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Castor Panfilov
Castor Panfilov

What To Look Out For When Buying Stocks


When looking to build wealth, investing can be one way to go about it. In fact, many people buy stocks when creating an investment portfolio. If you're trying to figure out how to pick stocks, you're not alone. There are hundreds of thousands of individual stocks available, and that's just on major stock exchanges. It can be daunting to decide which ones to invest in. If you decide that individual equities are the way to go for your portfolio, here's what to look for when buying stock.




what to look out for when buying stocks



Another thing to look for when buying stock is the dividend. Stocks that pay dividends offer you an additional payout on top of the potential price appreciation. A high dividend yield means you could potentially see solid income from a stock.


Individual investors face even bigger hurdles to success and not just because they don't have the luxury of dedicating their entire working life to studying investments. Psychological mishaps like buying when stocks are on a run and selling when they're down, as well as overtrading, are largely to blame for the miserable actualized returns of everyday investors.


So, while this principle is arguably the least satisfying of the seven, it's also the most fundamentally important. By choosing to pick stocks and not buying a low-cost index fund like the Vanguard 500 Index Fund (ticker: VOO) that automatically earns you market returns, you're engaging in a bit of hubris and choosing to go against the odds.


"If you do decide to handpick individual stocks, learn as much as you can about them and have a level of conviction about their story, balance sheet and where they're going," Cronin says. "This will help you stay the course when their share price drops."


While systematic risk is a part of life, investors can confront it by buying stocks with lower correlation to the market, known as low-beta stocks, or embrace it by selecting high-beta stocks. Beta measures the volatility of the wider stock market, which is always 1.


While beta isn't a perfect metric, generally speaking, stocks with betas below 1 will move in a less pronounced way when markets rise or fall, while the opposite is true for high-beta stocks. In theory, this makes low-beta stocks more preferable in bear markets and high-beta stocks better picks for bull markets.


  • The most obvious metric to look for when choosing dividend stocks is the dividend yield, which tells you how much you might expect in income for every dollar you invest in a company. Another key aspect to consider is the "dividend growth rate" or the rate at which you can expect your dividend income to grow every year. It's also a good idea to consider the price action of the stock so you can avoid buying volatile stocks with downside potential that could eat into your overall returns."}},"@type": "Question","name": "What should a day trader look for when they're buying stocks?","acceptedAnswer": "@type": "Answer","text": "Day traders will have a very different set of criteria for buying stocks than those outlined here. Metrics that touch on business fundamentals, such as the price-to-earnings ratio, don't matter to a trader who plans to hold the stock for only a few hours. Instead, a day trader is more likely to be concerned about technical indicators on a stock's volume, volatility, and momentum. Highly volatile stocks with lots of trading volume and clear directional momentum could present good day trading opportunities."]}]}] .cls-1fill:#999.cls-6fill:#6d6e71 Skip to contentThe BalanceSearchSearchPlease fill out this field.SearchSearchPlease fill out this field.BudgetingBudgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps View All InvestingInvesting Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps View All MortgagesMortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates View All EconomicsEconomics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy View All BankingBanking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates View All Small BusinessSmall Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success View All Career PlanningCareer Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes View All MoreMore Credit Cards Insurance Taxes Credit Reports & Scores Loans Personal Stories About UsAbout Us The Balance Financial Review Board Diversity & Inclusion Pledge View All Follow Us




Budgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps Investing Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps Mortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates Economics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy Banking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates Small Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success Career Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes More Credit Cards Insurance Taxes Credit Reports & Scores Loans Financial Terms Dictionary About Us The Balance Financial Review Board Diversity & Inclusion Pledge Investing6 Things To Look for When Buying StockAnswer these questions to understand whether you're making a good choice.ByJoshua KennonJoshua Kennon Twitter Website Joshua Kennon is an expert on investing, assets and markets, and retirement planning. He is the managing director and co-founder of Kennon-Green & Co., an asset management firm.learn about our editorial policiesUpdated on March 11, 2022Reviewed by


The most obvious metric to look for when choosing dividend stocks is the dividend yield, which tells you how much you might expect in income for every dollar you invest in a company. Another key aspect to consider is the "dividend growth rate" or the rate at which you can expect your dividend income to grow every year. It's also a good idea to consider the price action of the stock so you can avoid buying volatile stocks with downside potential that could eat into your overall returns.


Day traders will have a very different set of criteria for buying stocks than those outlined here. Metrics that touch on business fundamentals, such as the price-to-earnings ratio, don't matter to a trader who plans to hold the stock for only a few hours. Instead, a day trader is more likely to be concerned about technical indicators on a stock's volume, volatility, and momentum. Highly volatile stocks with lots of trading volume and clear directional momentum could present good day trading opportunities.


When you decide to buy a stock for investing purposes, it is important to do your homework as you are investing your hard-earned money into it. Your goal should be finding good value especially when you are buying a stock for the long term.


And when it comes to investing our money in the market, doing our research is just as crucial. You don't have to be an expert to start buying stocks, but the more you know going in, the better off your investing journey will be.


People ultimately buy stocks with one end-goal in mind: to build wealth. But it's important to note here that wealth is not guaranteed. Investing in individual stocks carries much more risk than, say, buying bonds or putting your money in index funds.


Before you can start purchasing stocks, you need to select a brokerage account to do it through. You can choose to go with a trading platform offered by a traditional financial company like Fidelity, Schwab or Vanguard, or you can look at online brokers like Ally or Robinhood.


A market order means you're buying the shares at the best available current market price when you place the order. Market orders are best when you're buying just a few shares or buying large, blue-chip stocks whose prices don't fluctuate drastically.


A limit order means you're buying the shares at your specified price or better, leaving you in more control of what you pay. With a limit order, the trade may not happen if the price doesn't get to where you want it. Limit orders are best if you're trading a large number of shares or for smaller stocks that have greater price volatility.


But the market will reach a point at which it has dropped far enough that share prices present investors with a purchase that looks more like a buy-low opportunity than a risk of further losses, the experts said. At that point, the market will stabilize and begin to recover as traders jump back into stocks, they added. 041b061a72


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