More and more stocks are being bought and sold in the world today. You can find a lot of information about stocks on the websites of private or public companies.
Most companies that sell their stocks have an investor section that contains financial data and timely reports such as 10-Ks and 10-Qs.
Many people are now advised to buy shares directly from a company, bypassing brokers to avoid unnecessary commissions.
Investing in shares directly
Direct equity investments are becoming increasingly popular. On the one hand, this kind of stock investment is very risky, but on the other hand, it’s more profitable. Which is more important for you is up to you to decide.
A number of companies, such as Walt Disney, offer direct stock purchase plans (DSPPs). These types of plans allow investors to buy shares directly from the corporation. Each company has its own minimum shareholding, for example $20,000. But you can plan to buy shares incrementally, then the company is happy to waive the set limit for you, with a certain amount being deducted from your bank account each month. In this way, the company will automatically buy shares for you.
To find out more about this, contact the company and ask them to send you a copy of their plan prospectus, application form, and other relevant information. Most plans allow you to invest at a cost of $50 per month or more, which is automatically deducted from your bank account.
DSPPs also allow you to automatically reinvest all your dividends. A dividend is a payout to shareholders, based on a company’s corporate profits. Some companies may even give you a discount, such as 5% when reinvesting dividends.
Overseas practice shows that this is a great way to save money.
Dividend reinvestment plan (DRIP)
If a company does not offer a direct share purchase plan, you should find out whether it operates a dividend reinvestment plan.
Such a plan is a great tool for building up your stock portfolio, but it also has hidden features that most people don’t know about.
Many of these plans give you the option of sending a cheque for $10 or $25 or more to the scheme administrator who will purchase additional shares for you. The big advantage here is that the investor can also buy fractional shares in this way. In order to enrol in the programme, you must have at least one share in the company, which can be purchased through a broker.
Buying One Share through specialised services
Companies such as One Share offer the opportunity to buy a single share in many leading corporations. This option seems rather unusual, but it gives you the opportunity to take advantage of a dividend reinvestment plan.
How to buy shares via a broker
Although you can invest in stocks yourself, the services of stockbrokers are still very popular. Worldwide, brokers through which you can buy stocks differ in the type of service they offer:
- Online/discount brokers are usually just intermediaries. They often do not have their own office or financial planners. Interaction with such a broker is by telephone or via an internet site.
Have you seen the movie The Wolf of Wall Street? Remember when DiCaprio sold $5,000 worth of cheap stocks over the phone?
- Full-service brokers first try to get to know you personally. They assess factors such as: marital status, lifestyle, risk appetite, age, income, assets, debts and more. They then develop a financial plan that best suits your investment goals and objectives. They can also help with estate planning, tax issues and any other financial tasks. These types of brokers will naturally cost you more, but they are often worth it.
- You can also go to a financial advisory company. Such companies offer personal financial managers who are fully licensed to buy shares and are brokers of sorts.
Again a little example from the movie, remember The Rules of the Road: The Hitch Method? Will Smith’s client worked as a financial consultant for just such a company, where ten of them were advising one client (the woman Smith’s client fell in love with).
But consultants work with very large sums of money. Usually they are trusted to manage quite wealthy people. The minimum savings in an account with a money manager can range from $100,000 to $250,000 or more.
Investing in shares with a broker
You must first register with a broker’s website, create a brokerage account and deposit funds. Firms such as Charles Schwab and Citigroup’s Smith Barney offer brokerage accounts which can be managed online or with a broker in person. Once you open an account, you tell your broker how much and which stocks you would like to buy, such as Google stock. The broker executes the trade on your behalf. In turn, he has a commission from this, usually a few cents per share.
Trading venues tend to charge lower commissions nowadays because most trading is done online.
Once you have decided on a stock, you should choose either a market order or a limit order.
- A market order is chosen if you want to buy a stock at the current market price.
- A limit order means that you want to buy the stock at a price which is lower than the market price.
For example, if you plan to buy a stock in a company at $60 each and it is currently trading at $70, the broker will wait until the price is equal to the price you specify.
For those who want to learn all about stock trading without spending hundreds or thousands of dollars, there is a special Investopedia Simulator. It is a simulation of a brokerage account, with which you can try playing in the stock market.
Professional investors use many different methods in order to choose a strategy for working with securities. For example, there are special programmes which give access to a wide range of stock strategies and investment approaches.
Information on public companies can be found on their official websites. Most public companies maintain an investor section which contains financial data and timely reports.
It’s important to understand the fundamentals of stock market trading
Success in the stock market relies heavily on the ability to anticipate the future earnings of companies. The share price rises when people are more willing to buy shares than to sell them. The price of a stock goes down when people are more willing to sell the stock than to buy it.
The price of any security is therefore a reflection of how well people think a particular company is doing.
A company can have a stable share price and a lot of stock, and still be overvalued because people think it is worth more than it really is. In the same way, a company may be undervalued even if it has a fairly small share price and fewer shares because people think it is worth less than it really is.
You might conclude that your goal in stock trading (besides buying cheap and selling expensive) is to find stocks that are undervalued and buy them, and stocks that are overvalued and sell them.
Stock prices are affected by the earnings reports that companies issue four times a year. If a company issues stable earnings reports, its shares are likely to go up. If the company issues a more negative earnings report than expected, the share price is likely to fall.
Before making a purchase, do your research on the company in which you are considering an investment. Examine the balance sheet over the past ten years to see if the company is sound. Also study the latest annual and quarterly reports. Research the company’s website, if there is one.
Don’t forget about diversification, try to spread your funds into different assets when planning a stock investment.
Which companies’ stocks would you like to buy?