How to start investing in stocks for complete beginners
Most of the companies you know, such as Google, Tesla, Amazon or Netflix, are companies listed on the stock market (those are Publicly Traded Company). This means that the ownership of the company is in the hands of investors who can acquire a percentage of the company, in the form of shares, through agencies or individuals called brokers (those who are dedicated to organize the purchase and sale of shares often in exchange for a commission), and anyone can access to become part of the ownership of the company by acquiring one or more shares of a given company.
In the past, in order to acquire these shares, you had to contact an intermediary who worked buying and selling these shares for you. This intermediary was called a broker or stockbroker. You would call him/her on the phone and ask to buy or sell a certain amount of shares with your associated account. “The Wolf of Wall Street” is a movie based on real facts about how the stock exchange and the stock market worked for the most part (by the way, with a great performance by Leonardo DiCaprio if you want to check it out).
Today there are many ways to invest in the stock market. You can invest in the stock market by buying and selling stocks directly, you can invest in mutual funds that are themselves invested in stocks, or you can invest in exchange traded funds (ETFs), which work in a similar way. The easiest way is to invest through mutual funds or ETFs, as you are not the one actively managing the various stocks, and it gives you greater exposure to a particular market. This means that with little money, you can be for example invested in small fractions of all the stocks in the US market (there is an ETF that replicates the behavior of the US stock market in general — SP500 index), instead of having to buy each of the different stocks in this market. To invest in more traditional mutual funds, you can do it through a bank or an insurance company. I for example have funds at ForwardU and Axa as fund managers, but there are many options depending on what you are looking for. Here however I am going to focus on both ETF investment and stocks. An ETF is a mutual fund but listed on the stock exchange like a stock, and you can buy and sell your investment in this ETF in the same way. On the other hand, with buying and selling stocks directly, you have complete control over your invested capital (vs. in a mutual fund that is managed by other professionals and you don’t have such ease to get your investment out).
In order to invest in stocks or ETFs, there are a multitude of platforms, called brokers. Yes, they also have the same name, since they emulate the work that was done in the past by stockbrokers. With these platforms you can buy or sell shares without the need for an intermediary and speeding up the process. These brokers, in exchange for a commission, manage the purchase and sale of shares, and in them you can manage your portfolio of shares or ETFs. Each broker has rates and conditions that adapt to various types of profiles. For example, when buying an Apple share, the broker you use may charge you €1 for managing that purchase.
I always use DeGiro as a broker, as for capital under 100.000€ it is the best in Europe for its low commissions and for offering a simpler interface. For something more complete, but also more complex, you can use InteractiveBrokers, but the commissions make this more advisable when you are going to invest more than €100,000.
To make your account with DeGiro, you can use my link that gives you 20€ for free (I get the same 20€) or you can do it directly from their website if you prefer not to use my link (I won’t hold any grudge). Once in the link, you must fill it with your personal data. I recommend you to use the Basic profile, simpler to start with and more transparent in commissions, although it does not allow you to buy stock splits or leverage (we will talk about these terms later). Once your account is validated, in about 48 hours, you can start buying and selling shares or ETFs. Other well-known brokers are eToro, Plus500, or XTB, although we have not used them, but you can use them if you prefer.
Para comprar tu primera acción o ETF, debes buscar el símbolo o ticker de la acción que quieres comprar. Por ejemplo Tesla cotiza con el símbolo de TSLA, Amazon bajo AMZN, Disney bajo DIS o algunos ETF como el que replica el mercado del Nasdaq100 (índice del top100 de empresas tecnológicas americanas), en Europa y en Degiro, está bajo el símbolo EQQQ, aunque hay varios (puedes mirar las diferencias o las comisiones en justETF).
To buy your first stock or ETF, you must look for the symbol or ticker of the stock you want to buy. For example Tesla trades under the symbol TSLA, Amazon under AMZN, Disney under DIS or some ETFs such as the one that replicates the Nasdaq100 market (top100 index of American technology companies). Due to European regulations, the ETF available to trade withing the EU are only those that are based in European territory, so that ETF replicating the NASDAQ100 in Europe and in Degiro, it is under the symbol EQQQQ, although there are several (you can look at the differences or commissions in justETF to show equivalences for American ETF in Europe).
Make sure you are investing in the stock you are interested in (e.g. Google has GOOGL or GOOG).
Once you have selected the stock or ETF, you can buy it in several ways. You can buy it under Market Order, under Limit Order, under Stoploss or under Stop Limit.
- Limit Order: A maximum price to be paid for the purchase of the share (or minimum in the case of the sale of the share) is established. This is used to buy a stock that we believe is going to go down to a certain point where we want to buy it, with the ideal objective that it will then go up again. In the example of the image with TSLA, if we set a limit of $830.00, only when it falls below this price will the purchase of the share be executed. In this way, we will not buy it more expensive than we want.
- Market order: The purchase order is created at the best price at the time of purchase, over which we have no control. It is less advisable since the purchase or sale price can vary a lot if we are in a moment of high volatility in the market (a lot of movement up and down in a short period of time), and end up buying or selling much below or above what we wanted.
- Stoploss and Stop limit: These orders serve to limit our losses. A Stop price is set, so that when it reaches this price the share is sold (in the case that we are buying a share) and thus, if the price continues to fall, we do not continue to lose money. The difference between these two orders is that the Stop Limit, in addition, we choose the purchase price as the Limit Order, while with the Stoploss the order is executed at market.
To start with your investment in the stock market, the easiest way is to buy an ETF that replicates a particular market. For example, before I was talking about an ETF of the American NASDAQ-100, and there is also an ETF of the Chinese market, or of the debt of a specific country, or it can be an ETF of a particular sector, such as an ETF of renewable energy companies, or of software, among many other possibilities. All of these can be viewed and filtered in JustETF. For example, I have ETFs of the S&P500 (top 500 American companies), Nasdaq100 and Renewable Energies.
I hope this introduction has helped you to solve some doubts about how to start investing in the stock market and how to create an account in an online broker. Later on in The Meerkats we will talk about types of investments, ways to read the stock market, how ETFs work, types of ETFs, how to choose where to invest, etc.
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