That is a very good question. Finding stocks to buy is easy, but finding GOOD stocks to buy is challenging. Everyone has their own opinion on which stocks to buy and how long to hold them.
The first thing you need to know about trading stocks is that each stock is assigned a Ticker Symbol by the stock exchanges. The Ticker Symbol is a unique combination of 1 to 5 letters the exchanges use to identify stocks. In order to trade stocks on HowTheMarketWorks you must know the ticker symbol of the stock you are thinking of buying. All of the tools here will list the ticker symbols.
Next, when you are thinking of spending real money on stocks, there are several factors to consider when thinking of which stocks to buy:
In terms of your HowTheMarketWorks portfolio, here are suggestions to help build a good portfolio:
To help you get other trading ideas, the site is full of links to various resources, but here are the most popular ones:
If you want to be conservative and keep your risk low, you should choose a few stable, blue-chip stocks like GE and hold them for a few years. The downside is that conservative stocks usually don’t gain value very quickly.
On the other hand, if you want to take some risks and try some more volatile stocks you have a chance at making a larger and faster gain. A good example is to buy Google stock.
Some of the riskiest stocks you can buy are Penny Stocks. They can give you the highest return (or loss!) in the shortest amount of time. They are usually not stocks one wants to buy.
The more stocks you purchase, the more safe you will be in case one stock drops significantly. Experts often recommend 30 to 100 different stocks but that is often not practical to do. Of course, you will probably also make less money because some stocks will go up and some will go down. You will probably also want to buy from a few different industries so that you will be diversified in case one industry goes sour.
Many people like to use a company’s P/E Ratio to determine whether it’s a good buy or not.
The best thing to do is to compare one company’s PE ratio to other companies in the same industry to see how high or low the price is. What can happen is many, many people can trade stock in a good company, which will cause the price to go much higher than it’s really worth.
See an example of Microsoft’s industry P/E ratios using Yahoo! Finance (scroll to the bottom).
Basically, you want to buy stocks that will go up in value over time. That may mean that you need to find some that are currently undervalued, using the PE Ratio or something similar. Or, you might look for companies that show potential to grow significantly over the next few years. But you should try to avoid buying stocks that are overpriced just because they are popular at the moment. That can lead to a quick loss! So it’s important to do your homework when looking for the best stocks to buy today.
The stocks to buy are the ones that fit your time frame and risk level. The “experts” in the stock market don’t always have your best interests in mind so you may want to consider asking trusted friends and relatives if they know any good stocks to buy instead.
Trade Stock with our free stock simulator!
Buy direct. Some companies offer direct stock purchase plans (DSPPs). Search online or call or write the company whose stock you wish to buy, to inquire whether they offer such a plan, and forward you a copy of their plan’s prospectus, application forms, and other relevant information. Most plans allow you to invest as low as $50 per month, automatically withdrawn from your bank account. Pay close attention especially to the fees involved. A few companies, such as Procter & Gamble (see here), offer no fee investment plans. DSPPs also allow you to reinvest all your dividends automatically. Some companies even give you a discount, such as 5 percent, for dividend reinvestment.
Use an online discount broker. Search for “online discount brokers” on a search engine to find a list of brokers that you can use to buy and sell stocks online. Be sure to compare their fees and see if they have any hidden fees before signing up. Minimizing fees and expenses is key to successful investing. Most discount brokers charge less than $10 commission per trade, regardless the size of the trade. Some brokers may even offer a certain number of free trades, provided you meet certain criteria, so make sure you read carefully before committing to a broker. The best brokers also offer no fee dividend reinvestment, good customer service, and various research tools for customers.