Guide to Stock Buying

Investing is a great thing for those who can afford to do it. If you consider yourself one of the lucky consumers who has enough money to allocate it towards investments you should be grateful since many around the world are not lucky enough to do so. Investing allows you to generate a return based on what you invest. Without it many consumers would have had a much more difficult time becoming first time homebuyers and purchasing other types of assets.

How Should Investors Choose a Platform?

You want to use a platform that you trust, provides great educational resources (especially if you’re new to trading/investing) and is competitive with regards to fees. Robinhood has done a great deal with attracting new investors into equities and the stock market with $0 commissions and they should be applauded for this. However, they lost some consumer trust with regards to settlement of funds and the “equity IOUs” they write to their customers (limiting sales/purchases of certain assets) in previous years. Hopefully those issues are behind them A wise man once said, “if you don’t know what the product is, you are the product”. This could not be truer with using Robinhood as a brokerage platform. They sell your orders to market makers and this is part of the reason they can offer no commission trading (like many other platforms). This is also a standard operating procedure at most other brokerages as well and Robinhood is very user friendly so it's still highly recommended for beginners. They’ve also brought on so many new investors into the market and have done a lot to make investing “cool’ and they should be greatly applauded for that. This has generated wealth and increased the net worth of many consumers and has likely had a positive impact on consumer sentiment about investing as a whole.

Research/Due Diligence

Everyone has their own investing style and approach; the main thing is that you find out what works best for you! Otherwise, there are a multitude of apps and social sites that can help you navigate organic news and make financial better decisions. This can include: Financial Twitter (Now X), Public, Stocktwits, Investing Subreddits, Yahoo Finance (the watchlist is a useful tool that aggregates news flow for each stock on your watch list), etc. Finally, depending on the trading platform you use, your brokerage should also provide great news flow and industry research reports. Although it helps in allowing you to receive news flow first, you don’t technically need a Bloomberg terminal to be well informed! Also, try your best to stay away from promotional articles and click bait! If you see an article titled, “don’t miss out on the next Amazon”, etc., you should understand that this is paid promotion. You’ll likely continue to see many of those as long as your search history includes research about equities.

Technical Analysis vs. Fundamental Analysis

As a part of due diligence there are two forms of analysis you can perform to help guide your investment decision making process. You can use technical analysis which is essentially an evaluation of the price action of a given stock. Technical analysis (TA) demonstrates the supply and demand of a given stock and outlines a lot more about consumer sentiment. If the price keeps going up and down between two certain points, this means that buyers and sellers are essentially having a tug of war with each other to see which outcome will be succeed. TA is commonly reviewed via bar chart analysis or other data and has highly probably setups like bull flags, bear flags, periods of price consolidation, etc. On the other hand, fundamental analysis is analysis based on the intrinsic value of a given stock and it's underlying assets, debt, balance sheet, earnings per share, income, revenues, user growth, etc. It's ideally great to understand both the technical side and fundamental side of any given investment you make since they both paint a picture via the data of a given company and it's underlying shares.

Diversification

The main thing to understand about diversification is that the stock market moves in cycles and investors rotate into different sectors quite frequently. Due to this, it’s always prudent to diversify into different sectors. The nature of the stock market and many stocks themselves are cyclical. Due to this, it’s prudent to invest when you perceive undervaluation in a particular sector. Whatever your strategy, remember to diversify and never keep all your eggs in one basket. In the long run this should always pay off since if one sector fails another sector could help keep your portfolio in the green. There’s nothing wrong with taking on single stock exposure and the risk associated with it (this is often how many investors generate the best returns) but don’t forget to allocate towards safe and diversified investments as well. For many investors that can simply mean putting money in the S&P 500 which is the benchmark for all equity investors.

Single Stock Exposure

There's technically nothing wrong with investing solely in individual stocks and not relying too much on ETFs (Exchange Traded Funds). Many successful investors chose to invest solely via single stock exposure. This is more inherent risk involved with investing this way but if you are confident in your ability to generate a return and prefer this approach you should absolutely go for it. You can still diversify with different individual stocks in your portfolio and if you really have a knack for investing this is how you would be able show it.

How Much of Your Savings Should You Allocate Towards Investment?

Different investors allocate different amounts of savings towards different investments. What’s important is that you don’t invest more than you can afford to and that you stick to your strategy, whatever it may be. If you’ve already decided to allocate 10% of all future income towards saving and subsequently into the stock market try to not veer too far off that objective, if possible. You can also consider putting a certain percentage of your income into an employer-based 401k plan, this is especially prudent if your employee matches your contributions. However, above all else, allocate what you can afford to. If you live at home with your parents you can probably afford to allocate a significant amount of money towards savings and investments, however if that’s not the case you might have to consider allocating less since you have other bills to pay and less disposable income.