by Christopher Johnson

Created on: October 14, 2007

Investing in the stock market can be fun and exciting! It can also be one of the best ways to make money. Stocks have historically out performed most of the other financial instruments available in the long term.

So how do you do it? What to invest in? Who can I trust for advice? What are all those funny number? Good questions, all, so lets start by learning the basics.

Stocks are shares of ownership in a company. Buy a share and you are an owner of that company, tell all your friends. You profit by how well that company does in its market and against its competitors. So the first step is:

Find a good company.

Every company that trades on an exchange (the New York Stock Exchange on Wall Street for example) must publish all of its financial data for you, the investor, to look at. Many of the broker sites out there like Sharebuilder, Etrade, etc. will have the most up to date data on the stocks they trade in.

Look for good cash flow, low debt to income, do they pay dividends, how long have they been in business, return on investment, gross margin, gross profit, etc. Make sure that they are reputable. Sinkyourmoneyintothisinvestment.com might not be a good idea. Do your research. MSN Money has an Investing Toolbox that you can use to create your own searches based on your personal criterion.

Step two is:

Find a good broker.

There are many online brokerages that can help you invest. If you have the money, invest in a Financial Advisor. It's these guy's job to know what is going on in the market and how it affects everything in the investing world. If you're a do-it-yourselfer, online brokerages can be much cheaper, and can afford you a greater measure of control.

Set up for the account is usually simple and quick, you will need to give some personal info for regulatory purposes. Next, hook it up to your checking account, or send in a check to fund your account. Most brokerages use a money market fund as a holding spot for your money until you invest, so you can earn dividends while you think about what to buy.

Step three:

Buy a share or three.

Pick a stock that made the grade from your earlier research and buy it. The best bet is probably to set up an automatic investment option, which will buy stock on a certain day of the month, each month. This is usually cheaper than a market trade, and you take advantage of dollar cost averaging. That's where you buy the same dollar amount of a stock, but if the price goes up you buy fewer shares and if it goes down you buy more.

Step four:

Hang tight.

Don't think that just because you bought your first stock, you're now Warren Buffet. Hold that stock. If it's good now, chances are it will be good later, too. Don't day trade unless you have a boat load of money that you feel comfortable lighting a cigar with, and want to trade on a quarter of a percentage point difference. That way lies heart burn and ulcers.

Typically you don't want to hold the same stocks forever, so reevaluate them on a yearly basis (a year and a day at least, any shorter and you will be taxed at the higher "short term capital gains" tax when you sell).

Lastly:

Enjoy yourself.

Making money is great, but learn while you do it. It can be very rewarding to read the news one day and hear that oil futures are down, and know that means you should sell some of the shares you hold in that medical equipment company (key ingredient in plastic comes from petroleum). Plus you sound really smart at the PTA meeting.

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