The possibility of passive earnings has always attracted people. One of the well-known methods of generating income is the purchase of securities. But is it easy to sort out the stock market and make a profit? Moreover, if you are just starting your way in investing, then, of course, you have a legitimate and understandable question about what stocks to buy for a beginner? Let’s try to understand everything in more detail.
How to make money on stocks
There are two main methods to obtain income from the purchase of securities:
- Creation of a portfolio with the purchase of securities at a low price and their sale at a high (profit maximization).
- Creating a portfolio with dividend shares.
Experienced investors recommend investing in the long term (from five years) and not engage in securities speculation (day trading). This is very risky and requires a huge amount of time..
A sensible investor bypasses speculation. He selects companies through his own analysis and expects their long-term growth. Remember that you should not consider the market as a way to make quick money and solve money problems, but as a source of passive income.
It is quite difficult for a novice investor to correctly assess the situation on the market, therefore, first of all, attention should be paid to the possibility of making profits not from the difference between the cost of purchased and sold shares, but to dividend yield from available securities or low-risk securities.
What experts say
According to Roman Kotov, president of the Kotov Group investment holding, a person who decides to start investing must first choose an investment strategy. If he plans to buy and forget about his investments for several years, then a more suitable option for him would be to buy federal loan bonds. This type of investment is inferior in return on investment in stocks, but is more reliable and does not require the time required to study stocks and indicators of companies.
So, the expert at the initial stage advises to pay attention to bonds. But if a novice investor is serious about making a profit precisely through the acquisition of shares, then at first you can resort to the services of brokers.
This is also evidenced by Zamir Shukhov, GVA CEO, who believes that it is recommended for beginners to work with experienced stock brokers and to start allocating part of their money through some kind of professional team that can invest more safely and professionally. In general, I do not recommend investing in securities for the first year, moreover, doing it yourself.
Due to such inexperienced investors, who often panic in case of an incomprehensible situation on the market, experienced people earn money. For starters, it’s better to transfer your money to professionals and to monitor how they invest, and then try to do it yourself.
You can read more about how to choose a broker. here.
What stocks to buy for a beginner in a foreign market
If the goal is to receive stable dividends, a novice shareholder should pay attention to large corporations that have existed on the market for a long time. Purchasing securities from companies such as Microsoft [NASDAQ: MSFT] or Apple [NASDAQ: AAPL] will be considered a good investment. Such firms occupy a stable position in the market, so shareholders can count on constant payments. True, the position of Apple is highly dependent on one factor – this is the level of sales of the iPhone.
Again, do not count on the rapid growth of dividends. In order to live on dividend income you need to regularly buy up the shares of such companies, reinvest profits and pay dividends for a long time. Get ready for it.
According to Victor Makeev, Financial Analyst, Gerchik&Co, such giant stocks can really reduce risks with the right level of diversification. But then the calculation will, first of all, be from dividends for the long term, calculated over many years. That is, the fact that getting a big profit at a time does not work out. To compensate for the cost of stocks, and begin to receive net income, you need to wait.
What shares to buy a newcomer to the Russian market
For Russia in terms of dividends, pay attention to the following companies:
- Aeroflot [MOEX: AFLT]
- ALROSA [MOEX: ALRS]
- Lenoenergo [MOEX: LSNG]
- LSR [MOEX: LSRG]
- FGC UES [MOEX: FEES]
Investments in securities of smaller companies are able to start making profits in a shorter time. However, novice investors who are not very versed in the financial market are at great risk when acquiring such shares, as they do not have sufficient knowledge for analysis. Therefore, choosing a company, it is necessary to follow the advice of Konstantin Malchushkin, A-Consult business partner, and always:
- Determine an acceptable level of risk for yourself – invest no more than you are ready to lose.
- Follow your strategy and financial goals.
- Assess the real value of the company, watch its financial statements and compare multiples.
We already wrote about how to select stocks and analyze them correctly here.
Financial markets are not easy. This is necessarily a discipline and it is imperative to work with large volumes of information. But the reward is worth it – many times higher than the rates on bank deposits.
Tips for a novice investor
Before investing in securities, first of all, according to Olga Orlova, senior analyst at WMT Consult, close all of your debts. This is the first step. The second step is to accumulate funds in cash or on deposit with the bank in the amount of your monthly expenses for 6-12 months. Some call it a “financial pillow.” Next, you can create an investment portfolio.
In addition, you must adhere to the following rules:
- Invest in companies operating in the field familiar to the shareholder. The company is engaged in biotechnology and, according to management, is on the verge of an innovative discovery that can bring multimillion-dollar profits and may actually be a promising innovative project. However, in reality, it’s difficult to evaluate the benefits if you are completely unaware of the production.
- Track financial statements that help you understand the current state of the company. A well-known brand is not a guarantee of your income. Therefore, we repeat once again that you need to analyze the real value of the company yourself, to know the composition of its business and net profit.
- Track events from the life of interested firms. The news will also help to understand the current state of affairs. But in no case do not bet only on them. And never trade only on the news.
- Do not listen to other people’s advice. Rely on your own goals, analysis, risk tolerance and timing.
- Study and read investment literature.
- Be sure to compare companies operating in the industry concerned. Perhaps some of them are more promising than those originally selected. Learn and compare their multipliers. This is the only way you can make the best choice..
Conclusion
“The only investment strategy that can provide you with relative security of investments along with returns exceeding market returns is based on an assessment of the real value of the company’s shares” – Benjamin Graham, author of The Intelligent Investor.
You can calculate the real value of the company by dividing company capitalization on its net profit (P / E multiplier). This indicator demonstrates how many years the company will pay off. Pay attention to it when choosing.
Having come into contact with the securities market for the first time, it is difficult to understand the current situation and understand what stocks to buy for a beginner. Therefore, according to Boris Borzunov, senior investment analyst at IC Sberbank Life Insurance, buying a stock may be too complicated and risky for a novice investor.
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Dear reader, as a beginner, it’s essential to make informed decisions when entering the stock market. To start, research stable companies with a strong track record, as they tend to provide relatively safe investments. Consider well-known and established brands, focusing on industries that you understand. Furthermore, pay attention to the company’s financial health, evaluate their balance sheets, income statements, and cash flow. Additionally, reviewing analyst recommendations and studying market trends can provide valuable insights. Remember, diversification is crucial to limit risk. Would you like more specific suggestions or advice on how to analyze stocks?