Are you ready to learn how to buy stocks of your choice? In the last chapters, we covered how to analyze a business for its meaning, management, moat, and margin of safety – and just before this, we did a deep dive on the financials and growth that makes a business a good investment idea.
If you’ve followed along and done your research, chances are you have at least a couple of companies on your watch list. So now, let’s make sure you’re really ready to invest the right way, so you don’t rush into a potentially bad investment.
Important: At this stage you should have:
If you can check off these three things, keep reading. If not – go back a few chapters and catch up.
Now that I know you’re really ready, I’ll teach you how to actually buy the stocks on your watchlist at a fair share price.
Whether a company on your watchlist just hit its buy price or you just want to be prepared when that time comes, knowing how to evaluate stocks before you purchase is crucial to your personal finance. Here’s what you can expect.
If you’ve never invested in the stock market, don’t fret – it’s actually pretty simple once you get the hang of it.
In this guide on buying stocks, I’ll walk you through the steps you should take now to build your stock portfolio so you’re ready when the time is right.
You’ll learn where to buy, how to buy stocks, and when to sell stocks online in six simple steps.
The first step is to pick a broker. A broker is a middleman between an investor and a stock exchange, and every investor needs one in order to buy and sell stocks.
There are a lot of trustworthy brokers you can choose from. Let’s review the different brokerages so you know which one sounds best so you can begin to buy stock.
Full-service brokers are individuals who offer brokerage services either in-person or over the phone. Their services include buying or selling company shares for you, managing your investment strategy, and offering investment advice.
The main reason people choose a full-service broker is that they can offer personal guidance on how to invest money and buy stock.
BUT you already know how to invest, and your broker isn’t necessarily going to follow the same strategy you want to. Plus, personal service and guidance come at a price. You’ll fork over hefty fees for every trade you make AND for the broker’s time.
Not everyone can afford to pay a full-service broker’s fee, which is why there are discount brokers. While “discount” may sound enticing, these brokers are typically robo-advisors following computer algorithms to invest money in a managed portfolio of exchange-traded funds.
Once again, if you already know how to invest your money and have a strategy that won’t lose you money, why would you entrust investing decisions made with your money to a computer?
Warning: If you don’t know how to invest and you want to be hands-off, a discount broker will be the easiest and most affordable way to put your money in the stock market. Buyer beware, though, you may not make a good return on your investment.
Using an online broker is convenient and DIY-friendly. An online brokerage account gives you total control over how much you want to trade and when, and there are typically only small fees for each trade. Plus, you can still seek out the service of a professional when you need it.
Almost every one of the top brokerages has an online trading platform that offers a great user experience that even beginners can navigate. The best brokerage accounts are rated often by reputable sources, so with a simple search online, you can find which ones offer the features you’re looking for.
If you’ve made it this far, you’re a hands-on type of investor, I can tell. Here are a few of the best trading platform options you can use to invest on your own.
TD Ameritrade is a great example of a reputable company that has a long-standing history, making it a trustworthy place to put your money.
Many brokerage accounts require investors to hold a minimum balance but TD Ameritrade has no minimum balance requirement as well as no fees when you trade stocks.
Tip: There are important features to consider when deciding which brokerage to choose. They, like many seasoned companies, also feature robust opportunities for education and helpful customer support.
E*Trade is another great option for both beginner investors and experienced investors looking to trade stocks. It’s also a long-standing online brokerage with a great track record, $0 fees for individual stocks, $0 minimum to create an account, and plenty of educational resources.
The Power E*Trade platform offers even more tools and data that are extremely useful for not only making trades but also researching companies you may want to invest in.
Robinhood was one of the first brokerage companies to come out with a purely application-based trading platform, and one of the first to offer zero-fee trading. For these reasons, it gained incredible popularity.
Another one of the benefits of investing with Robinhood is that you can purchase fractional shares, however, this is actually doable through most online brokers today.
Investing with newer application trading platforms has its benefits – but it also has risks, too. Don’t invest with one of these easy-access applications without knowing what you’re getting into. In this video I talk about what you have to look out for:
Even though it’s a newer company, purchasing stocks on an app is the same as it is on any other trading platform so you can still follow the steps below.
Creating a brokerage account is the easiest part once you’ve selected the right brokerage for you.
What do I need to open a brokerage account?
Before signing up, have this information handy to make the process even more seamless:
All you have to do next is fill out the required information and connect your bank account in order to deposit funds.
Before you deposit funds into your newly created brokerage account, it is important to know how much you plan to invest based on your budget. Keep in mind that certain types of accounts within your brokerage account, such as IRAs (Individual Retirement Accounts) limit how much you can contribute annually. However, if you plan to invest more than this amount each year, there are plenty of accounts to choose from that can meet your needs.
You don’t have to start with a lot of money in order to invest. The great thing about Rule #1 Investing is that you can grow any amount of money into a substantial amount by investing in great companies that will deliver great returns over the long run.
This means you can get started with as little as $500.
If $500 sounds like a lot of money to invest, remember, you have already invested time and energy into learning how to invest so that you can minimize your risk and maximize your reward. You don’t have to be afraid of stock investing when you put in the work ahead of time and know what you’re doing.
Determining your budget will also help you decide how many stock shares to buy. Investing in stocks isn’t the same for everyone. While one investor may want to buy stock all at once, another investor may want to test the waters and start small.
Additionally, while one investor may want to own a certain number of shares, another investor may want to invest a certain amount of money. If you fall into the latter category, you may want to consider purchasing fractional shares.
Purchasing fractional shares of publicly traded companies can be helpful if you’re starting out with little money but have your eye on pricey stocks.
Once you have set your budget and determined how much money to invest, you can simply transfer funds from your bank into your brokerage account. Once the transfer is complete, you are ready to place your stock orders.
Now, you have to decide what type of order you will place when you purchase the stock. For Rule #1 investors, these are the types of orders you should be well acquainted with.
When you buy stocks with a “limit order” you are essentially putting a cap on the price you are willing to pay for that stock. Remember, your broker is the middleman between you, the buyer, and the sellers of the stock you wish to purchase.
Your stock order will only be fulfilled if the broker can find a seller who wants to sell at your limit price. This means that even if you place the order, it won’t be fulfilled in full unless the price is met for all the shares you want to purchase.
As a Rule #1 investor, you have already determined the right “buy price” so it’s important to place a limit order on your investment to ensure you don’t pay more than that price. Setting a limit order can also make your job as an investor easier.
If you set a limit order at the “buy price” that you have determined for a specific stock, then the brokerage will execute the order for you when the time is right, so you don’t have to constantly keep your pulse on the stock price.
A stop order, often called a “stop-loss” order, allows you to input a certain price that once the stock reaches said price, you will buy or sell shares. When the stock reaches that price, it will trigger a “market order” to buy or sell stock. When you execute a market order, your broker will find the best available price as soon as possible, which could be higher or lower than the stop price.
A stop-limit order is like a stop order, but with one key difference.
Key Takeaway: Instead of purchasing or selling the stock at the market price when it reaches a certain amount, there is a limit put on the order.
The distinction is important because of how quickly the stock market moves. If the stop is triggered, but the limit isn’t met, then the order won’t be fulfilled.
Stock prices are constantly changing so it’s important to put these parameters in place when you want to buy or sell at a specific price, or only below or above a certain price. If you purchase stock without a limit or stop price, you will get the best available price at that time, which, as I mentioned above, is called a market order.
Now that you know how to start buying stocks, it’s time to… WAIT.
Yep, you read that right. A patient investor will always perform better than an impatient investor.
The right time to buy stock isn’t once you know-how.
Remember what you have learned and wait for the right price, which is when the stock price of a company on your watchlist reaches the buy price you calculated, which means it’s 50% off. You wouldn’t buy the company at 30% off if you knew a bigger sale was coming, right?
Even if a stock seems like a great deal at the moment, stick to what you know and hold out for the right price.
THEN (and only then) you buy.
Tip: When the opportunity to buy a wonderful company at 50% off arises, it’s time to act. The good news is it only takes a few minutes to actually buy stock when you’re ready.
If you’re not sure why a company should be on your watchlist, or how to figure out when it’s on sale, read this complete guide (before you even think about buying stocks).
Knowing the time to purchase is only half the battle. You have to know when to sell also to be an effective investor.
Now, this time doesn’t come around very often. Remember, we invest for the long term which helps us avoid paying capital gains.
However, there are a few instances when it makes sense to sell…
Important: You should always re-evaluate the businesses you are invested in on a regular basis to check that they are still a great investment. Just because we invest in individual stocks for the long-term, doesn’t mean we just set it and forget it.
Stock markets can be volatile, but having the right strategy and knowing how to buy to stocks will allow you to set yourself up for a wonderful financial future.
Now that you know how to pick stocks, buy stocks, and how to sell them, you’re not a beginner anymore!
You are ready. BUT – there is still plenty of information out there that can help you. Take this investment advice and jump to the next chapter to review my list of books EVERY investor should read.
Chapter 0
Table of Contents
Chapter 0
The Ultimate Guide to Investing
Chapter 1
How to Start Investing for Beginners
Chapter 2
Types of Investments
Chapter 3
Small Investment Ideas
Chapter 4
How to Invest Money
Chapter 5
How to Invest in Stocks
Chapter 6
Financial Metrics to Evaluate a Company
Chapter 7
How to Buy Stocks
Chapter 8
Timeless Best Investing Books for Anyone
Chapter 9
Congratulations! Here’s what to do next
