My Criteria for "Research"

Before you do anything with your money, the first rule of thumb is to research, research, walk away, and then research some more before putting in a buy order. When I refer to "doing your own research," I am thinking of the following:

• Read/listen to the financial news headlines from multiple sources
  
• Watch the economic indicators calendar
• Read in-depth economic reports from the three rating agencies: Standard & Poor's (S&P), Moody's, and Fitch
• Read industry reports published by research analysts (you can find these through your brokerage firms or you can subscribe to services directly, like Morningstar)
• Read research reports on specific companies you are interested in
• Read financial statements and SEC filings
• Read special reports from economists, both the bulls and the bears side (to gain appropriate perspective from each side)
  

That's a lot of reading requirements, huh? Well, it's always good to do your homework or else you will get stuck with a bad investment that you might regret later on. I will do separate posts on how to work through each of the items listed above since there is a lot to weed through. After a while, you will learn how to pick and choose from all of these resources.

After that long intro, we can now have some fun and concentrate on the first item on my list: Read/listen to the financial news headlines.

The first thing I do in the morning is to read the headlines for the day. I need to get familiar with what is going on in the financial world (especially if you are like me and have not paid close attention to the markets for months). So many things can influence the behavior of the markets that you just need to be aware of the major news. You don't have to read every single article in the Wall Street Journal, but you should know the major headlines.

When I was working long hours, I used to cheat and listen to CNBC's Squawkbox while getting ready for work. Then, on my commute, I would read as many news stories and headlines on my Bloomberg feed. By the time I walked in the door at work, I had a decent sense of what is going on for the day. I was also spoiled since CNBC was on all day long at work and I could listen to the news chatter in the background if I wanted to.

If you have the ability to leave the news on throughout the day, I highly recommend it. You don't need to have the volume on either. Watching news headlines at the bottom of the page every so often does help you stay in touch with what's going on. You also get to see how the market indices like the S&P 500 Index, the NASDAQ and the Dow Jones Industrial Average are behaving throughout the day. Another option is to keep streaming data open on your internet browser. A lot of the online brokerage accounts offer these services and it is yet another way to stay informed.

So let's go back to browsing headlines. Today, a very interesting story caught my eye on WSJ.com. Apparently, Apple (NASDAQ: APPL) is getting ready to launch the iPhone in China, where the market is one of the biggest money making opportunities in the world. Exciting, right? Well, don't forget to read the comments following the article because a lot of random internet strangers have the ability to do more fact checking and, lo and behold, the iPhone is already sold in China. However, it looks like the device is being sold at an egregious amount and Apple is looking to make it much more affordable. If the demand for the iPhone is that high for that ridiculous price, demand for the device at a much more affordable price might presumably be even bigger. APPL could be a good buy, so save that thought for later.

Side note: Any time I will mention a stock, I will list the general name and then I will list the stock exchange it is listed on followed by the ticker symbol. So, "Apple" is the name of the company, "NASDAQ" is the stock exchange where the company is listed, and "APPL" is the ticker symbol for the stock. Ticker symbols are an easy way to find a company's price quotes, data, SEC filings, etc.

Another headline that peaked my interest this morning is one from FT.com: Oil Prices Weigh Heavily on Wall Street. This article is a general overview about the US market's behavior in the first hour of trading (US Markets open general trading at 9:30 am EST and close at 4:00 pm EST). Oil's prices influence the energy industry greatly and it could be an opportunity to buy some of these big name stocks like Chevron (NYSE: CVX) or Exxon Mobil (NYSE: XOM). Again, more food for thought and you can use these names as a starting point to do more research on the industries and the companies themselves.

Make sure you read headlines from multiple sources since some, like the Financial Times, publish stories with a more international twist. This will help you get a better understanding of not just the US Markets but also the rest of the major world markets. After all, we all now know that the markets are intricately tied to each other after seeing them all crash at the end of 2008.

Another reason to read multiple sources is to understand what happened in markets that opened and closed ahead of the US. The Japanese and Chinese markets have already closed by the time the US opens and London and the rest of Europe are halfway through their market day by 9:30 am EST. In general (and this is a BIG generalization here), US markets will follow the patterns of the other markets right after the opening bell. Now, our own domestic news can swing the US markets in different directions as we go through the day so don't forget that either.

So, I will reiterate that research is a very big part of becoming an active investor. There are multiple ways to keep up with the news and the key is to get in the habit of reading/listening/browsing through the financial headlines to keep you informed.

Disclaimer: The company names I mentioned above are only examples of what can possibly catch my interest at any given day. I will not purchase a security based solely on headlines for the day.

How to get started

I asked many people what an appropriate first topic should be for this blog and many suggested that I write about how to start investing in stocks. Although my goal is to eventually just share my own research methods and investment decisions, I don't mind discussing the basics. Once again, please continue to do your own research.

In my opinion, the first step in investing in the markets is to figure out how much money you are willing to play with.

My husband and I only put money in the markets outside of our retirement and savings accounts when we felt we could "afford" it. To us, that meant that we could afford to lose the entire amount in the markets and we could still pay our bills. It also meant that we still had a significant savings account for emergencies.

I know that I am promoting a very conservative method and many people prefer to be much more aggressive in their investment approach. However, as a first time investor it is best to start on the conservative end. You can always change methodologies as you get more comfortable investing in the markets.

Once you come up with an amount of money that you are willing to lose in the markets, open a brokerage account. You can use the traditional institutions or you can use online brokerage firms. Each company has different commission rates and balance requirements, so make sure you read the fine print and understand the details of your account.

Among the online companies, I prefer Scottrade since they charge one of the most affordable rates per trade: $7.00. Scottrade does require a $500 minimum balance to open an account. E*Trade charges $9.99 per trade and requires a minimum of 10 stock trades per month to qualify for that commission rate. Sharebuilder might be the best option since they do not have balance or trade minimums and they charge $9.99 per trade. Traditional brokerage firms like Merrill Lynch and Fidelity have their own rates that you can find on their respective websites.

Edited to add husky422's recommendation: TD Ameritrade also has $9.99 commisison rates, no minimums and awesome research/tools.

I discuss differences in commission rates above since you have to pay this fee every time you buy and sell a security. So, if you bought two shares of a stock worth $100.00 per share, the money used in your account will be:

($100.00 x 2) + $7.00 = $207.00

When you sell these same 2 shares at $150.00 per share, your account will be funded:

($150.00 x 2) - $7.00 = $293.00

Commission rates are important because you need to count them when calculating your net gain or loss. I will discuss multiple ways to calculate gains and losses in later posts.

Once you open and fund the brokerage account, you are ready to start investing. The next step will then be figuring out what type of security to invest in: single name stocks, ETFs (exchange traded funds), mutual funds, corporate bonds, Treasury bills, etc.

For those interested in reading a more in-depth intro to investing, Investopedia publishes an easy read for beginners called Investing 101: A Tutorial for Beginner Investors. My husband loved reading Rich Dad, Poor Dad's Guide to Investing by Robert Kiyosaki, which is also another useful read.

So you want to know how to pick a stock?

I have spent the last 5 years on Wall Street in different roles (both sell and buy side) and have come to realize that the skills I acquired from my experiences are invaluable. Since I left my bond trading position back in March, I have also realized that not everyone is familiar with the Street's ways despite his/her interest in the markets or in the economy at large.

My goal for this blog is to help internet strangers figure out how to analyze a stock or a bond so that they can make an informed decision for themselves. Each person in this country has felt the economic downturn in some shape or form and I think we are all trying to figure out how better to be "Street smart." I include myself in this mix since the markets are ever changing and evolving.

I will warn everyone and say that I am no longer working for a firm and I am not a licensed individual. The company names I will discuss on this blog are for informational purposes only and you must DO YOUR OWN RESEARCH before executing any investment decision. I am not infallible and I welcome anyone else with ideas to come and share information.

So, please join me on my quest to participate in the markets as an active investor. Since I just started this blog today, I have to pick the first real entry and am open to ideas if you are willing to leave a comment ;-)