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By Ashley Redmond | 06-01-2013

Getting started with stocks

The first step is figuring out what type of investor you are, says Barbara Stewart, Portfolio Manager, Cumberland Wealth Mgmt. Inc.

Ashley Redmond: I’m here with Barbara Stewart to discuss taking the plunge and investing in stocks and this is a really big topic, and it's hard to tackle at first. So, Barbara, what do you need to know when you're starting off?

Barbara Stewart: It's such just a huge question. What I observed with most people is this is so daunting, because we think that we need to have full information. So, people tend to get paralyzed. They just go – I just don't know where to even start, so they don't start. And let’s face it; it's really an important thing to be an investor. It's your own future that’s at stake. So, you can't just kind of bury your head in the sand and I talk to a lot of people who just do that.

So, right out of the gate, before you even get into what kind of companies to invest in, you need to have a heart-to-heart with yourself. And you need to say, what kind of a person am I? Am I the kind of person who wants to spend my time learning about investing? Because you don't want to be a bad investor, right? You want to do a good job if you're going to do it. So, am I the kind of person who wants to spend the time? Am I even interested in learning about investing? And that's the number one question to ask. And from there you're going to be able to decide if you're really honest with yourself.

Well, you know what, I am really not interested. I've got better things to do with my time. So, then you're probably going to go the route of hiring a professional investment manager.

If you do decide, yeah, actually I am pretty keen and I want to learn how to invest on my own, then you know, okay, clearly I'm headed down the path and I'm going to learn how to invest in companies. Now obviously, that's huge, but number one decide which kind of person you are.

And in fact, in either case whether you decide that you're going to hire a professional or you're going to do it yourself, you need to familiarize yourself with a couple of things, and I'm going to talk about both of those things today, because those are the basics and I think that's what confuses people.

Redmond: Okay. I know for me when I first started investing a few years ago, the biggest thing for me at the beginning was research.

Stewart: Right.

Redmond: I found that – I didn't know where to get the research from. Should I take it from my discount brokerage? Should I look at third party site, so hopefully you can touch on research; I found that difficult.

Stewart: Yeah. I mean obviously, research is such a broad area and again we could become paralyzed. So, just learn the necessary things either way, whether it's going to give you better questions to ask your investment manager. You've got to know something and I don't actually have the perfect answer for where is the easy way to learn research? Because there is no substitute, and there is no shortcut for higher education and for having all of the skills needed to be a research analyst.

So, we aren't that unless we studied the CFA et cetera, et cetera, and worked in the industry for probably 20 years or something. But I think what we can do is just accept that and realize we have to start somewhere: look at the company's website, use some common sense, pick a company that resonates with you personally, something that you can just follow and feel interested in.

So, for example, one woman I know really liked eating these baked tortilla chips. It sounds ridiculous, but she ended up buying the stock in the big tortilla chip company, because she thought probably other people like them too, let me try this out. So, she decided to follow that company. She read everything on their website. Looked at what the management was doing. She listened to some webinars on the website and then she looked at a couple of analyst reports. So, it's a sort of just – pick one company and start following it, start somewhere and then almost through osmosis you'll get a feeling and it's a feeling that you want to get of what are the kinds of things that an analyst would look at.

And from there you're going to know pretty quickly whether you're really interested or not. And if you're really interested in doing your own research, then you got to go to higher education. Again, there is no substitute. You've got to become a chartered financial analyst. You've got to go down the whole path and there is a reason why there is this whole education in place. But otherwise – again, you're going to know how to ask proper questions in a meeting. If even you do that, you're kind of taking more responsibility that way.

Redmond: So I guess that you really end-up with two schools of thought or two groups of people; there are people who are going to go through a manager and people who are going to do it themselves.

Stewart: Right.

Redmond: So for both groups what do you suggest when you are first starting out and taking the plunge?

Stewart: First starting out then, once you're sort of familiarized yourself with the company like that by looking at the website et cetera, then you need to actually buy a stock. There is no substitute for this either. This is the feel for money. So just open a discount brokerage account, buy a stock. Figure out how to buy the stock, do it, call up, buy a stock. Then follow that stock. Follow its performance. Is it up/down? Obviously, you don't want to do this with your serious money. You're going to put a bit of play money into the stock, money you can afford to lose. See if it goes up or down and then eventually sell a stock. So you want to go through that process to get the feeling for how to invest.

Redmond: It is important to get familiar with the web tools, because I went to buy something a few weeks ago and I wanted to do it quickly and I have already done it before. I know the whole process and I was actually thinking this would be so tedious if I had never opened a discount brokerage before. So, it is important to get familiar with the tools and all the tools on different discount brokerages are different so.

Stewart: Exactly. And again, even if you're meeting with a professional manager later or doing your own investing, that process of investing by actually getting a feel for it and doing it is going to give you much more confidence [because] you will know what you're talking about, at least you've done it before.

So, rather than – I think so many people just completely sit on the sidelines with all of this – they never look at any company website. They don't try to buy a stock. They just say, I should learn, I should learn, but [if you] just do those basic things and you're going to get a lot out of just those two things.

Redmond: Okay, great. And if you have a manager, then I guess you've already decided that you're not going the discount brokerage route, and then if you want to buy something you just call your manager. Is there anything else that goes along with?

Stewart: Well, perhaps you're having it run by the manager completely, but even then I would argue – I would always keep an account with a discount broker, because – sort of keep your hand in. What if you find a company that’s of interest and you just want to buy one stock or play a little bit? It kind of keeps you interested and I think it keeps you involved in the market to some extent, and that's important because it is your money. And whether the manager is doing it or not, you want to keep up on what's going on in the world.

Redmond: Yeah. There is something nice about going in and having a handle on it yourself, right, there is something.

Stewart: Yeah. Head in the sand doesn't work.

Redmond: All right. Thanks so much, Barbara.

Stewart: Thank you. My pleasure.