The foremost question that eager beginner stock investors ask is, “what stocks should I buy?” This could be due to a number of reasons. First, the free cash they want to allocate to investment is limited. Second, access to a personal stock broker may not be a financially viable solution. Third, many have differing reasons and ideas of what stock market investing is all about and are yet to pinpoint why they want to enter the market. Some believe that stocks are a good way to save for the future while others believe it is a quick way to make money.
The biggest challenge that any beginner investor faces is lack of knowledge. There are books on this subject in plentiful supply. The common thread running through most books is how to read charts, what terms mean and how to use statistical indicators such as Return on Equity (ROE) to your advantage. Some will venture as far as to suggest what specific stocks to purchase. If stock investment and financial security is something you want to pursue in the long run, there is no getting around doing the basic groundwork. As the proverb goes, “fools want for lack of knowledge”.
The best bit of advice I’ve personally gleaned from research is this buy shares you feel for and can see. Or, to put it another way don’t date someone you don’t like. Why McChicken then? McDonalds can be found everywhere in the world. In busy retail districts, you may even find two or more outlets within five minutes walk of each other. In addition, I could also say the McChicken in England is as tasty and affordable as it is in Singapore (this I assure you is not a plug). Every time you walk past a McDonalds store, anywhere in the world, pause for a minute and look inside to see what is going on. How long are the queues? How friendly are the staff? Is the restaurant filled with a lot of people? Do they look like they are having a good time? What promotions are there at the moment? If you’re in Hawaii, look in to see how well the McTeriChicken (made with teriyaki sauce) is selling and perhaps have a taste yourself.
These are live indicators of how well a business (in this case a franchise) might be doing outside of historical charts and live ticker streams. Just imagine you owned 100 McDonalds shares. These shares now feel dynamic and substantial in value. Why would you buy into a company if stores are empty, products are unattractive and the general consensus of friends and family is that they wouldnÃ¢ÂÂt be caught shopping there?
If you like coffee, think stores like Starbucks (SBUX). If you like burgers, think stores like McDonalds (MCD). If you like grocery shopping, think stores like Tesco (TSCO.L) or Sainsbury (SBRY.L). If you like a particular product that you know many enjoy say a bottle of Blossom Hill wine, you may like to look into shares of the company that either produces it or has the distributorship rights in England, such as Diageo (DGE.L). Taking Tesco as an example, I would buy into Tesco on the basis that I see a strong presence in England, stores I come across look well-patronised, they initiate regular promotions and the company returns a good dividend yearly. Back to the issue of groundwork, now that you’ve identified which stock you want to purchase, a smart investor will follow up on news related to the company as well as watch the trend that affects the market sector the company falls into. It would be most unwise to sit back and assume all is well if it looks well.
In essence, if you’re starting out in stock investment and are searching for way to pick stocks, this is one. The importance of groundwork cannot be stressed enough as well as a commitment to spend some time following up on purchases. Like dating, all it takes is a little time and consideration.