Picking Your First Stock
If you are reading this, you probably are pretty financially minded to begin with and likely have already started building your investment portfolio. Or maybe you just come here for the bad jokes and continually find yourself wondering “I don’t even know where the hell to start with investing”. Picking your first stock can be incredibly overwhelming. We know, we’ve all been there, and we want to help!
While I won’t cover all of the analysis involved with making “good” investing decisions, I will hopefully help you narrow down the field when it comes to picking your first stock. I’ve also asked some of the Sneaky Falcon team to share their own first stock purchases, including what it was, how they decided to buy, and how it all worked out for them.
As always, we aren’t financial professionals, none of the stocks mentioned are recommendations to buy, talk to a financial advisor, read the disclaimer, blah blah blah.
Picking Your First Stock – Before You Jump In
Before you start throwing money at the stock market all willy nilly, there are a few steps to take. Below are some things to consider before you should even worry about picking your first stock and investing.
You want to buy your first stock, but why? Are you saving to buy a car? Trying to set aside money for retirement? Just trying to put away money for a rainy day that will hopefully get a better return than your savings account?
All of the above are perfectly valid financial goals, and there are plenty of other good reasons to start investing. However, without understanding your time horizon or willingness to lose money, it will be very difficult to make educated investing decisions.
Before looking for stocks, take some time to figure out what you want to do with your money, and what you want your money to do for you.
Speaking of money, that’ll be kinda important to getting started.
While it is a no-brainer that you need money to begin investing, it is still worth mentioning. Similar to understanding your future goals, it is also necessary to understand your current financial situation.
Questions to ask yourself include:
- Do I have money to set aside to invest, or do I need that money to pay my bills?
- Would that money be better off being used to pay off debt or kept liquid in a savings account?
- If I lost all the money I’m planning to buy my first stock with, what would happen?
This all gets into deeper personal finance questions that many others are far more qualified than me to answer. I’ll just assume you have your shit in order and are ready to start investing!
You have your goals. You set aside some money. Now all you need is a brokerage account so you can actually buy that first stock.
Picking a brokerage is mainly a matter of personal preference, and I’ll leave you to your own internet research. Sneaky Falcon currently uses E*TRADE as it’s stock brokerage, for no reason other than it is relatively cheap ($6.95 per standard trade) and it was pretty easy to create an investment club account. I also use them for managing my personal portfolio and have been well pleased.
You can find cheaper brokerages (some even offering free trading with limitations) or more feature rich ones as well. It is really up to you and your needs.
So, now that you’re all set-up with a funded brokerage account, how do you find a stock to buy? That is what this is all about. Here are a few ideas of places to look.
Do you have ESPP?
The sports channel? NO that’s ESPN.
The paranormal ability to telepathically connect with the minds of others? NO that’s just ESP.
An ESPP, or employee stock purchase plan, is a special way that publicly traded companies allow their employees to buy shares of the company. Many times, this stock is offered to employees at a discount. While you may have less control over when you can buy and sell the stock, (that whole insider trading concern), it is definitely worth looking into.
Although it would be unwise to put all of your eggs into your employer’s basket (salary, benefits, and investments), considering buying stock in the company you work for may not be a bad idea. You will already know about the business, the leadership, the product, and all of that good stuff.
Even without getting into any financial analysis, you may be able to make some solid judgment on the long term prospects of the company, and if you would like to be invested in it.
Plus, if they are offering a discount to employees, you are leaving free money on the table if you aren’t participating in the ESPP. Even without a discount or a formal stock purchase plan, employer stock is a good first place to begin your research.
“I bought DOW Chemical when I was an intern there in 2008. It was right in the middle of the down turn, so I thought it would be a good time to buy something, plus it had a good dividend. Bought it at $30, and then doubled down at $10. It dropped to $6, and now it is around $55, and still pays a good dividend.” – Barrett
Start with what you know
Employer stock unavailable or otherwise not for you? The next best place to look for stocks is leveraging your existing knowledge and experiences; start with what you know.
Whether they are past employers, industries you have some expertise in, or makers of products you are passionate about, you undoubtedly can quickly make a list of companies with whom you are already pretty familiar.
None of this knowledge should replace proper due diligence, but should help to compliment it. Likewise, just because you love sending snaps to your bros doesn’t mean you should rush into an investment in Snap Inc. As an example…
The point really is to not let all your wisdom go to waste.
“The first stock I bought was Craft Brew Alliance back in 2011. It is a collection of independent craft breweries that merged operations and went public. I originally invested because I thought it was undervalued and would benefit from the craft brew mania that was taking hold back then. Also, I like beer. I sold my position in May of this year for a 150% gain.” – Sean
Boring may be better
Everyone wants to find the next Amazon or Apple that just heads straight to the moon. Pundits and traders on social media spread the allure of winning big on obscure penny stocks. Success in the stock market shares the same enticement as winning big in a Las Vegas casino.
But let’s face it; for every big winner, there are countless losers. While trying to find the next big thing can be exciting, it also carries substantial risk.
There are plenty of large, “boring” companies that may not have the growth prospects of smaller companies in hot industries, but continue to churn out solid financial results year after year and may even pay back shareholders in the form of a dividend.
These “Blue Chips” as they are known have a long history of strong performance. Companies like McDonald’s, Coca-cola, and Wells Fargo have been around for decades, and are generally pretty stable. They form the bedrock of the US economy, and may provide a strong foundation for your new portfolio as well.
“The first stock I picked for myself was Proctor & Gamble, which I picked up in April 2009 for about $50. I had done an internship with Unilever, and believed that consumer product companies should be safe harbors in recessions, relative to industrials. I dumped this position in January of this year for $90, believing (apparently incorrectly) that Big Don was going to trash the economy.” – Andrew
Don’t pick a stock at all
Oh yeah, I just went there.
Part of the reason picking your first stock is so difficult is because trying to pick individual stocks is just damn hard in general.
While learning about the process and researching individual companies and industries is part of the fun for us, our portfolio suggests we’d be better off not trying to beat the market.
In all honesty, if you have limited resources and are just getting started, picking just one stock may not be your best choice. But don’t be dismayed, there are other options!
Ahh yes, the index fund. While there is nothing exciting about it, an investment in a fund replicating the broader market instantly provides you with a diversified portfolio.
While you will never “beat the market” with an index fund, you will almost always outperform a savings account over time. An index fund is best for a more cautious, long term investor.
Similar to index funds, ETFs (Exchange Traded Funds) seek to replicate the performance of a larger group of stocks, but trade at brokerages just like a standard stock does.
The main difference for you the investor is the flexibility of ETFs. There is an ETF for everyone these days! Just want to focus on micro-cap growth stocks? There is an ETF for that. Looking for a basket of stocks only from Argentinian companies? Probably an ETF for that too. Ready for the drone revolution and only want to own stocks of companies involved in manufacturing unmanned aerial vehicles? You guessed it, there is an ETF.
You can find ETFs to cover almost any geography, sector, or investing style. If you have reason to believe some portion of the market is ready to outperform, but still want to hedge your bets, try an ETF.
Robo-Advisors (& Other Apps)
One last idea if you aren’t ready to plunge into owning an individual stock is robo-advisors. These are the product of the latest batch of FinTech companies taking on Wall St.
In a nutshell, these are funds that are managed not by a human financial professional, but instead by artificial intelligence or other algorithms. The benefit? Lower costs to you the individual investor.
There is a whole range of new tools and apps that help make creating and growing your investment portfolio easier. From Robinhood, which helps you buy partial shares of big companies for free, to our friends at Voleo who help you start an investment club, to M1 Finance (affiliate link) that allows you to build a balanced portfolio with a simple pie chart.
All of these options offer diversified alternatives to picking your first stock. With so many different ways to take advantage of investing in the stock market, you’d be a fool not to start doing your homework.
“I bought Ford at $11 back during the auto bailout in 2008, believing that the bailout was going to help all the automakers. Sold it for $18 about a year later.
In hindsight, I should have put all of my money into an index fund in 2008. I also should have sold all of my tangible assets, and put all those proceeds into the market in 2008 as well.” – Shilp
Picking Your First Stock – Conclusion
For many, just getting started in the stock market is a very daunting task. Picking your first stock is no cakewalk either. However by leveraging your existing knowledge and professional experiences, you are already well on your way.
A few closing thoughts as you embark on your investing journey:
- Ask for help! There are tons of great resources out there to get you started and help you learn. Avoid those that promise to get you rich quick.
- Don’t take stock tips from strangers or spam email. Always do your own research!
- Learn about compound interest. The sooner you get invested, the longer your money has time to grow.
What was the first stock you ever bought? Leave your story in the comments!