How To Get Started

The financial markets are incredibly vast. There are virtually limitless ways that a person can invest their money and different places to invest it. Bonds, mutual funds, foreign exchange trading, individual stocks, businesses, real estate, and so on, all offer different ups and downs for an investor. Given this wide range of investment choices, a natural question that comes up is, “How do I get started?”

The best thing to do to get started is to simply start small. Pick one company that produces a product you love and research it. Get to know its line of business from behind the scenes by researching the company website, downloading or ordering the annual report (which you can do for free with most companies through their Investor Relations department or website section), and even asking friends and family what their perceptions are of the company. Find out who the key executives are, what management’s past resume is, and see whether they are net buyers or sellers of the company’s shares.

Once you’re ready, delve a bit deeper into the numbers by learning about the dividend yield, dividend payout ratio (how much of the company’s earnings are given out as dividends to shareholders), p/e (price to earnings) ratio, and other fundamental pieces of data that will help you to value a company. In addition, you can research the company’s price history and compare the current share price or valuation to historical measures.

What you really are looking for in a long term investment is sustainability. You want to be confident through your analysis that the company you are buying is stable and can reasonably be expected to grow its business over the long haul. Steady growth and a long track record is preferable to rocket-fuelled growth over a short period. Companies with 25-years or more of consecutive dividend increases have demonstrated that they can withstand adverse market conditions and ever-changing investor sentiment. This is why the Dividend Aristocrat List published by Standard & Poor’s can represent a good starting place for analysis (emphasis on “starting point”, as past returns are not an indication of future returns since things are always changing).

Ultimately, the key to investing is to be naturally curious and seek out as much information as you possibly can about your potential investments. You can quantitatively and qualitatively value a company, so every piece of information is useful. Peter Lynch recommends in his book One Up on Wall Street, for instance, to eat at the restaurant you’re thinking about buying. If you don’t like the food, that may be a sufficient reason to stay away from the shares (be sure to consult friends if you’ve got bad taste).

Some people will say, “I don’t have the money to invest right now,” and they don’t do any research. The problem is, when they eventually do get the money to invest they’re simply not prepared. The key is to be researching even when you don’t have the money so that when you do get it, you’ve already identified several good choices for investment and it’s not a scramble to find a home for your hard-earned dollars.

The best investor is the well-informed investor, and that is an ongoing process. The key to getting started is to simply "get started". Take small steps and keep going.