How to Know Which Stocks to Invest in: A Beginner’s Guide

 

1. Determine Your Investment Objectives

 

The first step in picking your first stocks and developing a profitable portfolio is to identify your financial goals and investment objectives.

 

Do you want to earn a monthly income, accumulate wealth over time, or do something else? Your investment objectives will help guide the creation of your portfolio.

 

2. Begin With a Long-Term Perspective in Mind 

 

While the stock market can be volatile in the short term, it has historically delivered strong long-term returns.

As a result, when investing in stocks, it is critical to maintain a long-term perspective.

 

3. Spy on Exchange Traded Funds

 

Examine the best-performing long-term growth ETFs and mutual funds to see which stocks they hold.

Make a list of those companies and categorize them according to their industry.

 

Look up those companies on EDGAR, SEDAR, or RNS, as well as their investor relations websites, and try to get to know them better. 

 

4. Look for companies with strong growth rates and a strong position in their own market niche that sell something for which you believe there will be ongoing and growing high demand.

 

Your first growth stocks should ideally come from your personal experience—your job, domestic and professional life, and vacation. 

 

Every one of us, regardless of our present job or financial condition, comes into contact with extraordinary products and services offered by public companies that will make for great long-term investments.

 

One of the fringe benefits of having a job is that you get first-hand information on what‘s going on in at least one industry.

 

If you think Elon Musk, Mark Zukerberg, Bill Gates, etc are great entrepreneurs, invest in their companies and become their business partner. 

You share in the value created by their expertise as well as the profits.

 

If you are from a third-world country but live and work in the diaspora and want to invest back home in Africa, consider purchasing shares in African companies.

 

For example, the Nigerian market has a history of outperforming other stock markets around the world. 

 

South Africa, Kenya, Zimbabwe, Mauritius, and Botswana all have strong stock markets.

 

5. Look In Your Fridge

 

What industries are doing well? What are people talking about? What products and services are you and your friends loyal to? 

 

Take advantage of that, whether you‘re in automobile manufacturing, housekeeping, natural gas exploration, consumer goods, transportation, construction, commercial banking, or tech—whatever. 

 

The public companies in your job industry are playing on your home ground.

 

Nevertheless, in many instances, the products and services tied to your private life, interests, and hobbies may be nearer and dearer to you than your own career. 

 

Whatever you look for, there is a public company filling a market need. That could be a fantastic investment idea.

 

 

6. Get in-depth research for each of the companies on your shortlist. 

 

You can use free resources for your research or pay to find those companies.

 

Historical ratios for companies can be found on Yahoo Finance, MSN Money and Google Finance.

Professional sources such as Bloomberg, Capital IQ, and equity research reports provide more detailed information but are more costly.

 

However, as a beginner and retail investor, you should be just fine with the free tools.

 

7. Create a Watchlist

 

List out all the pros and cons of all these companies and narrow down your list. This list becomes your watch list.

 

Pretend to invest in each of the companies on your watch list and watch what happens for a year.

 

By the end of the process, you will not only be well acquainted with some of the best companies available, but you will also have learned a great deal about the interface between the stock market and businesses in general.

 

You will be much better qualified to make your investment decisions.

 

8. Consider Value Rather Than Price

 

Look for undervalued companies with high future growth potential. These are companies that are worth more than their current market price per share.

 

During a bear market or serious market crash, buy good-quality companies. They will be the first to recover and reach new highs.

 

Fundamental analysis is used to identify companies trading at a discount to their intrinsic value.

 

9. Diversify Your Portfolio

 

While it’s important to focus on quality, it’s also important to diversify your portfolio to minimize risk.

 

Consider investing in a variety of sectors and industries, as well as different types of stocks, such as growth stocks, value stocks, and dividends stocks.

 

Set limits for individual investments.

Determine how much capital you want to allocate to each individual stock or investment, and stick to those limits to avoid over-concentration in any one company or sector.

 

10. Don’t Spread Yourself Too Thin

 

Do not over-diversify. Spreading yourself or your capital too thin in equity investments can be a risky strategy that can lead to reduced returns and increased risk.

 

Focus on quality over quantity.

Instead of trying to invest in as many stocks as possible that you won’t be able to monitor, focus on finding a few high-quality companies with strong financials and growth potential.

 

Consider using investment vehicles like mutual funds or exchange-traded funds (ETFs).

 

These types of investments can provide instant diversification, as they typically hold a large number of stocks in a single fund.

 

11. Buy Businesses. Not Stocks

 

Invest; don’t trade. Be patient. Although it can be tempting to try to time the market or make frequent trades in an effort to maximize returns

 

Your broker doesn’t want you to read this:

Don’t be forever jumping in and out of stocks in the hope of making a quick profit. It benefits them more than you.

 

Forget about what your friends and family members are doing. Excessive trading will cost you more money and make you lose money in the long run.

 

Have the guts to hold on to companies you believe in after doing the hard work of studying them before you bought them.

 

12. Take Profits

 

If you have invested in a stock or cryptocurrency that has increased in market price dramatically, sell enough to get back your initial investment capital (or at least a substantial percentage of it) and hold on to the rest. 

 

This will help you stay calm during market volatility.

 

To be a successful investor, it is not enough to know what to buy (or how to select great stocks to invest in). 

 

You must also know when to buy, how much of what to buy, when to sell, and how much to sell.

 

13. Create Your Strategy

 

Have your own investment strategy and stick to it.

In the long run, the stock market is a self-cleaning system, protected against the monopoly of one popular method. 

 

Whenever new techniques for predicting the financial markets are introduced, they may work for a short while.

But as many people latch on to them, they become less effective and inefficient. 

 

There is no foolproof strategy. It is always a good idea to conduct your own research and due diligence before investing in any stock.

 

The solution is to have your own plan and strategy based on your unique goals and objectives and stick to it for the long term.

 

14. Rebalance Your Portfolio regularly.

 

As your portfolio grows and changes, be sure to regularly review and rebalance your holdings to ensure that you are not overexposed to any one stock or sector.

Use bonds as a balancer for your investment portfolio rather than as a means of trying to accumulate wealth.

 

15. Emotions and Money Don’t Mix  

 

Don’t let emotions drive your investment decisions. 

It’s important to try to stay calm and avoid letting your emotions drive your investment decisions. 

This can be difficult when the market is volatile, but it’s important to try to stay disciplined and stick to your long-term investing plan.

 

16. Get Help

 

If you’re new to investing and feel overwhelmed by the process, you may want to consider working with a financial advisor. 

A financial advisor can help you develop a customized investment plan based on your goals and risk tolerance.

 

 

We hope that this post has been a useful resource for anyone looking to learn more about stock investing and how to make their first stock picks.

 

It’s also important to remember that investing involves risk, and you should be prepared to lose some or all of your money.