When you're in a financial position to begin buying stocks you can be in for some ups and downs. While stocks can produce some of the highest returns in the financial markets, they also go through downturns that can persist for years. When choosing from the tens of thousands of stocks that trade, the last thing you want to do is invest in a company that fails to produce the types of returns you're hoping for. If you pay attention to certain features surrounding a stock's value and potential in addition to the risks that could cost you future profits, you can become a well-informed investor.
One of the first things to observe when buying stocks is the price for each individual share. This determines not only whether you can afford the investment, but the amount of each security that you can buy. If you're buying a stock through a broker, you can expect to pay an average of several cents in commissions for every share of stock you buy. If you think that a stock price may fall, you can set a limit order with your broker. That is an instruction to buy shares when the stock prices reaches your chosen price.
Even if you can afford a stock, it doesn't mean that the security is worth buying. As "Tips for Investing in Stocks," a CNN Money article. points out, a $100 stock may be cheap if the company is expected to earn high profits in the future. Conversely, a $2 stock can be too costly if it is from a company whose earnings are expected to suffer. When you buy a stock, you're hoping to share in the profits that the company earns. Stock performance is tied to those earnings and whether the companies produce the profits that financial analysts on Wall Street are expecting.
When you're buying stocks, find out if the companies have a history of paying investors dividends. These are cash payments that companies have the option to make to shareholders when there is enough of a cash cushion. Dividends can provide you with income even when the stock falls for a period of time. Notice whether the companies have a history of raising their dividend amount. For instance, more than 100 of the 500 companies that are represented in the S&P 500, which is a stock market index that reflects trading in the broad stock market, increased their dividend payment in a 12-month period, according to "Dividends a Good Place to Start," a 2012 "USA Today" article.
If you're buying a number of stocks, find out what the market risks are for the sectors in which the companies trade. For instance, when the stock market is advancing and the economy is expanding, all stocks might look like they're making money. When the economy turns and consumers hold off on spending money or a technology company's product does not go over as well as expected, companies can be at risk of losing revenue, which can drag the stock price lower.
By entering in the ticker symbol associated with the stock on a financial website, you can not only learn the current price for a stock, but you can observe its highest and lowest point over the past 52 weeks. This information can give you a sense of the range where the stock has traded over the past 12 months. If the stock is trading close to its 52-week high, it might not be rising too much too quickly any time soon. If the stock is trading near its low point, there could be some issues with the company that are dragging the price lower.
Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.