Stock Market Overview: How to Get Started

I often hear, “How can I make money in the stock market?” Others ask, “Is the stock market safe?” Ambivalence about the stock market is a very common and understandable reaction. Learning to invest is a matter of parting with your hard earned money in the quest to learn how to make more money. No one wants to be separated from their money, especially in an unknown venture.

Recommended Reading

Peter Lynch, “One Up On Wall Street” (2000).

But the truth is, once you get serious about making money, you realize the stock market is the biggest moneymaker of all. The stock market can absolutely make you a millionaire, and then some, if you know where to look, and have a little money to invest. You do not need a lot of money to invest in the stock market, just enough to get started. When I started, the minimum deposit to open an account at Charles Schwab was $100.00. Now they require 0.00! So much for needing lots of money to invest! But you do need some money to actually buy some shares in order to get started at all, so start with something like $100.00 or if you’re flush, 100 shares. The myth that you need a lot of money to make money, at least in stocks, is untrue. What you really need, though, is time.

In fact, you need a strategy and patience. You have to have a strategy in order to consistently make money in the stock market. Truly, you need someone who already knows the game. You need a guru. How do you get a guru? The big investors are not going to stop and chat with you. So, the next best thing is to read the books they have written. So, you need to start reading books, written by the best investors of our time. People have different theories and styles about how to make money in the stock market. Go to the business section of the book store. Start reading as many stock market books as possible. You will, over time, begin making comparisons among authors, and will come to know which guru thinks in a way that makes sense to you.

The person that gave me the most help, starting out, and to this very day, is Peter Lynch. I had the good fortune to run across a copy of “One Up on Wall Street”. I read it cover to cover, and never looked back. My favorite Peter Lynch quote is, “If you spend thirteen minutes a year on economics, you’ve wasted ten minutes.” Meaning, you do not look at what the economy, or the stock market as a whole, is doing. You are buying a business, not the market. All that matters is what that business is doing. This single concept shrinks all the rabbit holes, blind alleys, and extra work that a stock investor inevitably wastes time on, in analyzing the economy or the stock market. The only thing that matters is whether you’ve picked a winner. So, how do you pick a winner?

Before you can pick winners, however, some definitions are in order. There is a difference between investing and speculating. Investopedia defines the difference between the two as “the amount of risk undertaken. High risk speculation is typically akin to gambling, whereas lower risk investing uses a basis of fundamentals and analysis.”

Thus, investing involves fundamental analysis. Speculation is a species of gambling – acting on hunches and guesses, which may not prove profitable; this is not investing. What is “fundamental analysis”? It is the systematic review of the company’s mandatory financial filings. So, if you want to invest in stock, you have to be willing to analyze the financial documents. That way you are investing, and not speculating. But before you can analyze the financial documents, you have to pick a company whose stock you would like to analyze! But how, and where, do you look to find one?

Here is where Peter Lynch turned out to be a good match for me. His theory of picking stocks is: Buy What You Already Know! You should buy the stocks of products that you are already using on a consistent basis. Go through your checkbook, credit card, Paypal, Apple Pay, etc., and see what companies you are already paying every month.

Which company holds your mortgage? Look at that company’s stock. What cell phone carrier is getting your money every month? Look at that company’s stock. What subscription services do you have? Look at those stocks. Where do you routinely shop for food? Check out that company. Once you pick a company whose products you are already buying, you will be ready to start analyzing that company’s finances.

Now let’s proceed with a fundamental analysis of your chosen stock. There are three documents used to perform fundamental analysis of a stock. These are the Income Statement, the Balance Sheet, and the Cash Flow Statement. These reports can all be found in the Company’s annual report and also through EDGAR on the SEC website. This information is a matter of public record.

But here is a quick tip: just get an account with a stock brokerage. They have all the information you need, in an easy to find format. Further, once you are done with your research, the brokerage account will simply let you press and button and buy, (or sell), the stock.

I continue to use Charles Schwab and have had only good experience with them. The opening deposit for a stock brokerage account is now — zero — even lower than when I started. You open the account and log in and under the Research tab, you can begin researching the company whose products you purchase every month. The stock information will appear on your screen. Your beginning in the stock market is as simple as that.

The next move is to begin looking for those documents that constitute the fundamental analysis underlying the stock of the company. For this, you will need the following reports: (1) the Income Statement; (2) the Balance Sheet; and (3) the Cash Flow Statement. Each of these categories are detailed and specific and require in depth explanation. Read the next post to begin your fundamental analysis of your chosen stock, starting first with the Income Statement!

But, before you go, be sure to click on the link below under Recommended Reading! Peter Lynch’s theories for buying the stocks of the products that you already consistently buy, has consistently worked for me. Since you already like the product enough to buy it all the time, why not buy the stock and really make some gains? Level Up!