How To Invest in Stocks ( Full Guide )



So, you want to invest in stocks? The first rule is to invest in what you know, but it’s actually not that simple. It’s not enough to simply understand the underlying business…you have to understand what makes a good investment, well, a good investment. There exist different schools of thought here, and investing is part art and part science. You can predict and hypothesize as much as you desire, but no one really knows exactly what’s going to transpire. Some different styles of investing include:

Swing Trader
A swing trading position is held longer than a day trading position, but shorter than a buy and hold investment strategy that can be held for months or years. Typically, a tradable asset would be held for days at a time in order to profit from price changes or 'swings.’ Profits can be attained by either buying an asset or by short selling.

Value Investing
A value investor believes that the market overreacts to both good and bad news. He/she would look for stocks that they believe the market has undervalued; thereby profiting by buying when the price is deflated.

Growth Investing
Growth investors invest in companies that show above-average growth. Growth investing focuses on capital appreciation. Growth investing kind of contrasts with value investing.

Great chess players don't sit at a board and just…play.
Masters of the game have a very concrete plan of how they intend to play. They decision-making that can adapt to whatever their opponents throw at them. Investing is no different: you need a plan to guide your investment decisions!


Here are the necessary steps to buy stock:

  1. Learn the basics
  2. Figure out your investment goals
  3. Determine your risk tolerance
  4. Find your investing style & strategy
  5. Learn the costs
  6. Find a broker/adviser
  7. Pick your investments
  8. Keep your emotions separate
  9. Review and adjust your portfolio


Want to invest like The Greats? Take a look at the strategies these big guys used to earn their names:

Warren Buffet
Warren Buffet is considered a value investor. Essentially, he selects stocks that are priced at a significant discount to what he believes is their intrinsic value. When Buffett buys stocks, he buys them for keeps. This requires a lot of discipline: it’s hard to resist buying or selling when the market seems perfectly ripe to act.
Buffet views the stock market as temperamental. He doesn’t panic when stocks plummet, or celebrate when they skyrocket. Instead, the Oracle of Omaha maintains the “keep calm and carry on” mantra, only buying stocks he intends to hold indefinitely, if not forever.

Peter Lynch
Lynch is also a   value investor   who stresses   fundamental analysis . Lynch’s bottom-up approach involves focusing on an individual company, rather than the entire industry or the market as a whole. The idea here is that what really matters is the quality and growth potential of a specific company, regardless of whether the industry is under-performing or even in a tailspin.

Here are 3 additional Lynch stresses when looking at a company from the bottom up:
  • Good research pays off
  • Shut out market noise
  • Invest for the long term

Philip Fisher
Philip Fisher was a growth investor. He consistently invested in well-managed, high-quality growth companies. He would hold on to these for the long term. His famous "fifteen points to look for in a common stock" were divided up into two categories: management's qualities and the characteristics of the business itself.

When Fisher found an investment he liked, he wasn’t afraid to take an outsized position of the stock within his portfolio. In fact, Fisher sometimes downplayed the value of diversification. He often found himself scouring the tech sector because the pace of c hange there creates an environment that is ripe for disruptive innovations.


You know you are ready and willing to invest. Now it’s time to decide in what. Make sure to:

Research ETFs
Find the exchange-traded fund which track the performance of the industry and check out their holdings.

Choose Sectors
Select your stocks based on specific criteria (sector, industry etc.) Use a screener to further sort companies by dividend yield, market cap and other super useful metrics.

Stay Informed
Keep up-to-date. Read stock analysis articles. Read financial news releases. Stay critical.

Types of Investments

Bonds, or fixed-income securities, are debt investments in which an investor loans money to an entity, with interest. The borrower borrows the funds for either a fixed or variable period of time.

Mutual funds are operated by money managers and should match the investor’s objective. They are made up of a bunch of funds collected from many investors and the purpose is to invest in securities like stocks, bonds, etc.

Small-cap investors are the risk takers. These small companies have huge potential for growth. However – because they are often under-recognized, more research is necessary. This requires the investor to have more time available to properly crunch numbers.

Large-cap investors are more conservative – these guys like to play it safe. With their steady dividend payouts, these big-cap blue chip companies are as stable as they come

Penny stocks are super high risk because of their lack of liquidity. Beginners are often lured in to these stocks because of their crazy low share price. This allows investors to hold thousands of shares for a relatively small amount of invested capital. With a scale like that, the gain of just a few cents per share can translate into major returns.


Within each stock sector, the ultimate goal is to find the stocks that are showing the greatest price appreciation. In the same way that one would pay attention to sectors, multiple timeframes should also be examined to make sure the stock in question is moving well over time. There are two main things to keep an eye on when selecting stocks:

It isn’t smart to invest in a stock that has very little volume. What if quick liquidation is required? Selling it at a fair price will be extremely difficult if not impossible. Unless you are a seasoned trader, invest in stocks that trade at least a couple hundred thousand shares per day. Save yourself the headache.

Trade in stocks that are at least $5. Don’t shy away from a stock just because of its high price. Don’t buy a stock just because of its low price.

Are You Know?
Apple to Invest $1 Billion in SoftBank Fund to Support Tech
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Macy's plans to cut 6,200 jobs

How to Invest in Stocks

Like many new investors, you've decided to invest in a company and pick up your first shares of stock, but your limited knowledge leaves you wondering how to actually do it.  Don't worry!  This overview was designed to help you learn precisely that - how to invest in stocks.  To be more specific, for you new investors out there, this page was put together to serve as an introductory depository of investment articles designed to get many of the basics out of the way before moving on to some of the more advanced topics which I've written over the past years.

 I created it as part of The Complete Beginner's Guide to Investing in Stock and it provides a short checklist of topics, complete with links to much more in-depth articles, where you can study whatever it is you want to research about investing in stock.

Once you are ready to move on from these resources, you can check out the nearly 1,000 articles I've written on this site as well as the thousands of articles I've posted on my personal blog, which covers more advanced business, finance, and investing topics.

The Four Major Ways to Invest Your Money in Stocks
There are typically four major ways to invest your money in stocks:

  1. Investing through a 401k plan or, if you work for a non-profit, a 403b plan.
  2. Investing through a Traditional IRA, Roth IRA, Simple IRA or SEP-IRA account.
  3. Investing through a brokerage account.
  4. Investing through a direct stock purchase plan or dividend reinvestment plan (DRIP).

The Five Types of Assets You Might Own When You Invest
Generally, there are five types of assets the average investor is likely to own in his or her lifetime, whether or not he or she invests in these assets directly or through a pooled structure such as a mutual fund, index fund, exchange traded fund, or hedge fund:
  1. Common Stocks – When you invest in stock, you acquire an ownership stake in an actual operating business, along with your share of the net earnings and resulting dividends produced by the firm.  Although you don't have to invest in stock to get rich, over the past could of centuries, equities (stocks) have been the highest returning asset class and have produced the most wealth.  To learn more, read What Is Stock?, which will break down the fundamentals.
  2. Preferred Stocks – Preferred stock is a special type of stock that often pays higher dividends but has limited upside.  
  3. Bonds – When you lend money to a country, municipality, business, or other institution, you buy bonds such as corporate bonds, municipal bonds, savings bonds, U.S. government Treasury bonds, etc.
  4. Money Markets – Money markets are highly liquid investments that are designed to protect your purchasing power.  They are considered a cash equivalent.  There are two varieties, money market accounts and money market funds.  There are also at least five other alternatives to money markets.
  5. Real Estate Investment Trusts (REITs) – REITs are a special type of company designation that allows no taxation at the company level provided more than 90% of earnings are paid out to the shareholders.  The assets are often invested in a variety of real estate projects and properties.

The Importance of Research When Investing in Stocks
When researching an investment, there are typically five documents you'll want to get your hands on so you can analyze the relative merit of a potential stock.  These documents, which you should have no trouble finding, are:
  1. The Form 10-K – This is the annual filing with the Securities and Exchange Commission (SEC) and is probably the single most important research document available to investors about a company.
  2. The most recent Form 10-Q – This is the quarterly version of the Form 10-K.
  3. Proxy Statement – The Proxy Statement includes information on the Board of Directors as well as management compensation and shareholder proposals.
  4. The most recent annual report – While reading the annual report, you'll want to pay special attention to the letter from the Chairman, CEO, and sometimes CFO or other high-ranking officers to see how they view the business.  Not all annual reports are created equally. Generally, the best in the business is considered to be the one written by Warren Buffett at Berkshire Hathaway, which you can download from free on the holding company's corporate site.
  5. A statistical showing going back five or ten years.  Several firms prepare this type of information in easy-to-digest formats, mostly for a subscription fee.  Some of the major research houses and products include Morningstar, The ValueLine Investment Survey, Standard and Poor's, and Moody’s.

The Three Financial Statements Necessary for Stock Investing
Before buying an ownership stake in a company by investing in its stock, it is vital that you examine the following three financial statements closely:
  1. The income statement.
  2. The balance sheet.
  3. The cash flow statement.

All three financial statements work together and reinforce one another - you cannot study them in isolation or you'll find yourself making decisions based on partial data; a mistake that can be costly, especially when you decide to invest in stock rather than a more senior security higher up in the capital structure, such as a bond.

Other Tips and Helpful Resources for New Investors Investing in Stocks
Finally, there are some things you’ll want to look for in a company and its management before you buy shares of stock.  I expand upon these tips in the articles listed below.
  • 7 Signs of a Shareholder Friendly Management – What to Look for and Why
  • Ten Part Guide to Beating the Market
  • Making Money in Bad Companies
  • 7 Keys to Successful Investing – Basic Principles for Superior Results
  • Invest in What You Know
  • Rationality: The Investor’s Secret Weapon
  • Business-Like Investing: Thinking Like an Owner
  • The Investor’s Manifesto

In addition, here are a few more articles you'll find helpful in your investing journey.
  • Intro to Stock Trading
  • 10 Steps to Building a Complete Portfolio

How to Invest in Stocks - Stock Investing 101 - TheStreet

Stocks are an equity investment that represents part ownership in a corporation and entitles you to part of that corporation's earnings and assets.

Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stocks provides no voting rights but usually guarantees a dividend payment.

In the past, shareholders received a paper stock certificate -- called a security -- verifying the number of shares they owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.

Investing in stocks can be tricky business. In fact, it's best to treat all of your investment pursuits as a business. Heck, that's what Benjamin Graham (Warren Buffett's stock market mentor) recommended.

Before you buy your first stock, you should master the basics of stock investing. This won't make you a great investor overnight, but only when you understand the fundamentals of investing can you learn how to invest in stocks with confidence.

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