I’ve been very hesitant to write this post because I know as soon as I write it something’s going to happen and I’m going to want to rewrite this immediately anyways, but I’ll try.  I just wrote down anything I could think of that made sense for an introductory post. I’ll elaborate on and introduce more complex topics in the next part.This is the first article in the How to Start Investing part of the [Investing 101] series. I’m going to just cover the very general stuff and then follow it up with another article soon™.

“How do I start investing?” I get this question a lot on Quora, from my classmates, and (mostly) whenever I ever bring up stocks and investing around people under 25. My answer changes from person to person, but the gist of my answer stays about the same. At its core investing in stocks is pretty simple. You just have to understand a few things and you’ll have a really good chance from the get go to make some money on the side. After that, it’s going to be up to you to put in the time and effort to learn what works best for you.

If you’re looking for a different investing method than the norm, or just want to try something a little different, consider checking out an article I wrote earlier this month: [Investing 101] – How to Pick a Winning Stock 100% of the Time.

  1. What is a stock?
    • A stock is, in essence, a title that you own a percentage of a company.
      • If You’re Interested: Capital One (Ticker: COF) is a great stock to get into right now. It’s a multinational banking conglomerate that is looking to revolutionize banking in the 21st century. Let’s say for example that you own 10,000 shares in Capital One. To find out the percentage of COF you own, you would simply do the following calculation: 10,000(shares you own)/519,070,000(total shares issued by COF) or 1.9265224^e-5%. Your “ownership” in the company is so minuscule that it doesn’t matter at all.
    • The entire purpose of a company is to make money, and once it has IPO’ed (when a company goes public and releases shares to the public) it solely exists to make you money.Where the skill factor for a beginner comes in is when they have to find and wisely invest in corporations that 1). aren’t hemorrhaging money, 2). will report profitable earnings, and 3). aren’t involved in anything shady. Rule 2 is probably the most important rule, but also the hardest to follow. How do you know that a company isn’t going to fall flat on it’s face? Either it’s obvious (i.e. Company X released a new product, or there is a cry public growth catalyst), or chances are you don’t know. For this reason, most beginners choose to invest in tried and true companies such as Apple (Ticker: AAPL), Visa (Ticker: V), Facebook (Ticker: FB), Microsoft (Ticker: MSFT), Google (Tickers: GOOG, GOOGL), Adobe (Ticker: ADBE), Amazon (Ticker: AMZN), Wells Fargo (Ticker: WFC), Bank of America (Ticker: BAC), Coca-Cola (Tickers: KO, CCE), Discover (Ticker: DFS), and many more are stocks. Almost all these companies give a dividend (discussed below), and have survived multiple market failures and recessions and are still enduring.
    • Investing in companies like the above will give you a good feel for how investing  in a stock works. These are low risk stocks that WILL yield good percentage returns.
    • What’s a Dividend?
      • According to Investopedia, a Dividend is:

        A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.

  2. The 1 Cardinal Rule of the Entire Stock Market:
    • Buy Low, Sell High. This rule seems obvious enough, but people often get dragged into market hype and aren’t looking at a stock critically, or even questioning what growth catalysts are and whether or not the stock has already run up or not. Now I’ve made (almost) all my money off of stocks that have completely run-up, but still have enough juice in them to make money. In years past I’d invest in Netflix every January, and every time all the analysts would saying that it was going to report a bad earnings report and such. It never reports a bad Q4, and I make sure I snag it every January (except this year because the market was just in free fall) – at least for a couple of days. The best way for a newer investor to enter the market isn’t during times where every stock is having a heyday. The chance of buying a stock at an overbought price during bull markets are decently high. Rather, wait to enter the market until it starts going down a little bit. If you can find a stock trading 10% below what it normally trades at, stocks are losing value, and it’s something that’s been through a lot and has a stable business, then it’s almost never a bad bet to get into the market. Stocks devalue below where they should be trading at least twice a year, so it’s always best to gauge your timing and be patient before entering the market your first few times.
  3. Use Public Opinion as a Tool:
    • The day after a terrible act of violence involving guns happens, personal security stocks surge while gun stocks drop like a brick. If you read the article I linked above you would know that this is the best time to buy gun stocks. Like this every stock has a trigger for when it declines on external factors it was not responsible for, and you should try to find that and capitalize on it.
  4. Create a Spreadsheet and Track Your Investments for 6 Months.
    1. If you can track your gains and losses and identify exactly why you made a trade and why the stock went up or down, then you will already be ahead when you invest your actual money into the market. Even if you stick with low risk stocks, or stocks that I mentioned above, this will still be a good exercise, and it will help you raise your investing IQ. I did this everyday for about 2 years as well as maintaining my own Google Finance Portfolio. I recommend you go to How the Market Works and create your own portfolio.

This was just part 1. I wrote this article because people kept asking for it. There’s still a lot left to do, and I know it was pretty disorganized, but I threw in the 3 most important things you need to know, as well as the definition of a stock. If this was helpful please leave a 5 star rating.