By Prof. John DeSpagna
In previous columns, I have written about preparing for your future and having a passion for things you do in life. In this column, I would like explore preparing for your future with financial literacy and pursuing a passion with stocks.
My first position in finance was working as a financial advisor with Merrill Lynch. I learned about the world of investments and have used this financial knowledge to help prepare for the financial goals I have set. Learning about stocks can be enjoyable and fun when you implement the knowledge into your portfolio decisions.
Many people want to learn about stocks but don’t know where to start. So, let’s take a couple minutes and get things going.
The first step I would take is to simply select ten stocks that you want to follow. Pick stocks of companies that you know and use so you can relate to them. Some examples I can give would be Apple, Facebook, Google, Nike, Amazon, Bank of America, Starbucks, Home Depot, McDonalds and Tesla. (Please note that I am not making stock recommendations here but listing companies you are familiar with).
After selecting your ten stocks, enter them into your cell phone so you can track them every day. Look at the daily price changes and changes in volume and try to figure why you have these price changes. On my iPhone, you can also see the stock price chart for the last year and you can also read the updated news on the stock. What are the high and low prices for the stock in the past year? How is the stock trending and why the change in price?
One of the most important and valuable valuation measures of a stock price is what is known as the P/E ratio. This is the price of the stock divided by the earnings per share. Looking at Apple stock today, the earnings per share is 17. As a generalization, a P/E ratio of over 20’ish is considered high by analysts. Generally speaking, try to stay away from companies with a high P/E ratio as they become overvalued and subject to a potential correction.
I would also suggest buying stocks of quality companies and stay away from the low priced penny stocks. Part of your strategy should consider thinking long term with your holdings. This leads into what is your sell strategy? I had many clients who never wanted to sell a stock because they thought it would keep going up. A stock does not go up forever. Develop a strategy here and stick with it. Perhaps you sell half of your position if the stock doubles.
Researching what stocks to buy is part of the fun. A resource used by many to research stocks is Value Line. Value Line gives a very short and concise one page analysis of a stock with their current recommendation. You can obtain a Value Line report on a stock from the Reference section of your local library.
If you want to continue to develop an interest in stocks or follow a career path, I can recommend several steps you can take.
First, I would take a course at your favorite community college in Investments or Personal Finance. You will learn the basics to enhance your financial literacy and you can see if you like this field. The next step you could take is to get an internship at a brokerage or financial firm. I had a goal to work at Merrill Lynch because I wanted to work with the best firm in the business. I also felt that after going through their training program and a few years working there, this would open other opportunities for me and it worked out that way.
Learning about stocks can be fun and also help you be a better educated investor. This will help you reach your financial goals. If you really like this field, you can have a career doing something that really you enjoy.
John DeSpagna is Chair of the Accounting and Business Administration Department at Nassau Community College in Garden City, New York.