Making the transition from being a consumer to becoming a part owner of a company is a powerful financial shift. Most people spend their hard-earned money on everyday expenses, which is why having a net worth of just $10 can put you ahead of 25% of Americans. But what if you could make money from everyone else’s spending? That’s where investing in stocks comes in. This comprehensive guide will walk you through everything you need to know to buy your first stock, how the stock market works, and how to sell stocks when you’re ready to lock in profits — all explained in straightforward, beginner-friendly terms.
What Is a Stock?
Before diving into buying stocks, it’s crucial to understand what you’re actually purchasing. Stocks, also called equities, represent fractional ownership in a real company. When you buy a stock, you’re buying a share of that company. Each company has a set number of shares available, known as shares outstanding.
For example, Microsoft currently has approximately 7.43 billion shares outstanding. One share of Microsoft stock costs around $421.13. But don’t worry if you don’t have hundreds of dollars to buy a single share—fractional shares are now widely available. This means you can invest as little as $1 in your favorite company and own a tiny piece of a share.
To get a sense of a company’s total value, multiply the share price by the total shares outstanding. For Microsoft, this calculation (7.43 billion shares × $421.13) results in a market capitalization of roughly $3.13 trillion. The share price fluctuates constantly during market hours based on supply and demand, which in turn is influenced by the company’s performance. When a company reports strong revenue and profit growth, more people want to buy its stock, driving the price up. Conversely, poor results can lead to selling pressure and lower prices.
Why Does the Stock Market Exist?
Many people think the stock market exists primarily to help investors make money. But the fundamental purpose of the stock market is to help companies raise money. When a company issues shares, it’s selling ownership stakes to the public to raise capital. This capital can be used to grow the business, pay off debt, or fund other initiatives.
There are two key terms to understand here: shares outstanding (the number of shares currently owned by investors) and authorized shares (the maximum number of shares a company can issue, which is voted on by shareholders).
Shares can be sold to the general public via offerings or to large institutional investors. All buying and selling happens on exchanges — marketplaces like the New York Stock Exchange (NYSE) or NASDAQ. Collectively, these form the stock market, where individual investors can buy and sell shares through brokerage platforms.
How To Make Money With Stocks
There are two primary ways to make money investing in stocks: dividends and asset appreciation.
- Dividends: Some companies share a portion of their earnings with shareholders in the form of dividends, often paid quarterly as cash. However, not all companies pay dividends—many are still growing and reinvest their earnings to expand market share.
- Asset Appreciation: This occurs when the value of the shares you own increases over time. The classic investment advice is “buy low, sell high.” For a stock to appreciate, there must be more buyers than sellers, usually because the company is expected to perform well in the future.
In essence, to profit from stocks, you want to invest in companies that are likely to grow and succeed over time and hold onto your shares as their value rises.
How To Pick Stocks
Choosing which stocks to invest in can feel overwhelming, especially for beginners. There’s no guaranteed formula for picking winners, but here are some common approaches investors use:
Fundamental Analysis
This involves studying a company’s financial health by reviewing key documents such as:
- The balance sheet, which shows assets, liabilities, and equity.
- The income statement, which details revenues, expenses, and profits.
- Quarterly and annual reports filed with regulators, providing updated financial data.
Investors look for companies with low debt and consistent growth in revenue and profits. A strong balance sheet and upward earnings trends are good signs of financial stability and growth potential.
Qualitative Analysis
This focuses on non-numerical factors such as:
- How the company makes money.
- Its competitive advantages or “moats.”
- The quality and experience of its management team.
- Industry trends and market positioning.
Much of this information can be found in a company’s annual report or investor presentations. Understanding these factors helps investors gauge the company’s long-term prospects.
Trend and Sector Analysis
Sometimes it helps to take a broader view and identify big trends shaping the economy. For example, spotting the rise of artificial intelligence (AI) early on could lead you to invest in companies like Nvidia, which benefited significantly from the AI boom starting in late 2022.
However, predicting trends is challenging, and hindsight is always 20/20. The key is to stay informed and look for companies positioned to capitalize on emerging opportunities.
How To Buy Your First Stock Using Robinhood
Now that you understand the basics, let’s walk through buying your first stock step-by-step using Robinhood, a popular commission-free trading app.
Step 1: Create and Fund Your Account
Visit Ryan’s Robinhood link to sign up for a free account. When you fund your account, you can start with any amount—even as little as $1. Robinhood offers instant deposits up to $1,000, allowing you to invest before the funds fully settle.
Step 2: Search for the Stock
Once your account is funded, use the search bar to find the stock you want to buy. For example, type “MSFT” or “Microsoft” to find Microsoft stock. On the stock page, you’ll see real-time price changes, market cap, dividend yield, volume, news, analyst ratings, and earnings data.
Step 3: Understand the Stock Page
The stock page provides valuable insights:
- Market Cap: Total company value, automatically calculated.
- Dividend Yield: The annual dividend as a percentage of the stock price.
- Volume: How many shares have traded recently.
- News Feed: Latest news affecting the stock price.
- Analyst Ratings: What professional analysts think—for example, 95% of analysts might rate Microsoft as a “buy.”
- Bullish vs. Bearish Thesis: Arguments for and against the stock’s future performance.
- Earnings Reports: Whether the company has been beating or missing earnings expectations.
Step 4: Place Your Order
Click the “Trade” button, then select “Buy.” Robinhood allows you to invest in dollar amounts or whole shares. For fractional shares, you can invest as little as $1. For example, investing $10 in Microsoft might buy you 0.0235 shares.
There are a few order types to know:
- Market Order: Buys or sells the stock immediately at the best available price.
- Limit Order: Sets a specific price at which you want to buy or sell. The order only executes if the stock reaches that price.
For beginners, market orders are usually fine, but limit orders give you more control over the execution price. Note that during off-market hours, Robinhood only accepts limit orders.
Robinhood also offers recurring investments, allowing you to automatically invest a set amount on a schedule (daily, weekly, biweekly, or monthly). This is a great way to build wealth steadily over time.
How To Sell Stocks and Lock in Profits
When you want to sell a stock, the process is similar. Select the stock in your portfolio and click “Trade,” then “Sell.” You can sell fractional shares or whole shares, and just like buying, you can specify dollar amounts or share quantities.
Once you place a sell order, the funds become unsettled and typically take one business day to clear before you can withdraw or reinvest them.
Building a Diversified Portfolio
As you grow your investments, diversification is key to managing risk. This means spreading your money across different stocks, industries, or even investing in funds like the S&P 500 ETF. An ETF (exchange-traded fund) is a basket of stocks you can buy and sell like a single stock, offering instant diversification.
The S&P 500 ETF tracks the 500 largest publicly traded US companies, giving you exposure to a broad market segment without picking individual stocks. This is an excellent option for beginners looking to build a solid foundation.
Final Thoughts
Becoming a shareholder means becoming a part owner of companies you believe in. Investing in stocks lets you participate in the growth and profits of leading businesses. By understanding what stocks are, how the stock market works, and how to buy and sell shares—especially using user-friendly platforms like Robinhood—you’re well on your way to building wealth.
Remember, investing involves risks, and no method guarantees success. Doing your research, understanding companies, and diversifying your portfolio are your best tools for long-term growth.
Ready to take your first step? Open an account with Robinhood using this link to get a free stock worth up to $200 when you sign up. Start small, stay informed, and watch your investment journey unfold.