Your Questions About Investing In Stocks

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Chris asks…

Investing stocks in Facebook and Apple?

Would it be a good idea to invest money in Facebook and Apple? How much money does it cost for one stock? Would I make money back?

Justin answers:

If you need to ask this question you should not be investing quite yet. Learn what you are doing first. And don’t learn by asking people on Yahoo Answers because they are all idiots except me (that’s a joke, I’m far from perfect myself). Anyway, let’s start learning and look at these two stocks because they are very different.

You should always look at what is called the “fundamentals” of a company before you invest. But before we do that, let’s look at a quote. You find those on various web sites, I like Google Finance.

Http://www.google.com/finance

At the top of the page you will see a field you can type the company name into. Start typing A-P-P-L-E slowly and watch for the symbol to come up. The symbol is AAPL. All stocks have a symbol. You will see that Apple sells right now for about $675 per share. So the minimum you can invest is $675.

Now do the same for facebook. The symbol is FB. You will see the price is $19.34 (it was when I wrote this anyway). Does a lower price mean facebook is cheaper or better? NO!!!!! Look at the bottom of the leftmost column where it says “P/E”. That stands for Price/earnings and it is a good general gauge of the “value” of the stock. Note that facebook’s P/E is 107. Now look at Apples, it is about 16. When it comes to stocks, the lower P/E is GENERALLY a “better value.” There are lots of factors to consider, P/E by itself is not a perfect guide. But in this case it tells you that Apple is fairly priced (considering the fast growth and profitability of the company) while facebook is an overpriced stock that you should stay away from.

Here is a homework assignment for you to start your learning process. Look up these stocks and decide if they are good or bad. Symbols are KO, MCD, AMZN, F, SBUX, and DNKN. Have fun!

Michael asks…

How do you start investing in stocks?

Obviously; I’ve never invested in stocks before I wanted to know where I should even start and how the stock market works. Any assistance will be appreciated.

Justin answers:

The short answer is: don’t start buying individual stocks. You’re competing against pros with advanced degrees in finance. Buy mutual funds or ETFs based on broad market indexes (QQQ is a good start).

If you insist on gambling with your money (not investing), then read these three books before you pretend that you are investing:
One Up On Wall Street – Peter Lynch
A Random Walk Down Wall Street – Burton Malkiel
The Intelligent Investor – Benjamin Graham (a bit more challenging, but a true classic)

James asks…

College class to learn about investing in stocks be called?

I want to learn, and my Economics teacher in high school taught us about them, and I really want to get into it, but it’s a bit complicated.. how could I learn? would a college even offer that? would it be business?
MY QUESTION IS, WHERE COULD I BE TAUGHT ABOUT INVESTING IN STOCKS?

Justin answers:

What about getting a Series 7 study guide? This is the guide stockbrokers study to get their license.

Charles asks…

Is investing in stocks best during an economic depression?

During a depression, stock prices are very low so I could buy a bunch of stocks for very little money and then hold on to it until the market improves and then sell it. But, during a depression, businesses fail. Would it be a good idea to invest in stocks during a depression? Why or why not?

Justin answers:

Not all businesses fail, so long as you do your due diligence and diversify across a handful of solid companies that have the resources to weather the storm then dollar cost averaging through an economic depression is your best option for a gain.

However the concept of investing in a business is that the business operation itself brings value to the company hence intrinsically the stock should appreciate so long as the business model is valid and the management competent hence you should not look to selling unless there are better opportunities. Keeping the investment invested compounds the equity and if it’s a growth stock, defers the capital gains taxes. Just because it has gone up is no reason to sell unless there are better opportunities or you’ve come to the end of the accumulation part of your life.

Joseph asks…

How to does investing in stocks work?

how do you buy and sell stocks? how much do they cost (approximate). is it easy? is it time consuming? are shares and stocks the same thing? how do you make a profit?

Justin answers:

You need a broker to buy stocks. You could use Ameritrade, Scottrade, etc. When you buy a stock you are purchasing a share or % of the company.
Companies have an IPO or initial public offering. This is used to raise money for the company. So for instance in 2004, google IPO’d at $85 a share. That money google uses to further the business. After that they do not receive any money based on the price of the stock. There are millions of shares for a company. So then you use your broker to buy shares. So if you had $850 to invest when Google IPO’d you could have bought 10 shares. So when you have shares you own a percentage of the company. If you happen to acquire more than 50% of the shares of a company then you own the company. So for instance, if Microsoft wanted to purchase Google, they could have bought up a big percentage of the shares. The more shares you have the more you can vote for different things. Example, you could vote yourself to be a board of directors. Every Monday thru Friday the stock market is open from 9:30 – 4. People buy and sell shares for whatever price the market will bear. Going back to google, they are something like $650 a share now. How you make money is if you buy a stock for a price, then sell it for a higher price. As far as time consuming, if you really want to know how your stocks are doing you have to spend alot of time. People spend tons of time, research, etc to try to figure out how stocks will do.

Daniel asks…

What are the basics for investing in stocks? What’s good to put money into?

I’m intrested in trying to invest my money. I would like serious help not someone joking around. I have absolutely no experience in stocks but it’s something I would like to learn and try. I don’t really know how the market works or where I should put my money or anything. Would someone be kind enough to explain it to me and give me some pointers? What are good stocks to invest in? What seems to work for you? Tell me how the whole process works! 😀 Thank you!

Justin answers:

Investing in “individual” stocks takes a lot of knowledge and practice; so I would not suggest doing this until you understand completely how the stock markets work.

Instead visit Vanguard.com and learn about mutual funds, index funds, and exchange-traded-funds (ETFs). Trading funds is less risky than trying to trade “individual” stocks.

If I was starting over again, I would find (4) ETFs that have had consistent returns with strong chart uptrends, and simply invest my money evenly over the (4) funds.

Listed below are some good websites for a beginner.

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