How to pick and invest in stocks

Earlier today, I told y’all the basic truths of financial independence as a single housewife.

Here’s the tip that made the biggest difference for me: I started squirreling my money away by investing it in stocks on a trading website.

Before I started using a trading site, I was intimidated by the very idea of doing such a thing. How do you know what stocks to pick? How do you get advice? What if you lose money? Don’t you need something like $10,000 just to open an account at one of those places?

Those are the kinds of questions that prevented me from taking control of my investment for years and years.

I started using ShareBuilder because it seemed easier than other sites I checked out, and there wasn’t a huge minimum balance to start an account. (Just to be completely above board about this post, I am a fan of ShareBuilder, but I don’t work with or for the company, and I’m not getting compensated to say anything nice about ‘em. I just use the website.)

I set up a monthly withdrawal from my checking account to my ShareBuilder investment account. I began with just $50 each month split up between two or three stocks. I picked Berkshire B (that’s the ticker symbol BRK B, and I chose it because I just love that Warren Buffet, the guy who heads up the Berkshire Hathaway fund) and an ETF (that’s exchange-traded fund, picked on advice from an experienced friend).

As the months went by, I increased my monthly investment amount, and I researched some stocks to buy, mostly going with my gut and choosing older American companies to invest in. (True story: I once found myself with $200 extra after paying the bills and bought $200 worth of the stock ticker BRO as a joke. Turned out to be the best stock pick I’ve made yet. I do not recommend this method.)

While I do recommend investing in BRK B just as a matter of principle, I have a couple other general pointers for how to pick stocks:

  • Don’t buy stock in hip, new, trendy companies. It’s risky, and unless you really, really know what you’re doing, you might lose bigtime. (Remember, in my day job, I’m a finance and technology reporter, so I do have some expertise in this one matter.)
  • Check out companies that get picked for annual lists in publications like Forbes or Fortune. Check out the lists of best American companies, best publicly traded small companies, best companies to work for, etc. A team of journalists did a fair amount of research to come up with each of those lists, and that makes this approach akin to a very light version of fundamental analysis.
  • When you have a good idea based on your research of some stocks you might like to buy, use Google Finance to look up the stock symbol. See how it’s been faring over the past year or so. The markets fluctuate violently sometimes; did this stock fluctuate a lot, as well? Is it recovering or on an upward trend? Simply looking at the numbers and charts you see there is the simplest form of quantitative analysis or technical analysis, two other approaches to investment.
  • Once you do these super-duper light versions of fundamental and quantitative/technical analysis, dip your toes into the water. Put $20 or $25 per month into that company’s stock, and just see where it goes. If you wait a couple months and you lose 4% or 10% or even 20%, you shrug and you sell, and the bet only cost you a few bucks. If you start gaining and you like what you see, you can start increasing that investment.
  • Finally, remember that you are not a day trader, so you don’t need to be obsessing over your stocks’ performance every day. You’re in it for the long haul, so check in a couple times a month on your nest egg, not more.
  • If the general stock market takes a dip, do not freak out. The stock market has been diving and recovering since its inception. In fact, a down period can be a really, really great time to buy stock that would otherwise be out of your price range, or to pick up a few extra shares of a stock you’re already investing in. This is a very basic principle of contrarian investing.

Keep in mind, I’m not a financial advisor or a professional trader. All that advice up there is just one girl’s approach to a very complicated matter, but it’s served me well. Overall, I’ve made more money than if I’d just used a savings account, and it’s allowed me to reach some pretty great financial milestones.

The most important thing is just to start sockin’ your money away. Do it early, do it often, and do it more and better as time goes by.

(Many thanks to 401K for the Creative Commons image!)

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2 thoughts on “How to pick and invest in stocks

  1. Pingback: Austerity month: How you can change your financial life in 30 days | The Single Housewife

  2. Curious if you recommend the stock market investing over an ING type savings account? I know the yield can be much higher in the stock market, but there’s also ore chance for a loss. What are your thoughts on splitting your investments, part to stocks/mutual funds and part to a more stable savings account?

    BTW, love the blog and very much identify with where you’re at!

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