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Today’s question is about investing in stocks; specifically, which type of stocks are best for beginners.
I’ve been investing in individual stocks since 1981, when I began a career as a Wall Street investment adviser.
Here’s what I think.
For more information on this topic, check out “13 Dumb Investing Moves and How to Avoid Them” and “8 Basics That Beginning Investors Must Know.” You can also go to the search at the top of this page, put in the word “investing” and find plenty of information on just about everything relating to this topic.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.
Here’s our question today. It comes to us from Mike:
“What types of stocks are best to start with as a beginner?”
Glad you asked, Mike. I’ll answer with a couple of examples of investments I’ve made and why I made them.
About 2001 or 2002, I started noticing a ton of people carrying Apple iPods around. I can’t remember exactly how much iPods cost back then, but I can remember it was more than I was willing to spend. But as iPods became ubiquitous, I decided that, while I wouldn’t pay for an iPod, I would buy the stock of the company who made them: Apple.
Long story short, the $1,500 I put into Apple back then is now worth about $270,000, and that’s after selling half of it back in 2009. So, I did very, very well. And that’s the lesson: What are people doing around you, Mike? What goods are people buying?
Here’s another example: Facebook. I just bought this a couple of years ago.
While I have a personal Facebook page, I’m rarely on it. My wife, on the other hand, is on hers constantly, along with all of her friends and most of her family. None of these people — at least that I’m aware of — bought Facebook stock. I did. I think I paid $88 a share for it, and now it’s about twice that.
The best advice I can offer, Mike, is just to look around. See what people are doing. See what they’re spending their money on. That’s a great source of ideas. This doesn’t mean you should snap up shares solely in companies making popular consumer products, but this strategy will give you an idea on where you might start looking.
Once you find an interesting company, look at the financials. Use a search engine and read everything you can about it. See what professional analysts and others are saying. There’s so much information out there — you can easily find out whatever you want to know about any publicly traded company.
That being said, be careful. Try to be diversified. Since your question was about buying individual stocks, that’s what I’m answering. But keep in mind that a diversified mutual fund is safer than individual stocks. So if you’re buying stocks, be careful, take your time and understand what you’re doing.
One final piece of advice: Once you find a stock you like and buy it, don’t pull the trigger and sell too soon. I advise people not to watch trading shows on CNBC, or at least not to take them too seriously. I’ve owned Apple for 17 years. Had I been taking advice from TV traders, I would’ve had excuses to sell it 60 times. Avoid short-term trading and avoid the temptation to trade by getting too much information. Get a theme you like and stick with it. As long as your theme still rings true — people are still using Facebook, people are still using iPhones — stick with your theme.
I hope that helps, Mike. We’re going to close today as we always do with our quote of the day. This one comes from freelance writer and novelist Quentin Bufogle.
“99 percent of all problems can be solved by money, and for the other 1 percent there’s alcohol.”
Pretty funny. OK, have a super-profitable day and meet me right here next time!
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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