How to Buy Stock Online – A Conservative Approach

Just because buying stocks is easier now than it ever has been does not mean you should approach these important investment decisions haphazardly. If anything, more caution should be used now when buying stock online, as many times there will be no limit to the amount of trading you can do at an astonishing rate, and when not kept in check, you emotions can get the best of you and cause you to over-trade. That is NOT how to buy stocks online.

Instead, make sure you have a set game plan ahead of time. It is best to have strict plan that you adhere to when deciding what stocks to buy, so as if not to make any careless mistakes in the heat of the moment. My personal opinion is to focus on buying stocks online from reputable companies that pay a good dividend, that way I can feel comfortable knowing that I can reinvest those dividends over time and add that to my portfolio. I wouldn’t be so presumptuous as to say that this is the only answer to the question of how to buy stocks online, but it is definitely my answer.

Lastly, if you unsure of your abilities, or not completely sure on how to buy stocks online in a good and long term way, you might do well to continue to do some research first. There are ample amounts of stock trading books online, as well as other online resources that you can check out to help you with any of your stock buying questions you might have.

That’s not what I want to talk about here.

For some, that type of a long term play just isn’t what their adrenaline seems to be looking for. Luckily for them there are other options when deciding on how to buy stocks. Another trick up my sleeve is to use the price-to-earning ratio (P/E), and earnings per share (EPS). I can’t claim the invention of this method (Is there anything new under the sun?), but it is a sound one when looking for what stocks to buy for maximum growth.

The idea here is that you will take the P/E of the stock and then divide that by the EPS growth in percentage. These are numbers that should be readily available to you, so let me go through an example. If the P/E is 24 and the EPS is 16 you would get 1.5. Now, what does 1.5 mean? Here is sort of the rule of thumb when looking for the best stocks to buy: if the number you end up with is 0.65 or less (particularly 0.5 or less), you are looking at some good stocks to buy. Between 0.65 and 1.0, you should stay put, just keep an eye on that one. From 1.0 to 1.7 you should really consider that selling that stock, and any more than 1.7, a definite sell.

That right there is the simplicity of the system, in a nutshell. Again, I am not the inventor, but had first read about this years ago on the Fool, however some minor tweaks above were made by myself over time.

So there you have it. When you begin to look for what stocks to buy, you can come on back and see if this might be the system for you. Remember that there are many different ways of buying stock and many different great stocks to buy, but in the end it is money management that will make or break you. Be wise both in choosing which stocks to buy as well as how much and where you invest your money.

There of course are different ways to go about stock buying, depending on a number of factors. Not the least of which might be your age. The mantra I have always heard and lived by is to invest in more ‘risky’ investments using your age as the percentage that represents the more ‘conservative’ part of your portfolio. So if you are 40 years old, this idea would state that you should have 40% of your portfolio in more conservative investments, and 60% in riskier investments. I’ll leave determining what is conservative and what is risky up to you and your financial planner, but suffice it to say, it might be a good thing to think about when determining what stocks to buy, and how to buy stock in general.

Buying stocks can be done many ways, but quickly increasing in popularity is the idea that you can buy stocks online. This is done through an online broker where you set up a trading account, fund it with your desired amount of money, and can instantly begin buying and selling stocks at will. I wouldn’t use the ease with which you can buy stock trick you into buying every new IPO or to make you buy penny stocks on a whim. Even though it is cheap to buy stock online remember that your money is at risk with every trade that you place, so it must be done prudently. Buying stocks for the long term, from good reputable company is a far better option than looking to buy stocks off of some ‘good stocks to buy’ list of the day.

Stock buying in my opinion is still one of the last ways that the little guy can get ahead. Through prudent market research, watching companies and stock prices as they rise and fall, you can essentially buy-in and own a portion of some of the greatest companies this world has to offer. That is not something that should be taken lightly, but definitely something that every person who has considered the idea of buying stocks should do.

Long term is a good phrase to end on when talking about the best stocks to buy, because that is what I focus on. Let me start by saying that what I do in no way resembles the idea of ‘day trading’ or the way some people will buy penny stocks in order to take quick advantage of small fluctuations in price. I am in this for the long-haul and want to buy stocks that are going to appreciate over time. In my opinion, these stocks are those that come from well established companies that for whatever reason, at the time of purchase are under-valued; trading for much less than I think the company is worth. Remember that a stock’s price will rise and fall in value NOT based on a company’s value or performance, but whether people are currently mostly buying or selling that stock. When people are very bearish on a stock that to me seems like a good company that is only going up and up, I feel I have a winner.

The answer to how to buy stocks lies not in ‘how’ so much as ‘when’. When I find a company like the ones mentioned above, I like to buy on dips. Those are the exact moments when I feel like the company is under-valued, and will continue to go up in price over time. The only other criterion I will really focus on is dividends. I like to see a company that will pay me a good dividend; one that I will reinvest of course, for further compounding effect. For me, that is all there is to stock buying. The question of what stocks to buy should really be what kind of stocks to buy, and that is my answer. I like to buy stocks online in this fashion for the simple reason that I can know that I am adding to my ever-increasing portfolio, from the comfort of my own home, and at a relatively good price, seeing as buying stocks online costs no more than a few dollars per trade.