How to Pick Individual Stocks | brokeGIRLrich
One of my financial goals each year for the past few has been to buy at least $1,000 in stocks.
I’ve been sticking with individual stocks for this goal since my retirement accounts are loaded with mutual funds – but if you don’t own any stocks, either is fine and mutual fund and index funds are a relatively safe and easy to invest (and their returns often beat individual stocks).
Lots of people are scared on investing in the stock market because it fluctuates so much, but the fact of the matter is that there have been way more years that the stock market has made money than it’s lost money.
You’re also not blindly playing Russian roulette. The first step is to narrow down the stocks you’re interested in buying. You should only buy stocks of companies you understand.
WHAM! That knocks out 99% of stocks in the market for most people. I always use cruise lines as an example here. I think cruise lines can be a pretty good investment. I got hired to work on one in June of 2008 – the height of the recession. And that sucker was always packed. Cruising is totally a budget friendly vacation, until you get on the ship and they hit you up 8,000 different ways with add-ons and unexpected expenses. This is why the cruise industry will pretty much always thrive.
That being said, without even trying, my Facebook feed is full of cruise ship articles all the time from friends who still work onboard. I haven’t stepped foot on a ship in nearly 4 years and I’m still up to date on cruise industry news and, even more important, it’s interesting to me.
You may know each line by their name, but without even thinking, I know who their umbrella corporations are and I could tell you that one of them has way more accidents and incidents than any of the others – so I wouldn’t invest in that one. However, there’s another cruise line umbrella corporation that very, very rarely shows up in the news for anything bad. That’s where I’d put my money.
And I know all that without exerting any additional effort.
Odds are that you have some similar inside knowledge from your employment field or even your hobby. Maybe you’re an amateur pilot and you know pretty much everyone buys one certain brand of equipment all the time, that it’s well made and probably has a solid future. I wouldn’t really understand anything about that company, so for me it’s not the best investment, but for you, it might be perfect.
If you can make a list of 5 companies off the top of your head that you think make solid products and will have no trouble sticking around for the next 20 years, you’ve got a starting point.
Let’s say that for some reason, this method doesn’t work for you, there is a collection of stocks called Blue Chip Stocks and the odds are you’ve heard of a lot of them. I own some Coca-Cola stock that falls into this category. Do I understand how to make it? Heck no. Do I think a lot of the world is addicted to its sugary goodness? Heck yes (in fact, I’m banking on it now). Other Blue Chip Stocks include Visa, Wal-Mart and Disney.
Look through the Blue Chip Stocks and think about how many you’ve bought. Then narrow down the list to 5 you would be interested in buying.
Researching 5 stocks is way easier than muddling through the whole market. If you’re still nervous about getting into stocks, you can sign up at Wall Street Survivor. It’s completely free and lets you simulate buying stocks and then you can track them for a while. Enter your 5 stocks in your account there and watch them for a while.
When you’re ready to take the plunge, you’ll need to learn just a little bit more about how to read stock information, but it’s really not any more complicated that reading the laundry tag on some clothing. You can check out my post on how understand stock info when you’re ready for that step.
Just like a slightly complicated clothing tag.
I started in on stocks early when my mom gave me some (it had been my grandmother’s and the family was trying to distribute her assets) with the injunction that I had to hold on to it and keep it in a dividend reinvestment plan. It split a few times and appreciated nicely over time, so I’m a big believer in DRIPs. I try to pay attention to dividend yield and whether management has made a commitment to increasing the dividend. A company that can continue to raise it’s dividend is usually in a solid financial position.
There’s a list of Dividend Aristocrats, companies that have increased their dividend annually over the last 25 years. A lot of the individual stocks I own tend to be on the list, and it’s a good place to start your research if you like the idea of dividend reinvesting.
My 5 are Altria (good payer), Procter and Gamble (good payer), Duke Energy (utilities are reliable if not sexy), Exxon (oil’s low right now and not going away any time soon) and Johnson and Johnson. Nothing too out of the box.or obscure.
Emily @ JohnJaneDoe recently posted…The Cost of the Sick Kid
My stocks actually started as birthday gifts from my grandparents with Exxon stock every year. I hated it when I was younger, but really appreciate it now. Hillenbrand and Coca-Cola are the ones I’ve bought recently myself.
Awesome article! Definitely makes it more approachable for someone who may be afraid of taking the plunge into investing in individual stocks.
When I was young – maybe 10 or so – I had a very, very vague understanding of what stocks were. I told my parents, on a whim, “I would invest in McDonalds!” Well, they ended up doing it, and a few years later, told me that the investment had made about $1,000.
Not too bad, huh?
Elle @ New Graduate Finance recently posted…How Much Money Do You Make?
Not bad at all. When I was in junior high, we actually had a math class module on interest and stocks and all picked stocks that we tracked throughout the year and the kid with the best returns got a certificate and some candy or something. That kid was not me. 😛
I know that I just don’t have the time right now to learn enough about selecting individual stocks. However, I anticipate having more time in the future (getting rid of one of my FT gigs should do that), and then I’ll need to learn quickly. I like knowing that there is a free simulator. Thanks for writing this.
ZJ Thorne recently posted…My IRA Does Not Understand My Heart’s Goal
I think if you’re unsure about buying individual stocks, then you should companies that you are familiar with and support yourself. My son recently opened a stock portfolio and he bought Nike (he plays soccer and likes their cleats) and Dunkin Donuts (because he could eat their donuts every day of the week), and he recently decided to buy Disney after seeing the new Star Wars movie and liking it.
Shannon @ Financially Blonde recently posted…Millennials, do you need life insurance? Maybe not
Mmmm Dunkin Donuts. He’s a wise child.