How to Buy Stocks (For Beginners)

Buying stocks means owning a small portion of a company. Two decades ago, people mostly relied on stockbrokers to guide their investment choices. Today, anyone with access to a computer can buy and sell stocks through brokerage firms. If you’re new to the stock market, the amount of information available might feel overwhelming. But with just a little knowledge, you can start buying stocks and profiting from your investments.

Set Goals. Take some time to think about why you want to invest in stocks. Is it to build an emergency fund, save for a home, or pay for tuition? Are you investing for retirement?

• Generally, you should write down your reasons for wanting to invest in stocks. Try to quantify your goals by determining how much money you need to achieve them.
• For example, to buy a house, you may need an initial down payment of one billion VND and a total amount of one billion VND at the end. Retirement might require two billion VND or more.
• Most people have more than one investment goal. These goals often have different levels of priority and timelines. For example, you may want to buy a house in three years, pay for your child’s education in 15 years, and retire in 35 years. Writing down your investment goals will help you clarify what you want and prioritize them accordingly.

Determine Your Investment Timeline. Based on your investment goals, you can establish how long you intend to keep your investments. The longer your investment horizon, the higher the chances of a positive return.

• If your goal is to save for a home in three years, your investment timeline is relatively short. However, if you're investing for retirement 30 years from now, your timeline is much longer.
• The S&P 500 is an index made up of the stocks of 500 of the largest companies by market capitalization. For investments over a 10-year period from 1926 to 2011, there were only four instances where the S&P 500 led to losses for investors. If you held your stocks for 15 years or more, you would never experience a loss. So, long-term investors generally made gains.
• On the other hand, holding stocks in the S&P 500 for just one year resulted in losses 24 times over 85 years (1926-2014). In the short term, stock prices fluctuate widely, and the risks for short-term investments are greater than for long-term ones. Smart investing will likely result in greater profits, but without care, you could lose everything.

Assess Your Risk Tolerance. All investments come with risks. There's always a chance that you could lose part or all of your money, and stocks are no different. There are no guarantees you'll profit from your investment, nor that you'll get your initial investment back. 'Risk tolerance' refers to the level of risk you're willing to accept.

• Before investing, ask yourself, 'How much am I willing to lose if something goes wrong?'
• Typically, the greater your risk tolerance, the higher your potential returns, but also the greater your risk of loss.
• For example, an investment expected to double in value in one month is riskier than one expected to double over ten years.
• No investment is worth losing sleep over. If an investment makes your life more difficult, you should reconsider your goals. You may need to adjust your timeline or modify your goals.
• For example, let’s say your goal is to save 500 million VND for a down payment on a 2 billion VND house in three years. You could adjust your goal to 350 million VND for a 1.5 billion VND house within three years. Alternatively, you might consider extending the timeline. Saving 500 million for the 2 billion VND house in five years could be more achievable. Or, you could reduce the goal and extend the timeline.
• One of the core principles of investing is to avoid losses when possible. Don’t take unnecessary investment risks.

Calculate the Necessary Investment to Reach Your Goal. Use online investment calculators or retirement planning tools. Determine the rate of return you need and the level of investment required to meet your goals.

• For example, let’s say you need 350 million VND in three years, but you can only invest 6 million VND per month. You would need a very high return of around 38% per year over three years to meet this goal. This would require taking on substantial risk, which most people would consider an imprudent investment decision.
• It would be better to extend your investment timeline to 4.5 years. In this case, the required return would drop significantly to around 4.8% per year.
• You could also increase your monthly investment from 6 million VND to 9 million VND. Your goal of 350 million VND could be achieved with a more reasonable return rate of about 5%.
• Alternatively, you could lower your financial goal from 350 million VND to 230 million VND in three years but maintain the same monthly investment of 6 million VND. With this adjusted goal, you would only need a return of 6% per year to reach it.

Explore different types of investments. The next step is to choose the type of investment that best suits your needs. First, you need to familiarize yourself with the available investment options in the market.

• You can buy shares in a company. Owning shares in a company means you become a shareholder, benefiting from the profits of the company. As the company's sales, profits, and market share increase, the value of the company typically rises, especially over a long period.
• In the short term, the market price of a company is influenced by people's speculations about its future. Feelings, rumors, and perceptions drive price changes. Whether you profit or not depends on the price at which you buy and sell.
• You may also invest in mutual funds. Mutual funds allow multiple investors to pool their resources into various stocks. As a result, the risk is lower, but the returns are also generally smaller, particularly in the short term.
• Recently, exchange-traded funds (ETFs) have gained popularity. These are sometimes referred to as 'index funds' and are similar to mutual funds. ETFs hold a portfolio of stocks that generally track an index like the S&P 500, Vanguard Total Stock Market, or iShares Russell 2000.
• Like individual stocks, ETFs are traded on the market. The value of an ETF can fluctuate throughout the day.
• Some ETFs focus on specific industries, commodities, bonds, or currencies.
• A benefit of index funds is their diversification. They reflect a collection of different assets that make up the index. You can invest in multiple index funds with little to no commission fees, making them a cost-effective investment option.

Understand key investment terms. Many people rely on financial news to understand how stocks or markets function in general. To effectively utilize these resources, it's crucial to grasp important financial terminology.

• Earnings Per Share (EPS): This is a portion of a company's profit paid to shareholders. If you're hoping to receive dividends from your investment, this is a critical metric!
• Market Capitalization: This refers to the total value of a company's shares, representing its overall worth.
• Return on Equity (ROE): This measures a company's earnings in relation to the shareholders' investment. It's useful for comparing companies within the same industry to determine which one is more efficient.
• Beta: Beta is a measure of a stock's volatility in relation to the overall market. This is a valuable tool for assessing risk. Generally, a beta value under 1 indicates lower volatility, while a value above 1 signals higher volatility.
• Moving Average: This represents the average price of a company's stock over a specific period. It's helpful for assessing whether the current stock price is a good buy.

Pay attention to analysts. Stock analysis is a time-consuming and complex task, especially for beginners. Therefore, you should leverage the research provided by stock analysts. Typically, analysts focus on a select group of companies to evaluate their performance.

• There are several reputable, free websites that summarize analysts' opinions.
• Analysts often give recommendations for individual stocks, usually in the form of 'buy,' 'sell,' or 'hold.' Sometimes, they may provide more general advice such as 'the sector is underperforming.'
• Each analysis firm uses different language when recommending stocks. Financial websites often offer guides to help interpret the terminology used by different companies.

Establish your investment strategy. After gathering information, it’s time to think about your investment strategy. Every investor has a different approach, and many factors need to be considered.

• Diversifying your investment portfolio. Diversification refers to spreading your money across different investments. Putting all your money into a few companies might offer great returns if they perform well, but it also comes with higher risks. The more diversified your investments, the lower the risk.
• Reinvestment. This is the process of continually investing your earnings. By reinvesting your income, you generate even greater returns due to compound dividends. Some companies even offer this option automatically.
• Investing and trading. Investing is a long-term strategy focused on growth over time. Prices will rise and fall, but the long-term trend is expected to increase. Trading, on the other hand, is a more dynamic process. You’ll need to pick stocks that are expected to rise in the short term and quickly sell them. The “buy low, sell high” strategy can yield high profits but requires constant monitoring, and comes with higher risks.
• Stock traders must predict others’ perceptions of a company by interpreting past price data. Their goal is to buy when the price is rising and sell before it starts to fall. Short-term trading involves significant risks and is not recommended for inexperienced investors.

Consider working with a full-service broker. There are various ways to buy stocks, each with its own advantages and disadvantages. If you have little or no experience in stock trading, you may want to start with a full-service broker. Full-service brokers charge higher fees but offer expert advice.

• For example, the role of a broker is to guide you through the stock buying process. Their job is to answer your questions. You might ask, "Which stocks should I buy based on my risk tolerance?" or "Do you have any research on the stocks I'm interested in?"
• There are many brokerage firms to choose from, so you can ask for recommendations from others. For instance, your friends or family might know of a reliable broker or have used their services for a long time. Alternatively, you can research large, reputable brokerage firms. In Vietnam, some examples are Saigon Securities Incorporation, VNDirect Securities Corporation, and others.
• Remember, using the services of a full-service broker comes with higher commission fees. These are the fees you pay whenever you buy or sell stocks.
• For example, if you buy 500 million VND worth of HAGL stocks, the broker might charge you a 15 million VND commission to process the transaction.

Consider using a discount broker. If you don’t want to pay high commission fees for stock trading, you might want to use a discount or online broker.

• The downside of using a discount broker is that you won’t receive the same level of guidance as with a full-service broker. The advantage, however, is lower brokerage fees and the ability to trade stocks online.
• In the United States, some reputable discount brokers include Charles Schwab, TD Ameritrade, Interactive Brokers, and ETrade.

Explore direct stock purchase options. These programs allow investors to buy stocks directly from the companies they choose. There are two types of programs: Direct Investment Programs (DIP) and Dividend Reinvestment Plans (DRIP).

• These programs allow you to purchase stocks without using a broker.
• They are cost-effective and simple ways for investors to buy stocks in small amounts on a regular basis. Not all companies offer these programs.
• For example, Tuấn participates in the DRIP program, which allows him to invest 1 million VND in Coca-Cola common stock every two weeks. By the end of the year, he had invested 24 million VND in this stock without paying commissions.
• The downside to investing via DRIP or DIP programs is the paperwork. If you invest in multiple companies, you’ll need to complete several forms and monitor each company’s statements.
• For example, if you invest in 20 DRIP or DIP programs, you’ll receive 20 quarterly statements. On the other hand, if you invest 20 million VND every two weeks, you’ll save a lot on commission fees.

Open an account. Regardless of the method you choose, the next step is to open an account. You will fill out several forms and may need to make an initial deposit. The information required will vary depending on the method you select for purchasing stocks.

• If you use a full-service broker, choose a company you feel comfortable sharing your personal financial information with. It's recommended to meet with your broker to discuss your needs and goals in detail. The more information they have, the better they can help you achieve your objectives.
• If you opt for a discount broker, you will need to fill out some online forms. You may also need to mail signed forms and make an initial deposit, which depends on the value of your first transaction.
• If you're investing through a DRIP or DIP program, you must complete both online and paper forms before purchasing stocks. You will also need to make a cash deposit for any transaction before proceeding.

Place an order to buy. Once the account is set up, your first purchase will be quick and straightforward. However, the exact steps will depend on the method you use to buy stocks.

• If you're using a full-service broker, simply call them. They will place the order for you. Since your account is already open, they will ask for your account number. They must verify that you are one of the account holders before confirming the purchase order. Listen carefully! Brokers are human, and they might make mistakes when placing orders.
• If you're using a discount broker, you will need to place your order online. Follow the instructions carefully. Be sure not to confuse the price per share with the amount you want to invest. For example, if you want to invest 20 million VND in a stock priced at 10,000 VND per share, you should NOT place an order for 20 million shares. That would cost approximately 200 billion VND, not 20 million VND.
• If you are using a DRIP or DIP program, you can find the registration paperwork on the company's website. If not, contact the company's shareholder services to request the necessary forms.

Monitor your investments. It's important to remember that stocks and the overall stock market are constantly fluctuating. Stock prices rise and fall, especially in the short term. If you notice that one of your investments is frequently losing money, it may be time to reconsider your portfolio.

• Prices reflect people's sentiments. They react to rumors, misinformation, expectations, and fears, whether real or not. There's no point in obsessively tracking stock prices daily or weekly if your investment horizon is a year or longer.
• Over-monitoring can lead to impulsive decisions and may result in larger losses. It's better to focus on the long-term performance of your stocks.
• Be aware that one of the companies you own might face business challenges. For example, if the company loses a major lawsuit or has to compete with a new market player, the stock price could drop quickly. In such cases, it may be wise to sell your shares.

• There are many useful books, magazines, and websites on stocks and the stock market. You should do some research before buying stocks.
• Before purchasing stocks, consider practicing with paper trading for a while. This simulates stock trading. Track stock prices and record the buying and selling decisions you would make if you were actually trading. Later, check if your investment decisions were profitable. Once you're familiar with the market, you can start buying and selling real stocks.
• Invest in companies you believe in.

• All investments carry risks. Never invest more than what you are willing to lose.