20s: Build The Foundations
20s: Build The Foundations
A Helpful Guide To Choosing Your First Stocks
by The Gloss
Choosing your first stocks is a step by step process, and it can be fun too. Investing is not just about building wealth but discovering a new sense of confidence and control. When you break down the process into simple stages, exploring companies, trends, and opportunities, the journey becomes exciting rather than overwhelming. This guide will walk you through a method that builds your portfolio and supports your long-term goals.
The most common form of investing is buying stock – also referred to as shares or equity. Don’t be swayed by peer pressure or media hype. With this in mind, before you choose your first stocks, consider the companies that you use on a daily basis:
– What brands do you wear?
– What household goods do you use?
– What streaming services can you not live without?
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Now, ask yourself:
– Would you like to be part owner of that company?
– If so, do you like the way the company is operating?
– Do the company’s corporate values, such as its sustainability strategy and company culture, align with your own values?
– How does the company make money?
– Do you think sales will continue to grow in the future?
– What competition does it face in the market/industry in which it operates?
Research, research, research!
Next up, you should look at the company’s financial metrics, sources of financial information as well as any relevant news.
If you’re interested in investing in a company, look at the news flow – resources such as The Financial Times and CNBC are excellent and can offer investors useful insights into companies and their industries. You’ll find essential information around what the company is doing, what their earnings have been like, what competitors are doing, as well as what’s going on at a macro level.
Likewise, social media platforms can be valuable resources. Follow the company you’re interested in as well as their competitors to keep up to date with information.
It is also useful to look at the investor relations section of a company’s website. This will give a flavour of any recent activity and any news the media has published about the company.
You should only invest in a company that you know, understand and believe in.
When you’re researching a company, financial metrics are important too. They allow you to assess a company’s financial strength. Yahoo! Finance is an easy-to-use, free tool available to all and presents a company’s overall financial situation – from historical price performance to its trading range as well as buy and sell recommendations.
Some key metrics to assess:
– Historical price performance is a useful guide to figure out trends and when to execute a trade. When you look up a particular share, you will typically see the current share price, its 12-month high and its 12-month low.
– Price-to-Earnings (PE) ratio shows the relationship between a company’s share price and its earnings. It is calculated by dividing the current price per share by the earnings per share for the past 12 months. Relative comparisons are important when looking at the PE ratio (i.e. comparing to peers or a specific sector).
– Dividend yield indicates how much income investors can collect from holding a share. Dividends are usually paid quarterly. The yield can vary by sector. More mature companies with stable revenue growth tend to pay dividends, whereas companies in an early growth phase may opt to re-invest this capital back into a business.
Financial statements are particularly useful when assessing the consistency of a company’s performance and its overall financial position. Potential investors should look at a company’s balance sheet (a snapshot of a company’s financial position, outlining what they own and owe) and its profit and loss account (outlining a firm’s performance in relation to incomings and outgoings).
Once you’ve purchased your first stock, it’s a good idea to reduce your risk by purchasing additional companies. This will help to diversify and protect your investments against market movements.
Stock research doesn’t end once you’ve chosen your first investments. Markets evolve, companies change, and new opportunities emerge. Continuing to review, learn, and stay informed will strengthen your understanding and help you make more confident decisions over time. By developing the habit of ongoing research now, you’ll be better equipped to manage your portfolio and support your long term investment goals as you look to the decades ahead.
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