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Ready to Play the Market? How to Pick Stocks as a New Investor

OK, you’re ready. You’ve finally decided to start investing. But you can’t just go into it randomly. Beginners, especially, have to be prepared and understand the risks of playing the stock market.

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Don’t Expect Millions Overnight

“My biggest piece of advice for Black investors is to understand that generational wealth isn’t something that the stock market can provide overnight,” financial adviser Kevin L. Matthews II tells Finurah.

Matthews, who has financial planning certificate from Northwestern University and has been a financial adviser with Capital One and Citi, empowers investors with his Building Bread investment education classes.

Investing takes commitment, advises Matthews.

“It is a long-term process that involves patience. Also, investing is not gambling and should never be treated as such. When you become an investor, you are a partial owner of that company. We also know that since 2000 the stock market has been positive 80 percent of the time, which is much higher than any casino or lottery would ever allow,” he explains.

Let’s Get Started

You’ll first need a brokerage account to buy stocks, which is fast and easy to set up. A brokerage account is used to buy and sell securities like stocks, bonds, and mutual funds. A brokerage account operates pretty much like a bank account, but you have access to the stock market and other investments with brokerage accounts.

You can set up an online brokerage account with an online broker. Or a managed brokerage account comes with investment management, either from a human investment adviser or a robo-adviser.

Question: A Financial Adviser or Pick Stock on Your Own?

“Having a financial adviser to choose for you is not required, but I think first-time investors should actually look for index funds and other exchange-traded funds (ETFs) first before looking at individual stocks. This can help you get acquainted with the stock market without taking on the risk of putting all of your eggs in one basket,” offers Matthews. 

Financial Advisers and Robo-Advisers Can Help You Pick Stocks

If you want help choosing stocks, you can select a financial adviser to help you find the best stocks for your portfolio. While financial advisers often manage assets of people who have $100,000 or more, middle-class investors can use online robo-advisers. Robo-advisers are online investment programs that pick stocks for you. Many brokerage firms like Betterment or Charles Schwab have robo-advising programs for new investors. Betterment’s digital investing has a $0 minimum balance. Many robo-advising apps take a 0.25% fee of your fund’s balance as an annual fee.

Research is Key to Picking Stocks

When you’re looking for stocks to buy, do your research. Find out the statistics about stocks you are interested in on financial websites like Yahoo Finance. Look at a company’s current stock price; if a stock price rises, that is a good sign that the company is performing well in the short term.

If you want to know if a company’s doing well in the long term, you can look at a company’s earnings report. A company’s earnings report is released every three or four months and shows how a company performed over a specific quarter. You can go to a company’s website to see an earnings report. You can also track NASDAQ stocks’ earnings reports on NASDAQ’s website or NYSE stocks’ reports on financial news websites.

What Are Your Investing Goals?

When you invest, you want to be clear about your investing goals. Are you investing to meet retirement goals? To pay off a mortgage? To increase savings?

You also have to decide your style of investing. If you want to be a conservative investor, for example, who will want to just put a small amount of your money into stocks, you can invest as little or as much as you want. On the other hand, aggressive investors usually focus on equity investments such as individual stocks and mutual funds. Aggressive investors will take more risks with investing. They want to get maximize returns by concentrating on large short term shifts in market rather than building a stream of income.

Where To Find Stocks

There are thousands of stocks to choose from, so it can seem overwhelming. Using an app can make the process easier. You can buy stocks on a trading app like Robinhood or through a brokerage firm app like eTrade. You choose a stock by its ticker symbol, which is usually three or four uppercase letters. For instance, Amazon’s stock ticker symbol is AMZN.

How To Pick Stocks

“When I look for in a stock, I use the acronym I created: CRAMM to summarize each of these areas,” says Matthews. 

  • C – Company Stack: “These are companies that create an ecosystem and are able to stack products on top of each other. Think of the iPhone, the MacBook, and Beats by Dre (which Apple owns). All of these things create a network of products that retain value,” says Matthews.
  • R – Recurring Revenue: Matthews looks for companies that have multiple, strong revenue streams.
  • A – All-Star employee/leadership: “I believe that companies who have strong leadership and good talent create great products, and great products can result in a strong investment,” says Matthews.
  • M – Momentum: This is the speed at which a stock moves relative to the overall stock market. 
  • M – Mind Reader: “Lastly, these are companies whose products improve with each use. Google and Netflix are great examples here. With a few searches, you begin receiving better recommendations and are less likely to switch to other services,” explains Matthews. 

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