Learning about the stock market is not easy, nor is learning about beginner-friendly stocks. In this article, we are going to tell you what the characteristics of a good beginner stock are so that you can get started and get some practice, though we will not specifically endorse any stocks here on this page.
Yes, in this article, we are going to give you an explanation of what you need to look for when you are choosing stocks to invest in for the first time. Be sure to do your research on the individual stocks so you can ensure that you make the right decision.
Here is what you need to know about the stock market and what the characteristics of a beginner-friendly stock are.
What is Your Long Term Plan
When you are starting out investing in stocks, you need to establish what your long-term plan and your goals are. Everybody has some, what are yours? Quick cash? Savings for your children’s schooling? Or maybe you want to retire rich with your partner in a mansion? Perhaps you want a new shiny watch? Whatever the reasons for your investment are, know them from the very beginning so that you can ensure when you have the funds you need that you can pull out. A mistake many first-time investors make is losing their profits because they get too greedy. The stock market can fluctuate massively – so establish whether you want to invest long-term or short-term also – you could also consider day trading, which presents more risk, but higher reward.
Getting Set Up
In order to get started with trading, you will need to register for and open up an account with an online brokerage. According to Joy Wallet, who offers an extensive Stash Review, opening an online brokerage account is the most important step. You need to be very careful with where you register and must ensure that you register an account with a reliable, trustworthy, and easy-to-use brokerage designed to cater to beginners. Stock trading is incredibly difficult, and if you do not know what you are doing, or receive guidance from the pros, there is a strong chance that you will lose a lot of your money.
The Attributes of a Good Stock for Beginners
When you begin investing, you want to invest in stocks that give you an advantage – an edge. You want to invest in stocks that will guarantee money, rather than be sure to make you lose it. It can be difficult to look for, or know how to spot, that advantage, but here are a few ways:
- You should be able to easily, off the top of your head, explain how the company makes money. If it is far too complicated for you to explain, then it may be too complicated for you to invest in as a beginner. To invest, you need to know why the business is worth investing in, and why it is guaranteed to make you money in the future;
- High returns are something to think about – do research and establish what the returns other investors typically get on your chosen stock are so that you can make the decision to invest in it carefully;
- Competitive advantage is another thing to consider. You must ensure that your chosen stock has a durable competitive advantage and can outlast its adversaries while they crash and burn;
- Management of your chosen stock keeps shareholders (stockholders aka you) happy and content;
- You can purchase a share for a reasonable price and will not have to spend a fortune on a single share, though do not confuse this with a penny share;
- The business has, and will, and can, outlast and survive tough periods.
Metrics for Success
Being able to identify a great business will help you to become the best investor that you possibly can. It will also help you to find out what the best beginner stocks are and aid you in furthering the success of your investment portfolio in the long run. Shown below are some of the metrics that can greatly help you.
- P/E [‘Price to Earnings’] ratio is one of the most often looked to metrics for trading. You can divide a company’s share price by its last 12 months’ of earnings, which will result in a P/E ratio;
- PEG ratio or price-to-earnings-growth is also a great way to establish if a stock is worth investing in. You can do this by dividing a company’s P/E ratio by its projected earnings growth rate;
- Payout ratio is another important metric. The payout ratio is performed by measuring the annual dividend rate.
There are many other metrics that are just as beneficial and helpful as those.
Well, What Should I Avoid?
Avoiding poor stocks is just as important as finding good ones. If you are a beginner, you need to cover all aspects, and you must understand when a stock is to be avoided like the plague.
You should avoid:
- Stocks that are gaining media attention and growing rapidly. Growth investing is a fantastic way to make money, but by the time that everybody has found out about it, you will find people performing pump ‘n’ dumps, and the stock is too far gone to be invested in. To grow your investments, you need to get there first, not last;
- Penny stocks are stocks with market values of less than $200 million, as well as stocks with share prices under $5.00. Penny stocks should be avoided by everybody, not just beginners, for there is a strong chance that you can lose absolutely everything on them.
- Things you don’t understand are to be avoided to – we touched upon this briefly earlier when we mentioned only investing in stocks you know about. If you invest in stocks that you simply do not understand, then you will just end up losing money, for you will not have any idea what they offer, or what their service is, which can have devastating consequences. Always research and understand the stock you are investing in, for if you do not, you can cost yourself a small fortune.
We hope that you have enjoyed this article, and more importantly, learned something from it. Stock trading is a fantastic way to make money – and an easy way to lose money. With this article, you should be ready to take on the stock market as a beginner. Thank you for reading, people.