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How do I invest in stock?
When should I buy and when should I sell stock?
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3 answers
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John’s Answer
Hi Jackie!
What a great question! I wish more students asked about investing and more broadly asked about money. At the very simplest level, you buy stocks when the internal value of the stock is more than the price. And you sell the stock when the internal value of the stock is less than the price. Buy low sell high. But that leads to the next question, about stock valuation. You could fill a small library with books written on this topic. But I'll give you a few pointers here. I must say for the lawyers out there, this is not investment advice. It is purely educational.
1.) Pick a company you think you like. As a student you are probably aware of some companies that us old folks don't care that much about, but you love. Sometimes there are opportunities there that I just won't see because I'm too old. For example, when Uber first came out, I bet a bunch of us oldies said I have a car why would I ever go into a stranger's car? When I need a taxi, I'll get a taxi. But look at Uber now!
2.) Subscribe to news alerts. News, good or bad tends to drive stock prices. You won't necessarily buy or sell based on the news. But you want to read what everyone else is reading so you know what they might be thinking. Read about your company every day.
3.) Have an opinion or a thesis about the movement of the stock based on your ever deep understanding of the stock, the market your company is in and its competitors.
4.) Place your bet. If you think the stock is undervalued, buy some. If you think the stock is overvalued sell some. (You can even sell shares you don't have called shorting but that's another article.)
5.) Watch your stock performance. To make money in the short term you have to be a better investor than 50% of the people out there consistently. It's not as easy as it sounds. If you made money that's great. But you probably didn't learn anything. If you lost money, then figure out why. Why was your analysis of the stock performance wrong? It could be temporary. If so, maybe put some more money into that stock. Because it is now even more undervalued. But beware, if you got it wrong at first, you might still get it wrong if you put more money into the same stock.
6.) Think about a buy and hold stagey where you let time increase the value of your stock. Dollar cost averaging into a stock (think putting money in every pay check) may interest you.
7.) Understand the bigger market not just your stock. Think about waves in the ocean. When the waves are high all boats go higher. When the waves are low all boats go down. It's not just about the value of the stock that changes the price. For example, we are in a down market right now. That means over all the stock prices are down compared to this time last year. Does that mean that the whole market was overpriced last year? Does it mean that the market is undervalued now? Will the market (waves of the ocean) go up tomorrow? Or down? Consider these things when you think about buying an individual stock.
This topic is far too big for one article and each person's individual circumstances, risk tolerance, and financial education are critical when considering when and where and how much to invest. Either become the professional that invests your own money or hire a professional to invest it for you. I don't recommend investing your own money if you're not willing to put in the work to know what you are doing.
Feel free to keep the conversation going by asking more questions in the comments!
Wishing you lots of working hard and a little working smart,
-John
Read everything you can about companies you like and the market every day.
Have an opinion and make a bet.
Track your progress and figure out where you went wrong when you lose money
Go to school for business so that you have a better understanding of business
Become a money pro or hire one
What a great question! I wish more students asked about investing and more broadly asked about money. At the very simplest level, you buy stocks when the internal value of the stock is more than the price. And you sell the stock when the internal value of the stock is less than the price. Buy low sell high. But that leads to the next question, about stock valuation. You could fill a small library with books written on this topic. But I'll give you a few pointers here. I must say for the lawyers out there, this is not investment advice. It is purely educational.
1.) Pick a company you think you like. As a student you are probably aware of some companies that us old folks don't care that much about, but you love. Sometimes there are opportunities there that I just won't see because I'm too old. For example, when Uber first came out, I bet a bunch of us oldies said I have a car why would I ever go into a stranger's car? When I need a taxi, I'll get a taxi. But look at Uber now!
2.) Subscribe to news alerts. News, good or bad tends to drive stock prices. You won't necessarily buy or sell based on the news. But you want to read what everyone else is reading so you know what they might be thinking. Read about your company every day.
3.) Have an opinion or a thesis about the movement of the stock based on your ever deep understanding of the stock, the market your company is in and its competitors.
4.) Place your bet. If you think the stock is undervalued, buy some. If you think the stock is overvalued sell some. (You can even sell shares you don't have called shorting but that's another article.)
5.) Watch your stock performance. To make money in the short term you have to be a better investor than 50% of the people out there consistently. It's not as easy as it sounds. If you made money that's great. But you probably didn't learn anything. If you lost money, then figure out why. Why was your analysis of the stock performance wrong? It could be temporary. If so, maybe put some more money into that stock. Because it is now even more undervalued. But beware, if you got it wrong at first, you might still get it wrong if you put more money into the same stock.
6.) Think about a buy and hold stagey where you let time increase the value of your stock. Dollar cost averaging into a stock (think putting money in every pay check) may interest you.
7.) Understand the bigger market not just your stock. Think about waves in the ocean. When the waves are high all boats go higher. When the waves are low all boats go down. It's not just about the value of the stock that changes the price. For example, we are in a down market right now. That means over all the stock prices are down compared to this time last year. Does that mean that the whole market was overpriced last year? Does it mean that the market is undervalued now? Will the market (waves of the ocean) go up tomorrow? Or down? Consider these things when you think about buying an individual stock.
This topic is far too big for one article and each person's individual circumstances, risk tolerance, and financial education are critical when considering when and where and how much to invest. Either become the professional that invests your own money or hire a professional to invest it for you. I don't recommend investing your own money if you're not willing to put in the work to know what you are doing.
Feel free to keep the conversation going by asking more questions in the comments!
Wishing you lots of working hard and a little working smart,
-John
John recommends the following next steps:
Updated
Noah’s Answer
Assuming you're under 18, you'll need to get a custodial brokerage account in order to buy stocks. That's just a fancy word for having someone over 18 sponsor your account so you can legally trade stocks. Bumper Investing is an awesome platform that allows you to buy stocks under 18 completely for free: https://www.joinbumper.com/
They also have a series of "Bumper Bites" where you can learn about the fundamentals of personal finance and investing: https://www.joinbumper.com/bumper-bites
Hope this helps :)
They also have a series of "Bumper Bites" where you can learn about the fundamentals of personal finance and investing: https://www.joinbumper.com/bumper-bites
Hope this helps :)
Updated
Audrey’s Answer
It's important to understand the market before investing! Broadly speaking there are generally two types of investors, active and passive. I recommend reading "The Simple Path to Wealth" by J. L. Collins to learn more!