How to Invest in Stocks - Step by Step Guide

How to Invest in Stocks - Step by Step Guide How to invest in stocks on the stock exchange is a question we have received a lot, so we have decided to make a quick and practical guide for you to start investing now. Investing in stocks may seem complicated at first, and this naturally drives some people out of the market, who think it's a very complex, bureaucratic, time-consuming process. Fortunately this idea of ​​complexity in relation to the market is a myth and opening an account in a stock brokerage to take this first and fundamental step is quite simple and nowadays, inclusive, this process can be totally online in some brokerages. To invest in stocks on the stock exchange is simple: all you need to do is open an account with a brokerage firm, transfer the money set aside for investment and start investing. This brokerage house may be independent or linked to a commercial bank. That is, even the big banks also own their brokerage firms and for those investors who are suspicious of the financial strength of smaller institutions, opening the account at the big banks brokers can be a good gateway. After the investor performs the process of opening the account at the brokerage firm, since this process normally requires only the sending of some documents and the completion and signing of some forms, the investor must deposit money in this account so that he can start his investments. To deposit money into the broker's account, each brokerage house has certain rules, and brokerages usually require bank transfers to be made and that the funds originate exclusively from the account holder. Normally, the investor will not be able to make deposits in the bank's cash account in the broker's account, but should make an online transfer. Once the money is in the brokerage house, after logging in to the broker's website, the investor can use it to carry out various types of investments, among them the purchase of shares. Brokerage houses usually provide a platform known as "Home Broker" and this platform allows for the negotiation of stocks or real estate funds, for example. Homebrokers may be different from one broker to another, but the investor eventually becomes accustomed and if you have a problem or do not understand the system, talking to the brokerage and asking for help may be necessary. Anyway, usually all that the investor needs to do to buy a stock through a homebroker is to enter the code of a paper, within the system of the homebroker, choose the amount of shares, the price and send the order. For example, if the investor wishes to buy 100 shares of the Ambev brewer, which has its shares traded through the ABEV3 code, in the homebroker the investor should enter the code "ABEV3", enter the amount of papers he wants, in this case 100, and the price per share. If the investor wants to buy to the market, that is, paying the price that is being offered, the order will be executed immediately. On the other hand, if the investor chooses a lower price, the order may take some time to execute. After the order is executed the investor becomes officially a shareholder of the company and will have, from then on, the right to participate in its results, through dividends, etc. If the investor needs or wishes to sell his shares at any time, the process is the same, but at the time of sending the order, it must be sent with the sale characteristic. It is worth remembering that at each stock exchange on the stock exchange the chosen brokerage will charge a commission for the negotiations executed by it. This cost is called brokerage and can range from a very low cost to high values, and will depend on the brokerage firm that the broker has chosen. We'll talk more about the costs to follow. In summary, we recommend following these 6 simple steps: Open an account with a broker or bank Book from 6 months of your monthly cost to live in your emergency reservation Separate from 2 thousand reais to invest Transfer money to your account Start investing Make constant contributions and reinvest your stock dividends How to select a broker? There are many brokerages available for those who want to start investing in stocks, each with its own characteristics and characteristics, such as differentiated costs and prices, different platforms, quality of service, products offered, financial strength, etc. For the small investor, who wants to start investing relatively low monthly values, choosing a broker with low costs is totally necessary, and thus, avoiding those very expensive is imperative. There are brokers that charge brokerage fees that exceed $ 20 for a negotiation, which can weigh heavily in the pocket of the small investor, and others that even charge less than $ 2.00 and therefore conduct a search price and cost is important, especially if the investor wants to start applying little. On the other hand, investing through a brokerage company only because it is quite cheap, but without knowing its brand, its history, its solidity and financial health is also not recommended, and research on the institution, evaluate its financial strength, its history in the market , is a correct attitude. Although the brokerage is only an institution that mediates and allows the trading of shares, and the investor's shares and assets are held in custody in the "CBLC" - that is, the investor will not lose its shares - if the brokerage firm will fail, the money that the investor has stopped in the account of the brokerage house can be lost, and this whole situation generates an unnecessary headache, and for that reason, it is better to avoid it. Through the website of the Central Bank it is possible to monitor the financial performance of financial institutions, and among them, brokerage firms. In this link , selecting the macro-segment n2 - non-banking capital market, the investor gets a summary of the main information related to the financial health of the institutions. Here is an example: Macrosegmento N2 Net Profit Table The investor should prioritize profitable institutions and avoid brokerages that only operate at a loss, as these are clearly showing financial fragility. In addition to the financial health issue of the brokerage firm, the investor should evaluate the services and variety of products that the brokerage offers, to make sure that it makes available what the investor seeks. There are brokerages that offer only the homebroker to their clients, the stock trading platform, and offer little in relation to other products such as fixed income funds, CDB's etc. Thus, investors wishing to have a share of the capital invested in fixed income, should seek brokers that offer beyond homebroker options of investment funds, fixed income instruments, direct treasury, and so on. Why invest in stocks on the stock exchange? Stocks are just one of the many possible alternatives for those who want to invest. Between saving, direct treasury, multimarket funds, mutual funds and other investment options, why should anyone opt for stocks? The rationale behind stock investment is that it is the alternative that, historically, considering long-term returns, has the highest rate of return, both in Brazil and around the world. The Triumph of the Optimists study by Elroy Dimson, a professor at the London Business School published in 2003, evaluated stock market returns compared to investments in debt instruments (fixed income) over a period of up to 100 years and the result showed which we expected: investment in stocks was the most profitable option. In the United States, for example, the largest market on the planet, equity investment generated a return of about 6.3% per year in real terms (free of inflation) in the period 1900-2000, while investment in government bonds (bonds) delivered a return of less than 2% a year in real terms. Comparison of stock options in the United States Comparison of stock options in the United States In Brazil, although historically we have observed very high interest rates, which has made fixed income for some periods a more profitable option, if we consider good companies, which are profitable, and have good profitability metrics, the return was much higher. In this case, in Brazil, unlike the US, investing in a passive fund that follows the performance of the main stock market index may not be a good idea, and valuing and investing in good company stocks is fundamental for the investor to obtain differentiated returns to long term. We can cite as an example the actions of Bradesco, a large and consolidated Brazilian bank with more than 70 years of history. Bradesco proved to be a very profitable investment over time and delivered a much larger return than fixed income in its history. To give you an idea, R $ 100.00 invested in Bradesco shares in 1995 would have become about R $ 12,000 today if the investor had reapplied all the dividends of the period. In fixed income, considering 100% of the CDI, the investor would have accumulated around R $ 3,500.00. This excellent stock performance is still reflected in countless other profitable companies, such as Itaú, Ambev, Ultrapar, Lojas Renner, Klabin, Hering, among many others. On the other hand, while being a more profitable investment, stocks tend to be the most volatile of investments. In this way, even good stocks can lose value in the short term. It is possible that stocks trade at a loss even over long periods and the investor should always be aware of it. Bradesco stock growth chart Bradesco stock growth chart For example, to get an idea of ​​the period in which an investor may have to bear losses, the Ibovespa took 9 years to exceed its maximum price reached in 2008. Only in 2017 that value was exceeded. In practice, an investor who invested in an equity investment fund indexed to the Ibovespa, that is, following the performance of the same, has squeezed a loss position for almost 10 years It is important to remember that there are no guarantees of gains in the stock market, but by choosing good companies, it is very likely that the investor will achieve above average gains and will have a greater peace of mind in the market. Investors who select stocks in the wrong way, opting for bad companies, underperforming and unprofitable situations can suffer losses in their investments even in the long run. How do I make money from stocks? Benjamin Graham wrote: "The real money investing will be made - and done in the past in this way - not from trading in the purchase and sale, but from owning and holding shares, receiving interest and dividends, and benefiting from the increase value in the long run. " In this way, an equity investor makes money through the absolute return, which is the sum of dividends and the capital gain of shares. As good corporate stocks tend to appreciate in the long run, as they tend to grow, with revenues, wealth and profits increasing, the investor over time sees their capital evolve. Another important factor in the delivery of earnings to the investor is the dividend. As companies often distribute portions of their profits to shareholders as companies profit more, they also distribute more dividends, and if the investor reinvests these dividends in the purchase of more shares, his equity is growing exponentially. Reinvesting dividends is crucial for the investor who is in the equity building phase, and it is essential for equity to grow with much more consistency, but if the investor wants to make use of the dividends for his retirement, he can too. Generally, the investor obtains gains through a long-term investment approach and it is this strategy that we like and also evaluate as the one that gives the investor greater chances of success. Big investors like Warren Buffett and Luiz Barsi have built their careers and fortunes as investors in this way, focusing on the long run. → Get the letters from Luiz Barsi, one of the biggest investors in Brazil What are dividends? Dividends represent the distribution of part of a company's profits. Its distribution is decided by the board of directors of the company and is divided in proportion to the number of shares held. The board of directors can choose the periodicity of the dividend, its date and also the percentage of profit that will be distributed (which is called the dividend payout). Several investors, particularly those most sensitive to income, analyze a stock through their dividend yield , that is, the percentage that the dividend per share distributed represents the value of the share. Thus, if a company pays R $ 1.00 of dividend and costs R $ 10.00 per share, its dividend yield is 10% (R $ 1.00 divided by R $ 10.00). Generally, companies that distribute dividends are at a more mature stage of their activities. Companies that are in the process of expansion usually retain profits to finance their growth and thus do not distribute dividends or distribute a small portion of their profits. It should be remembered that it is fundamental, for the investor in the stage of accumulation and construction of equity, to reinvest all dividends, precisely to maximize the effect of compound interest. What is capital gain? Capital gain occurs when the value of an investment exceeds the amount that the investor made the purchase. The gain is not realized until the moment of its effective sale. If the investor sells an asset with gains, he must pay income tax, provided that the value of the sales exceeds $ 20,000.00 within a given month. Conversely, a capital loss occurs when an asset has a current price lower than the purchase price by the investor. Risks of investing in shares on the stock exchange Investment in stocks naturally carries risks. The risks that deserve highlights and that every investor should pay attention to are: Stock price oscillation It is important for the investor to keep in mind that stock prices fluctuate, both positively and negatively, and there is no guarantee that the shares will deliver positive returns to the investor, especially in the short term. Therefore, if the investor invests R $ 1,000.00 in the shares of a company, and these shares suffer falls for months, either due to an economic crisis, some nervousness about the markets, or for some problem in the company, the investor will see its shares are worth less, and your $ 1,000.00 may be worth $ 800, $ 700 or even less. However, profitable companies tend to value themselves, and even if the investor faces losses in the short term, in the medium and long term the return must be positive, but again, there is no guarantee of that. The market does not rise straight, stocks do not rise straight, within a 10-year period, where stocks are highly valued, there are many downturns, in which the investor will notice his equity devaluing and this is completely natural in the market. People who do not tolerate devaluations, even if punctual, in equity, and lose sleep because of this, are stressed, should be left out of the stock market or should get accustomed gradually, if exposed to the market gradually. Risks of the Economy If the economy deteriorates intensely this can impact the stock market. This occurs for two reasons. First: companies need to sell to make a profit. If the economy faces a severe crisis, companies sell lower volumes and this impacts their profit. In some cases, companies may operate at a loss if sales decline is strong. Second, the perception of risk increases during a period of crisis. In this way, investors demand lower stock prices to be willing to invest in a risky asset, such as stocks. Risks of Obsolescence This risk occurs when a company can not remain competitive through its products that become without market appeal because they are obsolete or because of archaic production processes. This risk is not irrelevant: few businesses survive more than 5 decades. And even those who survive need to develop, either by modernizing their product or by improving their production chain and distribution. There is the argument that due to globalization and technological advances, this risk is becoming increasingly relevant and corporate mortality is increasing. Regulatory risks In Brazil, regulation is present in all segments and government guidelines change according to the winds of politics. In this way, it is possible that the government, through legislation and inspection, acts in a way that damages the profitability of a particular company or sector. State intervention can take several forms, such as: antitrust regulation, changes in taxation or changes in regulation. Headline Risk This risk occurs when the press conveys news stories that could harm the reputation and business of a company. For example, when the Federal Police initiated the Operation Meat Loose, which investigated irregularities in several slaughterhouses, the actions of all companies in the meat industry suffered significant falls, including the actions of companies not involved in the scandal. News about the political conjuncture, for example, can have an impact on the market as a whole. When the Batista brothers, controllers of JBS, made their award-winning agreement involving a dialogue with President Michel Temer, the Bovespa Index fell more than 10% on the following day, with practically all Brazilian stocks trading in a sharp fall . Inflation and Interest Rate Risk These risks may exist separately or act together. Inflationary risk can impact investment in stocks in a number of ways. First, with rising inflation, it is more difficult for stocks to yield yields above inflation. In addition, inflation can impact the purchasing power of customers and, with this, impact the sales volumes of a certain company, which would lead to a fall in profitability of the invested company. The interest rate risk occurs when the increase in interest impacts the financing conditions of the businesses that need debt to operate. When interest rates rise it is more expensive and difficult to pay interest. In addition, investors apply higher discount rates which negatively impact asset pricing. Generally, the interest rate is high in periods of high inflation. Costs to invest in shares on the stock exchange The individual who decides to invest in stocks should have the knowledge that there are costs attached to this activity. The main costs that will be incurred by those who invest in shares are the brokerage fee, the fees and charges charged by B3 (the stock exchange where the shares are traded), the taxes that affect the value of the brokerage, the custody fee and the income tax. The brokerage fee varies from broker to broker. The rise of home brokers has made brokerage rates much lower than they have been in the past. Each brokerage firm has its trading practices, but it is rare to find brokerages that cover more than R $ 20 brokerage per executed order. In this way, the larger the volume traded, the greater the dilution of this cost. B3 charges a series of fees for each order executed: fees, registration fee and settlement fee. These rates are not representative and represent a percentage of each transaction. The investor will also incur taxes such as ISS, PIS and COFINS that affect the brokerage value, respectively represent 5%, 0.65% and 4% of brokerage cost. Some brokerages charge custody fees that may be a fixed amount or a percentage of the amount invested. It is increasingly common for brokerages to exempt their customers from this rate. In addition, the investor must pay income tax if he sells his shares for profit. The tax equals 15% of the gains. It is worth remembering that the investor can sell up to R $ 20 thousand per month in shares exempt from income tax.