If you have ever wanted to know how to invest in stock, the best place to start is by doing your own research. For new investors, this can be daunting. Fortunately, there are a few good places to start.
Public vs. Private
Before investing in a business, you must learn if it is public or private.
A publicly traded company is one which has shares of stock traded on the open market.
Private companies, on the other hand, do not have shares available for public purchase. Private companies may be owned by an individual, a family, a partnership, employees, or a small group of investors.
To illustrate the difference, consider The Hershey Co. (HSY) and Mars, Inc., two of the largest candy companies in the world. The late Milton Hershey’s chocolate business is publicly traded on the New York Stock Exchange (NYSE).
An individual investor could take their paycheck and acquire shares in the company, profiting from every Hershey's bar or Reese’s peanut butter cup sold. The multi-billion dollar Mars company, however, is still owned by the Mars family. An investor could not buy shares unless the members of the family allowed them to acquire some of their closely held, personal stock.
How does one determine if a company is public or private? Many corporate websites offer information on their ownership status. If you see an “Investor Relations” section, the company is definitely public. You can also call the company and ask.
Meanwhile, the lack of an "Investor Relations" section does not necessarily mean the company is private. For example, undergarment manufacturer Fruit of the Loom is not publicly traded because it is owned by Berkshire Hathaway, Inc. Berkshire, on the other hand, is traded on the NYSE. Hence, an investor may be able to invest in a business entity indirectly through its publicly traded parent company.
The Ticker Symbol
Once the investor has discovered a company is publicly traded, they must look up the company’s ticker symbol.
A ticker symbol is a collection of letters that represents a particular stock on an exchange or the over-the-counter market.
Microsoft, for example, is MSFT. Cisco Systems is CSCO. Berkshire Hathaway has two ticker symbols, one for its class A shares (BRK-A) and one of the class B shares (BRK-B). Coca-Cola is KO.
You can look up a company's ticker symbol on a site such as Yahoo Finance. Here you'll also find summary information with a current quote for one share of the company's stock, the total market capitalization, recent dividend payment and yield information, the price-to-earnings ratio for the trailing 12 months, and other items of interest.
From there, an investor can get a copy of the company's public filings.
Nearly everything you need to know to make an informed investment decision can be found in the annual report, proxy statement, and 10K. These filings require companies to share information about any challenges they see in the future.
That "Investor Relations" section of the company website is one place to find these documents. Another excellent free resource is Edgar, a database of annual reports and SEC filings.
Dividend Reinvestment Programs
If, after careful analysis of the financial statements and business economics, the investor wishes to build up a long-term holding in the company, they may want to consider an automatic dividend reinvestment program and/or a direct stock purchase plan. Both provide a dollar cost averaging approach.
The former will automatically invest dividends into additional shares of stock while the latter will provide for regularly scheduled deductions from a checking or savings account to purchase shares of the company’s stock without the aid of a broker.