One of our readers, Jesse, asked:

“Hey, I just wanted to know, say I wanted to just jump into stocks. Can I directly buy stocks or do I need to go to a site like Charles Schaubb in order to get started?”

Buying a share of stock, whether it be common or preferred, seems like a daunting task to those who have never owned stock before. But to put it quite simply, stock is nothing more than a piece of paper resembling a portion of ownership in a company. Most big-time firms will issue stock in order to raise cash, so if they have cut up 100 shares and you buy one… you essentially have 1% ownership in that company! Cool huh?

Rather than buying the paperwork directly, most investors nowadays turn to stock brokers. What is a stock broker? Think about a broker as somebody who orders the shares you want, does all the paperwork for you, and keeps track of your money, your earnings and your losses.

Picking a Broker: Discount Brokers
The most popular option for investing today is through a discount broker. These typically have a low minimum deposit and low trading commission fees. Here are my favorite three:

1. Scottrade - This is the broker I use to make my trades. They are known for having the best customer service in the business, and very favorable pricing for beginning/intermediate buyers. Trades are all just $7, including stock options. The minimum deposit is just $500, so anyone can put money in. Plus, they are the only major broker that hasn’t been hacked in the recent wave of phishing attempts. I trust them more than anyone else because they offer a sense of security. Customer service is very helpful and their trade execution time is apparently the best of all discount brokers. If you want to sign up, let me know so we can both get 3 free trades! Read the rest of this entry »

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The holiday rush is over, leaving really no reason to jump into new investments before year end. In the meantime, lets find some value to rock the market in 2008.

As far as equity trading goes, January is typically in the money. Why? Well one reason is that people like me are pouring money into new portfolios now that 2007 taxes are in the books. Since we have some time before the year turns, lets use it to pick out some winners, shall we?

Okay… winners, winners…. how exactly do you find one? Well for me, it’s all about finding an established company that has a promising future and is undervalued. As an example, lets pick on one of my 2008 hot-shots, Convance Inc (NYSE: CVD).

First off, Convance is by all means an established health care firm with a market cap over 5 1/2 billion. I like to use Yahoo! Finance to pull that number, and stop short if I see less than 3 billion. Then I am going to look into their returns (this primarily means return on equity, assets, and capital). Returns are #1 for me because if a company can’t grow what investors are putting in, why would we give them our money? Over 10% across the board for the current year and past five years is a must. But I don’t check this on Yahoo, nope, the old forgotten MSN money takes the cake for me. For Convance, just mash in that ticker symbol and grab “Financial Results” –> “Key Ratios” –> “Investment Returns“. I want every number in that front column to be at or above 10%, which Convance takes with style.

Once I find companies that I can stand, I want Read the rest of this entry »

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Okay, so you are looking over some companies that you think would fit great in your stock portfolio… but how do you know if they are undervalued or not? After all, you probably don’t have access to a Bloomberg terminal (like myself), so all you really have is the internet. Is this enough? YES!

Don’t let the experts tell you what you are capable of in estimating value. I’m going to take you through a typical Rule #1 valuation, a method that I use frequently, and often prefer over the technical discounted cash flow model. So lets get started buying a dollar of value for fifty cents, always following rule #1, “don’t lose money!” Let’s find a good stock first…

1. Does this business have meaning to me?
Never, (and I mean never!) should you buy a company that you don’t understand. If you are buying shares of a company’s stock, you better actually want to own a piece of it. We have to think like owners. If you read something amazing on Yahoo Finance (or wherever you are searching) about how fast X-firm is going to take off… don’t think you are smarter than the market by buying it up when you don’t know squat about what they actually do. I’m into technology, so I am going to buy lots of tech companies like Apple and Google. If I like dining on weekends, I’m going to look at restaurant stocks like Cheesecake Factory and Applebees. If I’m a rock star (or at least think I am), I’m going to look into the likes of XM and Harley Davidson. Throw the “portfolio diversification” myth out the window, if you don’t understand what you are buying, you might as well kiss your gains good bye. Read the rest of this entry »

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