Welcome to the Dynalect guide on buying your first stock! Before you continue reading this piece, it’s important to consider one last time whether or not buying stock is the right option for you right now. In a good year, you might be able to return 10% on a diverse portfolio of well-chosen stocks, but if you have outstanding credit card debt, you’re probably paying 18-25% on that loan.
So pay that nonsense off first before even thinking about buying stock! You’ll have more cash in your pocket at the end of the day than you would if you let that pesky debt eat away at your savings.
Now that you’re ready to go, congratulations! You’ve made it you beautiful genius! You’re to purchase your first stock. This brief guide will attempt to articulate a few important pointers to guide you through easing yourself into the stock market and to help you avoid some of the mistakes that some of us here at Dynalect made on our fist stock purchases.
Selecting Your First Stock
Choosing your first stock can be an exciting and daunting task. There are thousands of publicly traded companies in the United States alone, and all of them are going to act a little different. Conventional wisdom tells us that trying to beat the market with single stocks, especially for a non-professional investor such as yourself, is a loser’s game so don’t even bother with it. Don’t waste your time with the sketchy websites that tell you to invest in a certain stock in order to get rich over night. Look yourself in the mirror and repeat after me: it’s not going to happen; I promise. As a personal investor, you should be far more concerned about the long-term game, which means choosing high-quality stocks that are going to use your money responsibly to return consistent profits year after year.
If you don’t already have a company in mind that your thinking about investing in, start poking around a little bit on the internet to find a large, stable company that pique’s your interest. To get you start, here’s a list of a few stocks that Warren Buffett holds for the quality of their dividends. You can also head over to the Dynalect Holding’s page to see what we have in our portfolio!
Once you’ve found a few stocks that you’re interested in, start doing a little research to figure out how the company has performed over the past few years. This is called “fundamental” analysis. You can find an example of how to conduct fundamental analysis in the Dynalect Industry Reports, where we publish our own research on the companies we evaluate for the Dynalect Portfolio. If you’ve settled on a stock that Dynalect owns you’re in luck because we’ve already done a lot of the work for you!
Ok. You’ve chosen your first stock. You’ve done your research to make sure the company is on stable financial ground. You’ve signed up for and funded a brokerage account. Game time.
Start by purchasing 1 share of whatever stock you’ve chosen, and commit to holding it for at least a month. Buying a single share allows you to get a sense of how you behave as an investor, and committing to holding it for a month forces you to overcome your instinct to sell it immediately when the price of the stock inevitably falls. Daily market fluctuations are all a part of the game, so just relax and observe your impulses. Assuming you’ve chosen a decent stock, the price will come back up.
This is also a good time to start following the markets on a regular basis to get a sense of how they act. Kristian from the Dynalect Team listens to Bloomberg radio when he’s walking between classes or going to the grocery store to stay updated on daily market news. This allows him to maintain a general overview of the state of the economy and how it might affect his investments in the short and medium term.
Index Funds and Other Types of Investments
Now that you’re officially an investor, it’s a good idea to start learning about the different types of investment opportunities available to you! After purchasing your first stock and holding it for a month, you can start thinking about expanding your portfolio in small increments to put more and more of your money to work for you in the stock market.
One such investment opportunity that you might want to consider is investing in an index fund. Index funds track the performance of a given section of the market, and allow you to access diverse holdings without having to purchase each individual stock associated with the index. Here at Dynalect, many of our team members hold core positions in an S&P 500 index fund, which tracks the general performance of many of the largest companies on the market. The wisdom behind this is two fold: First, it is a relatively low risk investment that we trust to hold value in the long term regardless of more severe fluctuations in individual stocks. Second, tracking the market allows us to profit from the long-term growth and productivity of the capitalist system, while also building on that performance with our own portfolio picks!
So that’s it! You’ve officially become an investor. You’ve set yourself up for long-term financial success, and you’ve joined the community of like-minded geniuses in the capitalist system. Good luck out there!