How to Buy a Stock: Stock Market for Beginners [2020]

It’s Sunday…

You’ve decided to say no to the usual Sunday evening out with friends…

You’ve decided to stay in and do something different. It’s about time to think about your future and the investments choices you will make!

“What investment should I make in 2020?”

“Is it a good idea to invest in stocks?”

“How to buy a Stock?”

You’re very close to making the decision to experiment with buying stocks!

Perfect!

In this article I’ll analyze the (very) basics that a beginner should keep in mind on how to buy a stock online.

Stock Market 101 then!

Let’s go!

Stock Market [The Basics] Guide Index:

• What is the Stock Market
• How to Make Money from Stocks
• How to Buy a Stock and Invest in the Stock Market
• Degiro Review: The Online Discount Broker for Buying Stocks [2020]

What is the Stock Market?

Have you been hearing friends, colleagues and family (why not?) talk about stocks and the stock market while you sit silently there, knowing nothing about this topic, observing from your corner?

Don’t worry, I’m your man!

Give me 5 minutes and I’ll make everything clear to you.

Every company can increase their capital in two ways.

Either through traditional lending (a loan from a bank, for example) or selling a “part” of the company (equity).

So, you, as a big and aspiring potential investor, have the ability to invest in a company through the second way by owning a “part” of it (also known as a “share” or “stock”) in the stock market!

Let’s consider an example:

You’ve decided to buy a share of the international Swiss colossus that is NESTLE SA (why choosing a specific stock over another is another discussion).

What does that mean?

It means that a part of NESTLE S.A. is yours and you’re officially considered a shareholder of the company.

Sounds fascinating, right?

Well, hold on right there, cowboy!

Being a shareholder of the company (with such a small contribution) doesn’t give you the right to go to Nestle and tell it how to run the business.

It gives you another right (much better if you ask me) though.
Owning stocks of a company gives you the right to get a share of the profits, when that company makes a profit!

Amazing?

Amazing!

To be the devil’s advocate, though, I’ll borrow a quote from my beloved Paris Hilton:

“With great power comes great responsibility!”

Paris Hilton

(Oh god, my taste in jokes sucks!)

In the same way that you’ll have a share of the profits, you’ll also be exposed to the danger of a possible bankruptcy by the company.

If hard times come and NESTLE declares bankruptcy, then all your stocks are lost and, so is all the money you’ve invested!

(How possible is it for NESTLE (and any such company) to go bankrupt and what’s the way to discover great stocks is something that we will not be discussing in this article.)

The Stock Market allows you to invest only in companies that are publicly traded (also known as Publicly Traded Companies).

On the other hand, there are the companies that are not publicly traded.

Those companies are usually small to medium size (though not always—for example, Airbnb decided to enter the Stock Market in 2020 after many years) and, in order to be publicly traded, must make what’s known as an IPO (Initial Public Offering).

If you have a fundamental knowledge of finance (or you have the amazing skill called “Seeing the Bigger Picture”) you’ll already know that the market works in circles (so, the stock market as well).

I could liken it to a “pendulum” that swings between optimism and pessimism.

When the market goes well and the values go up then we have what’s called a bull market while when it doesn’t go well and the values fall we have what’s called a bear market.

Best practice:
Buy stock (and assets in general) when the market is low (bear market) and the investors are confused and scared, so the value of stocks is low.
Sell when the market is high (bull market) and the investors are too optimistic and greedy, so the value of the stocks is high.

Image Source: The market circles and Fear and Greed

“The stock market is a device for transferring money from the impatient to the patient,” as Warren Buffet says.

Now that you’ve learned what the stock market is, maybe it’s time you learned how you can make (or lose) money on it?

How to Make Money from Stocks

Let’s assume you’ve done your research on the company (or companies) that you’d like to be a shareholder in…

Let’s, also, assume that you’ve created an account on the online broker of your choice…
(If you don’t know where, no stress, keep reading and I’ll give you more info on that later)…

Lastly, we’ll assume that you’ve even purchased your first stocks!

Good job mate, you’ve just taken your first steps to financial independence!

I can hear you grunt:

“Great, I bought the shares, how the fuck will I earn money from them?
Do I just stare at them?“

Don’t worry, bear with me and I’ll explain!

You can make money by investing on the stock market via the following two ways:

The value of a stock goes up (Stock Appreciation)

One of the reasons why you invest in a specific company is because you expect that in the future the value of its shares will appreciate.

The more money a company makes, the higher its value.

The higher its value, the more value the share will have in the stock market.
(Of course this is a rough estimation, there are exceptions, beware!)

Let’s examine it with a simple example, so that I can be more understood:

You buy a Facebook share on September for $170.

Zuckerberg rolls out an excellent new feature on October and the share goes up at $240.

Voila!

You’re already $70 richer just because you own that share. You’re free to sell it and liquify that profit!

Clarification:
With the appreciation or devaluation of a share you’re actually getting or losing money only if you sell that share.

You get paid stock dividends

As we’ve already mentioned above, a source of funding for companies is their investors.
Companies want you to invest in them with your money!

A great and efficient way to encourage you to do so is by giving you financial incentives (eg. giving you money).

“Such as?”
…you ask!

Companies often share their profits with their investors by giving out monetary bonuses, called “dividends”.

In simple terms, a dividend is money that a company pays you just because you’re holding one of its shares—you don’t need to do anything else!

You can think of it as a “Thank you for your preference, chief!”

Companies pay out dividends every three, six or twelve months.

Keep in mind *
Not all companies pay out dividends, and not all companies pay out the same dividends.
So, take care and do your research before investing.

How to Buy a Stock and Invest in the Stock Market

Nowadays, thanks to the Online Stock Brokers, almost anyone can invest in the stock market easily, from the comfort of their house.

Let’s all praise the internet now!

Why is that a good thing?
(Apart from the obvious comfort of investing directly from your home)

You avoid the No 1 nightmare of investing in the stock market, which is none other than the incredibly high fees that investment platforms of traditional banks charge.

Most online stock brokerages charge little to no transaction fees.

Let’s have a look at what are the basics steps you have to do before investing in the stock market:

Choose your Online Stock Broker

Having an account on an online stock brokerage company gives you the ability to buy and sell stocks directly from your computer.

Before choosing which is the best option for you should do your research.

Take a look at the transaction fees and all fees in general (hidden or not) that the broker charges, its interface, how secure it is, the reputation of the broker on the market etc.

As a beginner, it is advised to look for an online broker that gives you some form of “guidance” on your investments.

But on the same time, since you must always “look ahead”, you should make sure that it can offer more advanced trading options and features that you might use in the future, when you’ve gained more experience in investing.

I am an active investor in DEGIRO.

It’s a discount online brokerage platform from the Netherlands, which gives you access to markets from all around the world (US, UK, German and many stock exchanges included).

It’s the perfect choice for investors with a long-term view (I’m one of them), since it has one of the lowest fees and it doesn’t charge any inactivity fees (many platforms charge you a fee for simply not making any transaction within a month).

You can buy the stocks you like and keep them for as long as you want, receiving dividends regularly on your account.
(Does this ring a bell? *Passive Income*)

That’s the, so called, Buy and Hold strategy that I follow as well.

You can manage your investments from the desktop platform or the mobile app, and if you have any questions or problems you can contact their support, which is available in most European languages.

On the other hand, Degiro doesn’t give you the option to buy ForEx or Cryptocurrencies and can be considered only a platform for executing transactions since it doesn’t provide any educational information or news on the companies traded.

If you want to know more about the platform, you can always read my thorough guide on the Degiro for 2020.

Deep research on the Stock you’re interested in

The time of judgement has come!

It’s time to proceed with your first investment and buy your first share!
I wish you the best of luck!

But before you press on the “BUY” button hold on a little bit. It’s time for me to play the devil’s advocate once more.

Did you do your research? Was that research enough?

Before you buy any stock, it’s necessary to do some research on it.
The first and most basic step is to find and study the balance sheets as well as other financial details of the company.

Through studying those details, you’ll get to know more about the financial health of company.

You can find all necessary details easily through a web search.
The revenue of the year, the balance sheets, the income statements, as well as general financial news about the company.

Hint:
There are webpages that collect a huge amount of that information.
Find them, they will make everything much easier!

Find your Mentor

“Mentoring is a brain to pick, an ear to listen, and a push in the right direction.”

John Crosby

One of the most important advices I always give to beginners is to look for a mentor.

A new trader must have many and varied sources for news and training. These include books, articles, videos, but also someone who will “show him the ropes.”

Your mentor can be anyone. He can be family, an old professor, a co-worker, or anyone who knows the basics around how the stock market functions.

He’ll give you advice and valuable knowledge through his personal experience which will put you on the right path and protect you from the mistakes he might have done.

Define your investing budget

Before proceeding with your first investments, you have to define your budget.

The most important and universal advice for anyone who’s about to invest is this:

Never invest money that you can’t afford to lose!

Investments contain risk, which means that even your whole capital might vanish.

Never invest money that’s vital for your survival, or that of others (like your family’s survival).

The most rational approach is to start slow and humble while reinvesting all of your earnings back to the stock market.

Have a plan and stick to it

Make sure that before buying any shares, you have a plan on when you’ll sell them (if you sell them).

This is something completely subjective, and something you’ll decide for yourself. Create a plan and don’t deviate from it!

As for myself, my plan is to invest in shares that pay out dividends with a long-term horizon.

The long-term horizon gives me the “leisure” to not be affected by the continuous short-term or long-term ups and downs of the market (and, oh boy, are they many!) while continuously receive dividends as passive income.

For example, I’m a shareholder at AT&T which is the largest telecommunications company and the largest mobile telecommunications service provider in America.

While the value of its share isn’t changing (there are no huge appreciations or dips), the company pays out dividends to its shareholders every three months the last 36(!) years.

In closing, in order to become a successful investor, you need time, research, and much practice.

The best scenario is to practice your abilities in investing using real data but not real money.

Many platforms offer this choice which can show you want you can expect, without any danger.

Your turn!

Have you ever invested in the stock market? Do you intent to?
What’s troubling you?

Do you want more info on how to buy a stock?

I’d love to read your comments!

Disclaimer:
I’m not a professional investment advisor and this information is not an investment suggestion, only a guide to help you.
Always keep in mind that investment = risk!
Only invest money you’re willing to lose!