First Steps and Favorite Tools for New Investors

How do you find, learn about, and keep on top of your investments?

By Travis Johnson, Stock Gumshoe, November 18, 2014

I get asked “how do I start investing” questions quite frequently, and also questions about what kinds of online (or other) tools I use to research stocks — so I thought I’d start the discussion about this by sharing a few of my favorite things.

First, if you have never invested before and don’t think you understand what a stock is or how it trades or why there’s a stock market, take your time. Read a couple books (my favorites — easy reads for people who’ve never traded before — are The Little Book that Beats the Market and One Up on Wall Street).

ToolsSecond, don’t buy or trade individual stocks unless you find it interesting. This is a hobby, and it can be a profitable one, but there’s no point in doing it unless you like learning about companies or trading techniques and like to follow individual stocks. If you don’t, there’s nothing wrong with buying low-cost index funds or, if you’re a little bit interested, selecting some favorite sectors or better active managers (they still have to be cheap) to see if you can beat the market by a little bit. You’re not likely to get rich trading stocks, so if it’s not a pleasurable experience for you — don’t do it. Investing in the stock market is an important and relatively easy way to get a return on your nest egg that beats inflation, but investing in stocks is far riskier than investing in the stock market.

Once you’ve decided to invest, how do you find stocks or keep learning or what tools do you use? I’ll list a few of my favorite sources and tools, and hopefully others will chime in:

Charting and data:
I’m not a technical trader or chartist, but charts are an excellent visual way to scan the history of a company. I like YCharts for this because I can graph companies’ fundamentals — the history of their price/book valuation, the history of their ROE, or hundreds of other metrics — and compare them to other companies. Even the inexpensive version of Ycharts is fairly expensive ($40 a month, I think, they have a free trial), but I invest in YCharts because I need something better than the free data sources but more accessible and affordable than a Bloomberg terminal, and this is the best I’ve found for that middle ground. This is my go-to source for historical data as well, it’s very useful to be able to look at ten years of a company’s revenue, expenses, balance sheet, etc. When I look at a new stock, I try to take at least a quick look at their historical financials before I learn the “story” of the company — if you see that a company has not grown in ten years, you might interpret the story of their fantastic growth prospects differently. Morningstar is my favorite “less expensive” source of data, though you have to pay a bit (much less than YCharts) to go back more than five years.

Screening:
YCharts is also my favorite screening tool, though the best version of it is not free. Morningstar also has excellent screening tools (also better for the paid version). There are many free screening tools on the web as well, nearly every financial portal site (Yahoo Finance is the most popular) has one, so try those first — they will meet many needs.

News:
I try to read the Wall Street Journal and Financial Times and Barron’s frequently, just to keep a handle on what the overall sentiment is and get some variety of perspective. If you have a focus on a particular sector, you’ll likely find that industry news sources/websites (what we used to call “trade journals”) provide better coverage and are worth browsing from time to time. I browse SeekingAlpha sometimes for ideas and perspective (keeping in mind that it’s mostly opinion — always read both bear and bull arguments about a stock if you can), as well as Yahoo Finance and Marketwatch when I have time to browse.

I keep Google search alerts on all the companies I’m interested in to help me pull in as many data points as possible. I also use both Yahoo price alerts and YCharts alerts when I find companies that I’m interested in but where I don’t like the price — Yahoo will email you when ticker XYZ hits a specific price, YCharts will alert you when any number of data points changes for a favored stock.

Managing Information:
Once you have a portfolio of a few companies, and are researching a dozen others for possible investment, it becomes difficult to keep track of what you’re learning. I like to use Evernote to manage this, it is a fantastic free (also a paid version) clipping service that lets you “clip” articles or full web pages and tag them (with a ticker, or keywords) and keep them in folders if you choose — then it’s all both organized and very searchable so you can find that great article that you vaguely remember from six weeks ago. You can also forward emails to your Evernote account, and they’ll be saved and organized in the same way.

That’s just a quick note to get this process started, I’ll add to it as I think of other tools or sources and would appreciate it if readers would share their own thoughts or favorites with a comment below — thanks!

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Jim
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