How to Invest in Stocks: 101 Tips For Beating The Market

Are you learning how to invest in stocks? We’ve compiled 101 tips for investing newbies on actionable things that can make you a better investor today.

Read them.

Learn them.

Embed them into your investing strategy for life.

Before Investing

1. Make saving and investing a priority

If you don’t, you’re bound to needlessly spend money.

2. Commit yourself to regularly saving money to invest

Determine what you can & should set aside every month. To make this process even easier…

3. Schedule a monthly auto transfer from your bank account to your investing account

Set it & forget it. Auto transfer is the way to go.

4. Pay off high interest debt

Credit card debt is expensive! You’re losing a ton of money every year even if your stocks grow 10% when you’re paying 20% APR on credit card debt.

5. Set aside an emergency fund

Life happens and you never know when you’ll need the cash. If these funds are tied up in the market make sure they’re in stable large cap stocks, preferably with dividends.

6. Determine how much risk you’re willing to accept BEFORE starting to invest

Your appetite for risk directs your entire investing strategy.

7. Set goals

Are you saving up for a new car in 12 months or to retire in 30 years? It makes a huge difference in your investing strategy.

8. Understand the difference between growth stocks and value stocks

Because the process for evaluating both is very different.

9. Invest with virtual money before investing with real money

If it’s your first go-round, it’s a smart idea to invest virtually before putting real money on the line. Investopedia has a great stock simulator here

Research for success

10. Always do your stock homework

Great investments aren’t made solely because you think the company is neat, or even because it has millions of customers. Adequete, and thorough research is a must. Always.

11. Do lots of reading

Check out recent company news, read up on competitors, analyze company documents, and read anything else you can get your hands that helps you determine if you’re making a wise investment.

12. Set up Google alerts to easily keep up with the news on your stocks

13. Learn how to read a balance sheet

Because investing without basic accounting knowledge is like traveling without a map. You’ll never know how to reach your ultimate destination of financial success. Here’s a basic tutorial.

Then…

14. Read through recent 10-K & 10-Q filings

The financial metrics on Yahoo finance can only take you so far. Every SEC filing for all public companies can be found at SEC.gov

15. Check out the investor relations section of the company’s website

Companies list a ton of helpful info for investors here; everything from FAQ’s to recent filings, press releases, and more.

16. Use fundamental analysis to determine if you should buy, and technical analysis to determine precisely when

But…

17. Don’t get too caught up in technical analysis

Technical analysis can be a tangled web of charts & comparative metrics that can send new investors into a net of utter confusion. When seeking stocks with long term growth potential, technical analysis isn’t a hugely critical factor in the evaluation process.

18. Check out Wikinvest.com for lots of stock data

Wikinvest rocks. It’s like Yahoo Finance on steroids.

19. Use a stock screener to find potential stock investments

Stock screeners allow you to find stocks that meet specific financial metrics like having a certain EPS or PE. Yahoo finance has one of the best ones here.

20. Check out Value Line for quality stock analysis & reviews

Value Line is a fantastic resource for trusted stock analysis. It’s a paid subscription, but free editions can be found at most local libraries.

How to do fundamental stock analysis

Wikinvest is a great resource for evaluating the below metrics, but always be sure to data check figures with other trusted sources like Yahoo finance.

21. Look at trends in the metrics

It’s important how the company’s financials stand today, but it’s also critical to see which direction the company is moving toward.

22. Check Net Income to make sure it’s positive, and growing

Income = profit. Make sure the company has it, and that it’s on an upward trend.

23. Check Net Margins

Bigger is better, and increasing net margins over time is heaven on earth.

24. Compare Net Margin with the rest of the industry

Margins vary from industry to industry. Seek companies with margins in the top 20% of it’s industry.

25. Check for EPS growth over the past 2+ years

EPS is one of the mack daddy metrics of fundamental analysis. Find a company with increasing EPS, and you’ve found one that is navigating it’s way to higher and higher profits.

26. Seek stocks with low P/S

P/S measures how expensive the stock’s price is relative to the company’s sales. Some argue P/S is an even better measurement of a company’s value than P/E because earnings can sometimes be manipulated. Either way, you’ll want to seek stocks with low P/S.

27. For growth stocks, seek companies with exceptionally strong EPS & sales growth over the preceding 5 years

By definition, this is exactly what high growth stocks are. Also…

28. Look for high ROE in growth stocks

It shows the company can leverage its resources for high growth.

29. For value stocks, seek stocks with exceptionally low P/E & P/B

It a signal the company could be underpriced.

30. Check the stock’s beta before investing

Beta measures price volatility. Be sure to check it out before investing to spare yourself from daily heart attacks.

Finding quality companies

31. Seek companies that are market leaders

32. Seek companies with net profit margins in the top 20% of it’s industry

These are the industry leading companies you’ll want a piece of. You’ll also want to…

33. Avoid companies in industries with low profit margins

With thousands of potential companies to invest in, why put your money in a company with 1% margins when there are others with 10% margins?

34. Invest in cash rich companies

Cash is king…always.

35. Seek companies with little debt

Just as much as credit card debt destroys consumers, so does corporate debt for companies and their investors.

36. Seek companies with great management teams

They’re the ones that’ll lead the company to either great heights, or new lows.

37. Look for strong insider stock ownership

It shows that management is even more financially vested in the company’s success.

38. Look for company buybacks

It’s a great sign to see a company buying back shares of it’s stock. With fewer shares available, the supply-demand will be more favorable for current investors, and metrics like EPS will automatically be boosted even if earnings stay the same.

39. Invest in companies with an economic moat

An economic moat is a company’s competitive advantage over it’s competitors. The bigger it is, the better it’ll be at retaining its market leading position.

40. Seek companies in a growing industries

No matter how good a company is at what it does, if it operates in a dying industry it’s sure to die a slow, painful death.

41. Look for high dividend yield as an indicator of a discounted stock

Stock prices fluctuate daily, while companies rarely change their dividend rates. This means that when stock price dips, dividend yield goes up. Large companies with steady dividends are judged all the time by their dividend yields, and can can be a great strategy for uncovering discounted stocks.

Winning investing strategies

42. Can’t find a specific stock you like? Invest in an ETF

ETF’s are awesome investments for a variety of reasons. Here’s a fantastic list of some of the best ones to consider.

43. Invest in ETF’s for easy diversification

Buying an ETF is like buying a micro-slice of dozens of companies all in one transaction. Diversification can’t get any easier!

44. Invest in commission free ETF’s

Commission free ETF’s are awesome, especially for investors looking to regularly invest small amounts. TD Ameritrade & Vanguard both offer them. But always be sure to…

45. Check out bid ask spread before buying

Bid-ask spread is the price difference between the highest price a buyer is willing to pay for the ETF, and the lowest price at which a seller is willing to sell their shares. If there’s a large spread and the ETF is thinly traded you’ll have trouble liquidating your shares when you need to, and at the price you desire.

46. Invest in companies that service basic human needs

People will always need food, drink, and electricity, even during a recession. With the general population only getting larger, consumer staples are a great bet for investments.

47. Buy small & midcap companies for greater growth potential, but greater potential for volatility

48. Buy damaged stocks, not damaged companies

There’s a very distinct difference. Damaged stocks are simply experiencing a short term setback that they’ll soon recover from. Damaged companies are ones whose core business model has been damaged, and won’t be able to recover from anytime soon.

49. Buy more of what’s working

If you’re holding a bullish stock that’s looking better & better with time then buy more!

Also make sure to…

50. Cut your losses & sell the losers

Re-evaluate losing stocks to determine whether you feel they have any upward potential. If not, cut your losses, sell the stock, and look for your next investment.

51. Diversify, but not too much

Keep your holdings to between 5 – 10 stocks at any given time. Any less, and you’ll have too much tied up in a single stock or sector. Any more, and it’ll be difficult to keep current with the news and finances of your holdings.

To diversify optimally, you’ll want to…

52. Diversify into different industries

53. Diversify into different types of investments

The stock market is only one place to invest. Also look to real estate, peer-to-peer lending, bonds, and more.

54. Resist the urge to sell shares to book profits on every rally

It can be tempting, but keep your sights set on where you think the price could be another 2 years down the road.

55. Find trends, then take advantage of them

Whether it be an aging population, increased focus on national defense, or the increased trend to “go green” identifying & investing based on trends represents a huge opportunity.

56. Don’t invest in stocks based on the popularity of the company

Investing in a stock simply because the company has a user base in the millions is one of the dumbest things you can do.

57. Buy large cap stocks for greater stability

58. Invest in dividend stocks for returns + a bonus payment every 3 months

Dividend stocks should be a staple of any investment portfolio.

59. Keep a running list of stocks to watch

This way you’ll always have your finger to the pulse of opportunity.

60. Keep it simple

Warren Buffett has always warned “Beware of geeks bearing formulas” and he’s absolutely right. Focusing on irrelevant data points, trading too much, and trying to predict the unpredictable will send you on a path to failure. Keep it simple. Focus on quality.

This also means…

61. Invest within your area of expertise

Invest in companies and industries that you understand, and invest according to your own strategy. This also means…

62. Don’t invest in companies & industries outside of your expertise!

63. Don’t buy cheap stocks

Buying a stock whose price dropped 30% in a month just so you can catch it on the rebound is one of the dumbest things you can do. Cheap stocks aren’t always value stocks. Often times they’re cheap for a reason.

64. Always reinvest dividends

Over time returns will snowball even greater heights.

Buying & selling stocks

65. Buy stocks direct to avoid trading fees

Not all companies offer direct stock purchasing, but if they do it’s an awesome way to avoid transaction fees altogether. Computershare is the place to go to find out which companies offer it.

66. Find an online broker that fits your needs

There’s a ton of them out there. Sharebuilder is our favorite.

67. Use a stop loss order to limit risk

Set a trailing stop order & leave it. Losses will be minimized and you’ll thank yourself, we promise.

Investing during a recession

68. Recognize that market setbacks are inevitable

They happen, there’s nothing you can do about it. The only thing you can do is…

69. Take advantage by finding lots of value stocks

Now’s your time to pick up stock in great companies that are experiencing a short term setback. When it bounces back you’ll be in a position to earn huge returns. But, don’t forget that…

70. Your focus should still be on quality companies!

71. Know that there’s always a bull market

Even in recessionary times. You simply have to work harder to find it.

72. Check out DOW stocks in recessionary times to find great value buys

They offer dividends, and are some of the largest corporations in the US, so they’re some of the most likely to rebound.

73. Invest in utilities for stable stocks

Businesses and homes need electricity every day of the year, whether economic times are good or bad.

74. Invest in consumer staples

Similar to utilities, everyone still needs food, drinks, and household necessities even in a recession.

75. Focus on companies with little debt & strong cash flow

Having lots of cash and little debt helps companies survive in tough times.

Tips for retirement investing

76. Max out your company’s 401k match program

It’s literally free money.

77. Compare your fund’s performance against the market

You’re paying someone to strategically make your money grow. You should be outperforming the market in most years. If it’s not, then you can always…

78. Manage your own investment account

Techniques of investing masters

79. Focus on QUALITY companies

80. Invest as if you’re buying the whole company vs buying a stock

Would you want to buy and run an unprofitable company? How about one with slim margins? Or one with intense competition? If you wouldn’t want to own the company outright, then why would you want to buy shares of it’s stock?

81. Be patient. You don’t have to swing at every pitch

Don’t invest in a stock simply because you have available cash. Focus on finding the right stocks.

82. Never buy penny stocks…NEVER!

Just don’t do it. Many have tried investing in penny stocks, the overwhelming majority have failed. Just check out these personal stories here, here, and here.

83. Understand that short term trading isn’t investing, it’s speculating

And you should…

84. Invest….don’t speculate

85. Keep riskier investments to under 15% of your portfolio

86. Erase greed and fear from your investing decisions

Greed and fear will lead you to make decisions that you simply shouldn’t.

87. Be careful of investing tips from “gurus”

Everyone has an opinion, and only very few should you actually put money on.

88. Be disciplined

89. Think independently

90. Think long term

Which means…

91. Ignore short term movements

Stock prices move up and down everyday. Be more concerned about where you think the price will be in 5 years vs 5 days.

92. Learn from your mistakes

No one is ever perfect. You will make mistakes. Aim to learn from them and leverage your new insight for even greater success in the future.

93. Take advantage of price dips

If you own a piece of a quality company and the price takes a dip, buy more! (so long as the initial reasons you bought are still in place)

94. Always know the reasons that led you to buy a stock so you know the right time to sell

In 2 minutes or less, you should be able to list the factors that made the stock attractive to you. If it’s still true, hold or buy more. If it’s no longer true, then it’s time to sell.

95. Always have a game plan

Always be thinking about how you’ll react if a stock, or the market takes a major swing in either direction.

96. Beware of Wall Street hype

Aggressive marketing tactics can do a wonderful job of over-hyping a company’s stock without adding a single penny of value to the company itself.

97. Ignore stock predictions

98. Don’t panic on short term under-performance

Be patient & think long term. Every company is bound to experience turbulence.

99. Buy & sell shares gradually

100. Set rules & limits for yourself

This way you’ll keep emotion at bay, and invest according to the strategy you’ve devised.

And finally…

101. Start investing…yesterday

The power of compounding interest is huge! If haven’t opened up your investing account, do it now!