By: slickdealer dittyesq
Image by Flickr user http://www.flickr.com/photos/walter_rw/
Heeding the cry of flummoxed slickdealers, a few months ago I penned a short primer on how to get started investing — by setting up your first online brokerage account. At the time, I promised to get back to you “shortly” with instructions on how to go about actually doing something with that account.
Mea culpa. The interval hasn’t been “short” at all, but at least today, it’s at an end.
On your mark…
I’m going to start off with the assumption that you’ve already followed the steps necessary to set up and fund your brokerage account. (Just in case you haven’t, here’s that link again. Any questions — post ‘em below.) You’ve got your account opened up. You’ve got money sitting in there. Now you’re ready to put it to work. You’re ready to buy your first stock. But…
Which stock? Do you buy a stable large-cap, dividend payer like Johnson & Johnson? A speedy sprinter, leveraged to the white-hot Apple iPhone, like Skyworks? Or perhaps some moonshot biotech — worthless as a business today, but with the proverbial “huge potential” far off down the road?
It’s a scary proposition for the new investor, knowing you’re about to take a huge chunk of your net worth, and put it at risk in a manner you’ve literally never tried before. This is clearly not a time in which you want to make a mistake. But here’s the good news:
You’re going to make a mistake. It’s inevitable and … it doesn’t matter.
You see, the simple truth is that investing is like everything else in life. You learn from your mistakes. You need to make mistakes, and you will make mistakes. For that reason, it really doesn’t matter which stock you pick for your first investment. Chances are, it’s going to blow up in your face. Consider it the cost of tuition for your first investing lesson. I’d only suggest two things:
- First, minimize your losses. This first investment is a “get your toes wet” experience, to get you comfortable with the mechanics of how investing works. Don’t go dumping $10,000 into the market on your first go-round. Start small. A couple hundred bucks should be plenty.
- Second, have fun with it. Your first stock should be a company that you are intensely interested in. Something you’re going to enjoy owning, telling your friends you own — and learning from as you own it. Don’t worry about making money on it. Don’t worry about “beating the market.” That will come later (and as we’ll see in future columns, it’s a whole lot easier than you think.)
With that in mind allow me to propose the following example, for purposes of illustration only. Let’s go out and buy three shares of Disney together.
Step 1: Identifying the ticker
To buy a stock — any stock — you need to know how “the market” refers to it. Click over to Yahoo Finance! Find the search box at top left, and start typing the word “Disney” into the box. About halfway through your typing, the dynamic search engine is going to suggest that you might be looking for “DIS — Walt Disney Company (The).” That’s the one you want. That three-letter code is how the investing world refers to a share of Disney stock.
Step 2: Filling in the blanks
Now that you know what you want to buy, enter your brokerage account, and find the appropriate screen for “trading.” It could be anywhere, depending on the broker you use, so take your time hunting around, and don’t be shy about calling customer service to ask. Eventually, you’re going to locate a box with several blank fields into which you will type the following information:
- The action you want to take (“buy”)
- The number of shares you want to buy (3)
- The name of the stock you want to buy (DIS)
- The price you are willing to pay (right now, Disney shares cost about $37 and change)
- The order type
- And the timeframe for the order
It’s those last two choices that trip up new investors most frequently, so let’s address them right now. Generally speaking, the two most common order types are “market” and “limit.” Rather than confuse you with the specifics of what they mean, let me give clear instructions here. Always choose “limit.” Always. There’s almost no advantage to choosing “market,” other than the fact that some brokers might charge you a bit less money for that type of order. Conversely, market orders can get you in a whole heap of trouble by allowing you to “accidentally” buy or sell a stock at a price you never intended to. Best just avoid the whole concept entirely.
Next, timeframe. Here, you’re presented with a plethora of choices. What they basically boil down to, though, is deciding whether you want to buy right away at whatever price a stock is selling for, or leave a standing order for a “pipedream” price and hope you get lucky. For now, let’s assume you just want to get the dang stock bought ASAP, so choose “day” and leave it at that. Click the button to enter your order, make sure the numbers look right to you, then confirm the order.
Voila. Assuming you picked a price close to whatever sellers are asking for the stock, you should now be about $110 poorer, and three shares of Disney richer.
Go! (Or don’t)
Remember: The above is a how-to manual only — the start of a conversation, rather than an edict to go forth and buy Disney shares like some madcap band of dwarves with too much gold in their pockets. So before actually doing anything described above, if you’ve got questions, ask ‘em below now.
Meanwhile, on the assumption that not everyone out there is a diehard ;Snow White fan, I’m going to start tapping out my next column on how to pick a few other stocks that you might prefer to own. With any luck, my next column will reach you with something less of a delay than this one did.
International lawyer by day and Slickdealer by night, Rich Smith is always on the lookout for a good bargain. Helping corporations pillage Third World economies is great for paying the mortgage, but Rich’s real loves are writing about stock investing for The Motley Fool, buying cheap stocks for his own portfolio, and strolling the aisles at Slickdeals in search of the ultimate blue-light special. A veteran of Moscow, Kiev, and Washington, D.C., Rich has traded-in city life, and now takes his ease in the fields of rural Indiana.