Your Questions About How To Pick Stocks To Buy

Laura asks…

What type of professional would I consult to help me invest in individual stocks?

I have about $700 dollars to invest on a monthly basis. I have been learning about stocks for a few months now but it really takes time to research a company’s finances and track performance. This is time that I just don’t have. Would I consult with an investment banker or someone who does financial planning?

John answers:

I understand your frustration. There are several problems with finding someone who will do this for you.

First, a professional charges a minimum fee for each transaction, therefore one fee for buying and one for selling. Assuming the minimum is $35 it will cost you $70 per stock. Therefore, you will need a 10% return before you begin to make any profit. It also narrows your choice of stock as you would need to limit your choices to stocks that are less expensive. Some ‘professionals’ are simply investment representatives who have been hired for their sales skills and have no background in financial planning. They will recommend whatever their company is pushing or whatever they have heard someone else is selling. Their sales skills will be top notch but their knowledge will be less than yours. Make sure that they have at least achieved the status of Certified Financial Planner and not just their license to sell. You will notice that some of these salesmen answer questions on this site as a way to promote their company.

Most of that fee goes to the company and very little goes to the advisor. As he is only performing one transaction for you in every month, he will make very little time for you. It is not worth his time and effort until your account grows to a substantial amount.

Many advisors do not have the education or inclination to research stocks and recommend them to clients. Large financial firms have research departments that recommend particular stocks that the advisor can choose from. These picks are usually large companies that are a safe bet.

You could, with minimal research, choose to buy either a mutual fund, where you pay a money manager to make the buys and sells, or an ETF which is like owning a piece of the market.

Many of the online brokerages have excellent research material available. With a little time and effort, you could do your own buys and sells at a much lower cost to you. As you would only be buying one stock per month, you could set aside one evening to do research and choose a stock.

The key to making money is to diversify and to have an exit plan. Diversification is more than buying different stocks. It means that you have investments that include cash, bonds, equities, etc. Chosen from different countries and in different fields. Your exit plan could include stop losses, options, etc. Always remember that “what goes up, must come down”.

There is a book called Investing for Dummies which is an excellent book to get you started. It would also be a good idea to use one of the accounts with play money so that you become familiar with procedure and the wisdom of your choices.

For a fee, you can consult with a financial advisor who charges you for their time but does not sell any products. They can set up a plan for you to help you get started, taking into account tax consequences, etc. You could make this an appointment that you keep on an annual basis.

You can also visit the websites of a number of financial planners in your area. What stocks do they have listed on their sites? What items do you buy on a regular basis? Are there any items that you have recommended to others? Do some research on the company that produces those items – would they be a good investment? Do you want solid blue ship stocks or a shooting star?

James asks…

What is the stock market all about ? How can I make money and start at it ?

I am interested in learning about the stock market. Can anyone adives me and give me my best options along with how to start at it all ? I have the slightest clue only to wither you gain or lose money.

John answers:

Congratulations on getting started. It’ll help you more than you know!

Your first dollars should be spent on getting educated on investing. You don’t have to train to trade them professionally, but we are talking about your future here. So the more you learn, the more it’ll help you! So let’s start there.

You ask a very broad question, so be prepared for a pretty long answer. Just take it in chunks!

How to invest depends on what you already know. We’ll assume that you’re beginning!

A good primer is How to Make Money in Stocks by William O’Neil. You can get it cheap just about anywhere. It’s widely available new or used.

Another good one is one of Jim Cramer’s books like Real Money (he’s got a few).

But books will only get you so far. At some point, you’ll also want to get at least a little training. There are some great education companies if you want to make the investment. Investools.com or optionetics.com are both very good companies as is tmitchell.com who teaches trading futures.

For free, you can start by visiting thestreet.com and investopedia.com. That’ll get you a pretty good primer so at least you’ll understand what the markets are and what a stock is, etc.

If you get a chance, watch Mad Money on CNBC. Don’t trade any of his picks until you track many of them over time. Just use the show to get you to understand some basics and get a feel for the market itself.

Next, subscribe to something like Investorsbusiness daily or something like that that can help you identify good stocks.

Once you understand stocks, go to 888options.com. It’s a website that’ll help you understand options (what they do, how they work, etc). You don’t need to trade them, but the more you know, the more you’ll see how options can really be the safest way to invest (once you’re educated).

For discipline (which is crucial to successful trading), probably Trading in the Zone by Mark Douglas or Mastering the Trade by John Carter

I know that’s a LOT to absorb. Just take it one step at a time for now. Start with a book or two to give you an idea of where to begin. Take your time, and let it seep in.

As you get up to speed, you should papertrade to practice (highly recommended). This should help reduce your losses in the beginning as you get used to buying/selling.

You can practice for free on almost any reputable broker site (optionsxpress, scottrade, thinkorswim, etc). And yes, you can definitely deal easily online.

Start slow, then as you figure things out, you can buy more shares.

Congrats again on getting started. If you have any questions, please let me know.

Hope this helps!

Nancy asks…

Best stock trading site to use with a starting balance of around 20k?

I will probably only make a few trades per year. l might not make any trades for a long time after I buy my initial stocks. I like the buy and hold stategy. Also I would like to earn interest on my account while it is not invested.

John answers:

In the past I would have said Etrade, or Scotttrade. That’s how I started 10 years ago. But with the recent subrpime mess I would go with Schwab. Etrade is probably going bust anyway.
Schwab can also help you about picking stocks, options, funds or bonds. If you do well Schwab is a good brokerage to be with.
Once you reach $1M go with Merrill Lynch or BearStearn….

Sharon asks…

Should I get involved with the stock market?

I’ve heard that stock markets or buying stocks are good sources of money. But I’m totally clueless on how it works. I want to learn about it and eventually get involved with the market.
But as a total beginner, is it recommended to get involved with stock trades?

John answers:

It’s always a good time to get “involved” in the stock market. Only the very ignorant would think otherwise. The key is knowing what you’re doing.

Start by reading some basic books. Pick from the “dummy” series. In addition to stocks… Learn about Stock Mutual Funds. After the “dummy” series pick a couple of more books.

Stocks are not a get quick rich scheme. If you invest for the long term… It can take 10-20 years before you really appreciate the magic of compounding. If you become a short term trader….. Chances are, even if you study hard… You will fail. But for the few that succeed (year over year) it can be rewarding.

Sandra asks…

What is the most discrete way to buy condoms?

I have never bought any before other than at gas stations. I was wondering if it would be better to buy them at a walgreens or a walmart. the self checkouts at our wal-mart says everything you swipe so i don’t think i would do the self checkout. Trying to gather some tips to make the necessity of buying condoms less embarrassing.

John answers:

Just go into a pharmacy, pick up a box, maybe buy some other things while you’re there to make it seem like you’re not only there for condoms, and just pay for it!

Also, I don’t see the big deal. I mean at least you’re being responsible and actually buying condoms.

No one should really care, they’re probably thinking wow I wish I was as lucky as this guy!

But yea, if you’re still shy and what not, it would be best to buy them while going to buy other things. Maybe stocking up would be good too, would keep you from going back so often.

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