10 Helpful Steps to Prepare for Your First Venture in the Stock Market

At some point, you just have to jump in and give it a try.  Even if you haven’t made it all the way through reading Stocks for the Long Run, here is a check list that can help you get started with your stock market investments.  Anyway, these things have helped me.

1. Open an online brokerage account. Here is one place that gives reviews. I have heard the most about the runners up in the discussions in investors’ meetings I’ve been in.  If you choose a firm that has a brick and mortar office near you, there will often be classes available.  If not, there are usually lots of online tools.
2. Find someone with experience, who has the same basic approach as you do to finances and investing, to have regular chats with.  Its like practicing speaking when you are learning a language.  Just talking about it will cause those synapses to fire and make connections!  Maybe it’s someone in your family; or you can meet people at your local American Association of Individual Investors (AAII) meetings.  Use the “chapters” tab to find groups near you.
3. Learn a few basics about the long and short term tax implications. It is good to have both a historical understanding, which is given in the aforementioned book, Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies, 4th Edition (Yes, I really learned a LOT from this book!); and the current tax code.  Once you start to make progress with your investments, the tax man gets more avaricious.  It’s good to be aware.
4. Come up with a regular budgeted amount to invest. Hard to invest when all the money is spent!  If there isn’t a plan, progress is much less likely.
5. Start an investment journal and some record keeping. I have ended up using loose leaf notebooks because it is easier to add and delete pages.  One notebook is for educational articles that I want to keep or remember to pass on.  Another is for records of stock we own.  Each stock has a page with a description of the company, a page for evaluating key statistics (company value and management trends), a page for buying and selling, and a page recording dividend payments (because it makes me happy to write these down).  I’m planning to add a page(s) that track our decision processes to some extent.  Its amazing what is forgotten.  You are welcome to take advantage of the charts I’ve already made:  stock market key statistics evaluation chart, stock market buy sell record chart, and stock market dividend record chart.  I’m sure you will quickly come up with ways to improve these.  When you do, let me know!
6. Browse some educational and information websites such as Investopedia.com, AAII, and Yahoo!Finance.  For me, Yahoo!Finance is easy to navigate and understand, but it may just be because that’s what I’m familiar with.  I do like the google finance company descriptions format better.  There are some minimal membership fees for AAII to use their whole site, but I have found it well worth it.  Now, I’m considering membership as a Christmas gift for some family members!
7. Pick a few criteria with which to evaluate a company. When we started we really only considered about 5 “key statistics” about each company.  Choose things you understand pretty easily, like how much debt compared to how much cash they have.  Is the bottom line of their balance sheet and their company value growing?  Have they been around for several years?  There is always more to learn about these things.  I am planning on studying accounting more next year.  My dad is the Zen Master of Spread Sheets and Evaluation, but even he says that if too many things are in the mix, it is easy to get “analysis paralysis.”
8. Begin to understand that not everyone in the investment world means the same thing when they use the same words. Some of this has to do with whether or not they are “trading” versus “investing.”  We are most comfortable investing for long term value and dividends.  In view of this, what others call risk, we call inevitable market volatility. Sometimes, what others call a value stock, we deem to be just cheap and risky. If you understand your own set of criteria, it will be easier to cut through this vocabulary fog.
9. Beware of hype and panic.  I refer you back to the quote near the end of my post about the book, Stocks for the Long Run.  There will always be people who are selling doom and gloom, and others who tempt with the get rich quick schemes.  Again, know your strategy and stick with it.  Sometimes you will make great choices.  Other times unknown factors will thwart you.  Managing your money will take some effort… or you could just spend it…
10. But I think you should buy some stock!