock.
➜ Related Article 1: Position Sizing: How I Sleep Like a Baby at Night with my Stock Portfolio Intact
➜ Related Article 2: Rookie Mistake: How Most People Get Portfolio Diversification Wrong
Phase 3: Monitor and Sell Stocks
Monitor your positions
After you’ve made your purchase, it’s important to keep an eye on how the stock is performing – just in terms of the share price, but more importantly, in terms of the underlying business.
You want to make sure that the company is continuing to perform well and that there haven’t been any major changes or announcements that could negatively impact the stock.
You should be monitoring your stocks at least once a week, but ideally, every day.
One of the hardest things for beginner investors to do is be patient. It can be tempting to check your stocks every day (or even multiple times a day), but this isn’t going to do you any good. In fact, it will likely just make you anxious and stressed out.
Monitoring your positions too closely will also make it more difficult to stick to your investment strategy and sell when you’re supposed to.
The best thing you can do is set up a system where you track your stocks once a week (or even once a month) and then just leave them alone. This way, you can stay calm and rational, and make decisions based on actual data, rather than emotions.
Warren Buffett has said that investing is a no-called-strike game. That means that you are not going to be penalised for waiting for the right pitch to be thrown. There may be an opportunity cost, but it is far better to wait for an undervalued, high-quality company that you are comfortable investing in for the long term than rushing into the wrong investment opportunity.
Sell when it’s time to sell
The decision to sell a stock is just as important as the decision to buy it. There are a few different scenarios where you might want to sell a stock:
- If the company’s fundamentals have changed
- If the share price has reached your target price
- If the market and/or stock technicals indicate the price might drop soon
- If you need the money for something else
It’s important to have a plan in place for when you will sell a stock before you even make the purchase. That way, you won’t be emotional about it when the time comes.
One way you can do this is by using a Stop Loss Order, however, that method has its disadvantages as well.
➜ Related Article: What is a Stop Loss Order? (The Ultimate Guide)
Investing in stocks can be a great way to grow your wealth over time. However, it’s important to remember that there is risk involved and you could lose money.
To minimise the risk, it’s important to have a solid investment strategy in place and to diversify your portfolio by investing in a mix of different stocks.
If you’re new to investing, the best thing you can do is start small and gradually increase your investment amount as you become more comfortable with the process.
There are a number of different ways to buy stocks, but the easiest way is to use an online broker. Once you’ve decided on a stock to buy, simply enter the ticker symbol and execute the trade.
It’s also important to monitor your stocks and sell when it’s time to sell. Remember, investing is a long-term game and you want to be in it for the long haul.
I hope these practical tips will serve as a good starting point for you since you are considering in investing in the stock market. Remember to enjoy and learn a great deal as you embark upon your investing journey!