Advice for stock newbies

Question: Do you have any advice for someone just starting to invest in stocks?
No offense, but for this question I turned to Andrew Dagys, the co-author of Stock Investing For Canadians for Dummies. He offered the following five tips for beginning investors:

#1 Take stock of your current financial situation and goals

This involves calculating your net worth (assets minus liabilities), knowing how much money you have for stocks after paying your expenses, and setting financial objectives to cover everything from a comfortable retirement to your children’s university education.

#2 Determine the approach you’ll take to investing

An investor’s stock picking style will largely depend on a person’s stage in life, Dagys says. For example, a recent university grad with a high-paying job may want to consider a more aggressive approach that relies on growth stocks, while an individual nearing retirement may want to choose more conservative stocks, such as banks, to help preserve capital. The underlying reason is the stock market has historically gone up over the long-term, but has also shown multi-year periods of up and down cycles.

#3 Know your risks

This means understanding the downsides from all the risks associated with a company. For example, the returns on an American stock will be affected by the exchange rate between Canadian and U.S. dollars. Irrational shareholders can push the price of stock into bubble territory, or an emerging technology could soon make a company’s product obsolete.

#4 Get the right information

Making informed investment decisions requires reading and understanding financial statements, Dagys says. But be aware that a company’s bad news can be buried in footnotes