How to Buy Stocks: Quick-Start Guide for Beginners

clendar May 19, 2023

clendar 6 minutes

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Shares or equity securities are shares in the capital of a company which give the holders, called shareholders, property rights (sharing of profits) and administrative rights (vote in the meeting).

Unlike the bond, the share does not provide for a credit right against the issuing company; the only way to recover the invested capital is to resell the security to other buyers (investors).

While on the one hand shares offer excellent growth and earning potential, on the other hand they expose shareholders, as partners, to risks associated with negative fluctuations in the share price on the market.

Stocks can be divided into three main categories: common stock, savings stock, and preferred stock.

Ordinary shares: registered shares which guarantee the shareholder the right to dividends, the right to reimbursement of capital in the event of liquidation of the company and the right to vote in ordinary and extraordinary shareholders’ meetings.

Savings shares: shares issued by companies listed on regulated (authorized) markets which grant shareholders special privileges of a financial nature (usually in the distribution of profits). Holders of savings shares do not have the right to vote in company meetings.

Preferred shares: registered shares which give the shareholder a priority right, known as privileged, in the distribution of profits and in the eventual liquidation of the company. The right to vote is precluded in ordinary shareholders’ meetings but is granted in extraordinary ones.

Within each category the shares must be of equal value and offer equal rights.

WHERE AND HOW TO BUY SHARES?

How to buy stocks in the UK? UK shares can be purchased on the stock market which is the place where securities are traded. The aforementioned market is divided into two sectors: primary market and secondary market. On the primary market, companies have the option of selling company shares. On the secondary market, shareholders have the option of reselling the shares purchased on the primary market.

If you have decided to invest in the stock market and, specifically, in shares, know that the financial markets are not the easiest thing to deal with and losses are always around the corner! But it is also true that they can give a lot of satisfaction. On the Stock Exchange, the watchword is “prudence”. This means avoiding some mistakes that can lead you to certain losses! But in the advice that I will give you shortly, we will try to investigate whether stock picking, i.e. the active selection of stocks to invest in, is really right for you or whether it is better to switch to other strategies. Before investing, therefore, try to ask yourself these questions.

Are You Investing Money You Won’t Need Soon?

In the long run, stock markets always grow, but the trend is almost never linear! If you intend to invest in shares, you must be prepared to see them rise and fall in proportion to the “fortunes” of the companies that issued them. However, there may be situations in which the security varies for no particular reason, perhaps only because it follows the general trend of the market at that time or due to political and economic vicissitudes both nationally and internationally. Investing in stocks means accepting volatility: so don’t invest money in stocks that you may need in a short time. Or rather, to be even more cautious, in the next 5-10 years. You may find capital that has lost value in its time of need. All sample investment plans require you to carefully calculate how much you can affordably spend on stocks, bonds, and other commodities, so don’t miss this important step.

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Can You Understand The Company’s Business Thoroughly?

One of the hardest things to figure out is the business of the company whose shares you want to buy. It is not enough to know, for example, that the company sells books. Does it do it through real shops, complete with walls, shelves and staff? Or does it do it over the internet? This is because these are two markets that can generate very different turnovers and profit margins. A large part of Warren Buffett’s success is due to the fact that he has always avoided companies whose business model he does not understand and whose business model he cannot predict over the next 5 or 10 years.

Does the Stock Have an Attractive Price?

Another element to consider before investing in shares is whether the price of the share in question is interesting. This is because if the stock were overvalued there would be a good chance that over time it would return towards its intrinsic value and therefore that the price would fall. Figuring out what the true value of a stock is is not easy. Stock analysts use complicated formulas and spreadsheets to produce their valuations, which are always different from each other! However, you can get a rough idea of a stock’s valuation by comparing its current price-to-earnings (P/E) ratio to its historical average or the P/E of similar companies. Or comparing it to the growth rate: companies that grow faster are able to support higher P/E ratios.

Conclusions

If only a few of the considerations just made reflect your way of doing, then it is likely that investing in shares is not for you! However, for those who still want to devote themselves to the stock market, there are some interesting alternatives on the market today such as Index Funds, which invest throughout the market and in different markets (national or even international) and replicate their performance.

FAQs

1. How to buy shares for beginners?

Beginners can buy shares by opening a brokerage account, researching companies, choosing stocks, placing an order, and monitoring their investments regularly.

2. How to invest in stocks for beginners?

To invest in stocks as a beginner, understand what stocks are and how the market functions. Learn about different stock types and exchanges. Consider your goals and risk tolerance. Open a brokerage account to start buying stocks, and stay informed to make smart decisions.

3. How to buy stock directly?

You can buy stocks directly by opening a brokerage account, selecting the stocks you want to purchase, and placing an order through the brokerage platform.