Four Beginners Tips to Make Money from Picking Stocks

The stock market has been in the news more than ever recently. Between the crash in March, the surge back the past few months led by big tech, and even stock splits of some of the biggest companies, there’s been a lot happening.

In these times, it is important that you are invested in strong companies. Even with no experience, you can find great stocks to invest in and grow your wealth. Below are some tips for beginners to consider before their first stock purchase.

Picking Stocks Tip 1: Understand the Company

You wouldn’t buy a manual car if you can only drive automatic and you wouldn’t buy a book in Spanish if you only know English. Just like most purchases, it’s best to invest in a company you understand.

Just because a company has a complicated product or business strategy does not automatically make them better.

Trying to understand what Xilinx does is a lot more difficult than knowing the business model for Nike. If you buy most of your clothes at Nike you understand what they are, about and as a frequent customer, you see the changes they undergo.

Picking Stocks Tip 2: Invest in Companies You Support and Use

It is easiest to understand and follow companies that you are a user and fan of. If you recently canceled your Costco membership and are now an Amazon Prime member, it would be a good time to look at the stocks of both. See how the two compare, maybe you aren’t the only person making the switch.

The behavior of yourself, as well as your family and friends, can be a great indicator of trends.

Investing in Toyota when you have only bought Hondas your whole life may not be the best strategy. If you prefer spending your money on Honda to buy a car, why would you not prefer to invest your money with them too.

Picking Stocks Tip 3: Senior Management

This one may be harder to learn about for most companies. Most of the time you don’t hear about CEOs unless they do something noteworthy. And most of the time it’s for something negative.

But a stellar leader and leadership team can make the difference between a good company and a great company. A CEO who is always in the news in a negative light can hurt the stock price of a company.

Back in September 2018, Elon Musk appeared on a Joe Rogan podcast where he smoked weed. Tesla stock dipped just because of the news and coverage around the topic. Obviously Tesla and Elon Musk have done great since, but it is an example of CEO behavior having a bigger impact than it probably should have.

Picking Stocks Tip 4: Knowing the Industry and Competitors

Market research is an important part of investing.

Let’s say you are looking for a way to invest in 5G. You decide to invest in SBA Communications (SBAC) because it owns towers and leases them to telecommunication carriers such as Verizon or AT&T. Upon doing some research into the industry you find that SBAC’s biggest competitors are American Tower (AMT) and Crown Castle (CCI). Maybe you decide that AMT or CCI are better companies and decide to invest in one of them instead.

It is also important to know about the industry. Is it growing or dying? Is there constant change? Are new companies always entering the industry and disrupting it?

Determining what company is the leader in an industry is important too.

Knowing the competitors, positioning, and where the industry as a whole is going is an important part of evaluating a stock.

There is a lot that goes into choosing a company to invest in. Whatever your criteria are, hopefully they protect you and help you make great investment choices.