FundRobot » Investment Banking » What is the best stock to purchase for a new person?

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Old   #1 (permalink)
 
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Default the best stock to purchase for a new person

I'm want to start investing in the stock market, and am looking for some good stock to buy. I'm not looking to put a whole lot in right away, probably looking at investing between $50 and $100 each month. What would be some good stocks to invest in for a new investor in such a position?

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Old   #2 (permalink)
 
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Default the best stock to purchase for a new person

Bad idea. You don't know enough about stocks to begin to compete against the market of experts.

You also don't have nearly enough money to diversify your holdings. You will quite literally be putting all your eggs in one basket.

Buy an ETF based on a broad market index, such as QQQ.
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Old   #3 (permalink)
 
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Default the best stock to purchase for a new person

You really need to get to at least $1,000 in savings, more like $2,000, to make it worth your while. Example: Scottrade charges a reasonable $7 per trade (buy or sell), whether you buy one share or 1,000 shares or more. With a $500 buy and sell, you are already in the hole $14 which is over 2-1/2% that you have to make up in order to make a profit. That is no small feat in today's market. On the other hand, a $2,000 trade would still cost $14 which is only 0.7%. That kind of stuff adds up.

I would start with a solid blue chip that pays a dividend. Some of these are Coke, Microsoft, Johnson and Johnson, Clorox, GE, and AT&T.
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Old   #4 (permalink)
 
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Default the best stock to purchase for a new person

Don't do any of the above.

Think of it like this: you invest $100. The commission you pay just to purchase it is 7.5%. This means that before you even break even, the investment needs to increase by 7.5%. Keep in mind this is slightly less than the average market return of the S&P over the last 75 years.

If I were in your position I would:
1. save until I get to ~$750 before investing.
2. Invest in an index (the S&P or Russell 2000 are two of my favorites).
3. Only invest in increments of ~$750 (this brings your cost of trading to about 1%, which is reasonable ish.) If you can find cheaper commissions then you can invest in smaller increments- I think tradeking might be 4.95 per trade. The important thing is to not get eaten alive by commissions while your account is small. The return won't be huge, but when you factor in commissions it's the best way to grow your money.
4. While you're doing this, spend some time learning about stocks. Watch some specific ones that have events coming up (like earnings). For me, the biggest learning experience was two-fold: 1. dividends decrease share price by the amount of the dividend. Learn about ex-dates & their effect on share price. 2. volume in stocks is huge. My first stock was at ~$1.25/share but that's less than the value of the cash they had. Unfortunately it didn't matter, because there was only about 500 shares traded per day. As a result, there was no analyst coverage, which means that there's no reason for people to notice that it was so inexpensive. It doesn't matter what WE think it's worth-- it only matters what the MARKET thinks it's worth.

After you've done all of these fun things, and have a small amount of money saved, THEN consider buying stocks individually. You need at least 12 stocks for Diversification benefits to start to fade, and in order to do that you need about $5k in order to not be eaten by trading costs (at $7.50/share).

Look at historical averages of returns and humble yourself: you're not smarter than the minds that have come before you, but that doesn't mean you can't do better, you must simply find your path.

Every class of investors has advantages: Institutional investors' primary advantage is that 1. people come to THEM with great investments, 2. they have the cash to get the best information & best analysts, 3. they can diversify to the greatest benefit towards themselves. Small investors like you and I have the advantage of agility: we can exit a position in one trade without affecting the amount we're selling for. We don't keep positions large enough to move the market by themselves. We can also base our risk levels on our own tolerances, instead of the average tolerance of fund investors.

Anyhow, I'll stock pontificating here. If you'd like more info feel free to PM me and I'd be happy to answer any further questions.
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Old   #5 (permalink)
 
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Default the best stock to purchase for a new person

start saving your money and put it in the bank. In the meantime, start reading Yahoo Finance at least an hour a day for the next couple of months.

Follow the links. See what the "experts" say.

In the meantime just keep saving your money, wait for the "market correction" and this time next year, you will know "exactly" where to put your money!
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Old   #6 (permalink)
 
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Default the best stock to purchase for a new person

do not buy stocks directly (you do not have enough cash), start buying an index tracker. You can do this by purchasing a small amount each month.
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