If you want to generate profits from stocks, you are surely one of those asking the common question of what stocks to buy. This sounds effortless to skilled and experienced investors, but starting out in the stock market can be discouraging. This article will walk you through the entire process of stock buying so you’ll recognize the best stocks to buy.
What is a Stock?
Companies sell shares of stock to produce cash to fund their business projects and operations. The first time that an enterprise will sell its shares is coined as initial public offering or IPO. For the most part, companies make extra stock offerings from time to time to make additional funds.
When you purchase a stock, you are actually acquiring a portion of the company. For example, if ABC Enterprise has offered 100 shares in the market, and you get three shares, you have legally bought 3% of ownership in ABC.
Once a company sells its stocks or shares, it will not obtain any direct benefit or be compensated if its price increases later. However, the executives of the company may hold some shares and therefore be goaded to try and raise the share price – in their efforts to make the company more profitable.
Steps in Purchasing Stocks
To recognize what stocks to buy now, you need to decide initially who will assist you in this process. The most preferred middle-man is known as a stockbroker.
The two main types of stockbrokers are:
- Discount Brokers – These professionals accommodate the needs of investors who are willing to research the market and make investing decisions on their own. Many of them do not have brick-and-mortar offices – they normally operate in the internet and over the phone – and don’t deliver investing tips and recommendations, so don’t expect getting hints on cheap stocks to buy from them.
- Full-service Brokers – These professionals offer financial advice and planning on buying stocks and selecting investment options such as mutual funds. Most of the time, they have offices that you can visit, and a professional broker will be assigned to assist you. These types of brokers are the most expensive method to invest in the stock market. You will have to recompense approximately $70 to become skilled in picking stocks, as well as buying or selling a set of shares, compared to less than $20 service fee of discount brokers. These fees can be investment money well spent if you don’t have adequate amount of time and interest necessary to handle your stock portfolio on your own.
Stocks vs Funds
In general, there are two fundamental ways to place your money in the stock market; you can buy penny stocks or common stocks from a company or you can go for mutual funds.
Mutual fund investing involves investing money of thousands of stock market investors. In this investment vehicle, you can take advantage of professional stocks management. Since most funds cover dozens, if not hundreds of stocks, this investment option grants you instant diversification.
This is a definite edge over other investors, even if you are lucky when it comes to choosing what stocks to buy, since the odds are not on your side at all times.