Your Questions About How To Pick Stocks To Buy

William asks…

How do I make money from investing in stocks?

I know right now the market is in a bad state. But I would like to get involved once it picks up. How do I go about buying stocks? How do I determine what to invest in?

John answers:

I have some years investing experience, and can share with you some knowledge.

You should follow the Warren Buffet way, according to these steps:

1. Choose the companies whose financial data is very strong
2. Then evaluate the value of the stocks
3. Wait for a deep discount of stock price, buy in,
4. Then wait for its price return to normal value, sell it.

I recommend a book “Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week!” to you, it is great, and should help you a lot.

Mandy asks…

How do you make final determination to buy your stock?

Some people pick names, some do fundamental analysis, some buy short term, some buy long term, some like volatility, some don’t….how do you do it? What charachter do you look for in your stocks…..cause we all know stocks go up eventually…

John answers:

1) Only invest money in individual stocks you would otherwise burn
2) Thoroughly research the entire industry you wish to invest in
…a) Who are the leaders?
…b) What are the industry averages (profit, cash, sales, etc)
…c) Where does your chosen company fall in the industry?
…….1) Why?
…d) What are the industry trends?
……..1) Why is the industry trending that way?
3) Read the last 5 years worth of 10-k. Know everything in them.
4) Does anything in the 10-ks not make sense…
5) Perform whatever technical analysis you think is pertinent. I look at only three things: sales growth, net profit growth and cash. Everything else is bunk.
6) Realize that picking individual stocks for the untrained and initiated is the equivalent of burning cash. Pick a mutual fund or spider and let pros do all the above (and more) for you.

Carol asks…

How do I buy and sell stocks? ( IN CANADA )?

I’m interested in purchasing some stocks, I’ve not got a huge amount of money to spend, probably $1000 would be my limit ( for now ). I need to know know where to go to buy and sell stocks, I know I could get a broker but I’ve been told for people with smaller amounts of money such as myself they aren’t as good because of their fees. I don’t want any advice on which stocks to pick, I have people who can do that. I’ve been told their are websites where you can register, I’m just wondering what my best option is to buy some stocks without spending to much on the fees.
Oh I’m only 18 if that affects anything, also I do not at the moment have access to a credit card, but may be getting one soon.

John answers:

Ask a broker in Canada.

Lisa asks…

ameritrade, scottstrade, sharebuilder, etrade, I want to buy stocks! Help?

I have a roth ira and i’ve been maxing that out. I have about $500-$1000 that I would like to invest in stocks. I know a mutual fund is diversified, but lets say I had a mutual fund and made it 100 percent stocks then whats the difference between having a mutual fund as opposed to just buying stocks on e trade or some online place like that?
And out of those companies that I listed (sharebuilder etc) which company would you recommend as being reputable, and worth the money ( I know different ones charge different amounts on transactions) which one is the best deal…AND is there any company that keeps track of DRIPS (dividends reinvested) i heard that drips are good but its a pain to keep track of it, so is there a company that will do all that for me. I am new with learning about stocks so what should I do ( I know mutual funds are safer, but I really want to invest in stocks) And lets say I picked some companies like pepsi and pfizer and wanted to keep it for the long haul, i dont see myself buying and selling, I just want to buy and keep…so in that case will the transaction fees pertain to me?? And do people do that as far as keeping stocks and not buying and selling daily or whatever, and how often should i be buying and selling? I just want to buy and let it sit, kind of like what I do with my Roth, it goes up and down but I am just going to ride it out.

I know I asked a lot of questions, please try and help me. OH and If i want a DRIP is that an option through scottstrade sharebuilder etc, b/c I head you have to buy it through the company to set it up.

John answers:

There are several differences between getting into a mutual fund and just getting into a diverse range of stocks. For one, with only investing 500-1000 initially, the transaction costs of getting into so many stocks to be as diversified as a mutual fund will really hurt you. Yeah, there are some online brokers that advertise free trades, or really cheap trades, but read the fine print for those. Mutual funds are working with so much capital, and from such large institutions, that there transaction costs will have minimal impact on your returns even for a $500 investment. Another difference will be the amount of information and research available to mutual fund managers. They (hopefully) should really know what they are doing with each trade to minimize risk for good returns. On the downside of the mutual fund compared to you trading, there is the possibility that you could really pick some great companies and get huge returns whereas the funds are so diversified usually that they can, at most, usually see just above average returns. Also, before you get into the fund look at the expenses it puts on your account (I have found that Vanguard is pretty good).

I recommend Scottrade. Like I said, read the fine print for those companies that advertise cheap cheap trades. Theres usually a limit, or it only applies to certain size trades, etc…, then you find out your getting slammed with a few really big expenses like maintenance fees monthly or something ridiculous like that. I did some research into all those for a while. I even signed up for e’trade, but then after reviewing their expenses and fees, I closed it. Scottrade is just flat $7 trades for stocks and $17 for mutual funds. No monthly fees, no bull crap. It also has brick and mortar banks almost everywhere so you can easily go in and talk to someone. Finally, the customer service is great. I highly recommend them. I am pretty sure that it will do DRIPS for mutual funds you get into, (looking back at some of my transactions I know they have done this.)

Buy and sell as little as possible unless you think you have some great ideas. A lot of people imagine the stock market to be semi strong form efficient meaning all historical and public information is already incorporated into the price (This is evident from looking at a chart for a company and comparing news events to ticks in the price. Good and bad news is traded on so fast and changes the price so fast that an average investor, ie not some i-bank with huge research teams and information almost on an insider level, can not profit from this). A good book to read on the subject is “A Random Walk Down Wall Street.” If you don’t read it at least read the first paragraph about it on wikipedia.

On a final note, if after you do some of your own research on what online bank to go with you decide to go with scottrade, shoot me an email. Until October 31 they have an offer where if you refer someone to them you both get 7 free trades (which should be $49 value). I’m not suggesting them just for this reason, I use them because it suits my needs best. So do your own research and decide for yourself. But if you decide to go with them, just send me an email at woshaugh@gmail.com or woshaugh@yahoo.com.

Sandy asks…

I’m a teen in a personal finance class.. which stocks should i buy?

im aware that no one knows what is going to happen in the future… but my family isnt really into buying stock and i have no clue which companies are good

the class ends in like 8 weeks so only companies that could possibly make me a profit within the 2 months. *we have 100,000 fake money to spend, and we have to buy shares in at least 6 companies.

i know how i should pick based on what i like personally, but im looking for people with experience that can tell me some good stocks

also, maybe some start up companies? in real life, id like to invest a little bit of money in a start up company but im having trouble finding them

thanks a million

John answers:

Tough time to be investing because the market is due for a turn, but if we do go up, AAPL, GOOG are the best bets, you may want to buy something for downside protection like QID which is a double short ETF on the QQQQ.

So with 100,000 put some into tech, also consider agriculture like POT, gold GLD, but also hedge with some QID, so if the markets drop, QID will increase in value.

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