Picking beginner stocks does require some strategy. But you need neither an MBA nor tenure on Wall Street to succeed in investing. It doesn’t have to be complicated though, oftentimes, the financial jargon surrounding investing can be intimidating. If you stick to smart stock choices, however, you can get started building your wealth with no experience necessary.
How do you choose beginner stocks?
There are two critical qualities you should always consider before purchasing a stock:
- Competitive Moats
First and foremost: Make sure that you’re familiar with the company in which you want to buy stock. Because you’re not an industry insider spending your days researching the market, reading trade news, and predicting stock swings, it’s incredibly important that you put your money into companies that you know and understand and, ultimately, in which you believe.
If you’re a regular customer or client of the company’s products or services, you’re better equipped to keep abreast of how that company is performing—and with minimal effort. For example, you may notice the company’s selection of products or services is getting worse, foot traffic into their brick-and-mortar shops is dwindling, their prices are rapidly increasing or drastically dropping, etc. All of this coveted intel can help inform your decision to buy or sell more of the stock.
Likewise, you’ll want to keep an eye out for a competitive moat. A moat is the sustainable advantage that protects the company from inevitable competition. It keeps consumers interested, both attracting and retaining customers and clients. Here are some examples of competitive moats:
- Intangible Assets: Intangible assets like patents give companies advantages by prohibiting competitors from capitalizing on the same ideas.
- Great Scale: A company’s branding can take it a long way, especially if it’s recognizable and widely used around the world.
- Low-Cost Production Abilities: If a company can offer a product or service for less by cutting production costs, they have an advantage. They may be able to do this via superior processes and unique assets.
- Network Effects: This happens when the customers become part of the product, as with Facebook. Users beget more users.
- Switching Costs: Switching costs occurs often with cell phone companies, for example. If it is too costly or complicated for customers to switch carriers, they’re likely to stick with the company.
5 Common Beginner Stocks
With that said, here are five common beginner stocks that many new investors consider when they’re just starting out. You’re likely to be familiar with these companies, and they each have their own competitive moats.
Alphabet is the parent company of Google, which offers several products like Google Maps, GMail, YouTube, Android, Google Cloud, Chrome and the Google Play Store. All of these are free because Alphabet monetizes them by using its own data to sell targeted advertisements. This makes Alphabet one of the most profitable companies in the world. You’re likely already familiar with Alphabet’s products. Think: iPhones and Macbooks. Alphabet also has quite a few competitive moats—especially great scale and network effects.
Amazon is another company with which you’re likely familiar. It’s the largest online retailer with hundreds of millions of users. For the most part, Amazon’s services are free, unless you subscribe to Amazon Prime, and it even offers free two-day shipping to its customers. The company is able to offer this because of its incredibly impressive network of fulfillment centers (there are an estimated 175 locations around the world). The free services and fast deliveries are two low-cost competitive advantages that Amazon touts.
Beyond its e-commerce division, Amazon has also been innovating in other ways, such as with video content streaming via Amazon Web Services, a leading cloud computing platform. A combination of Amazon’s low costs, great scale and intangible assets make it a safer stock in which to invest
Facebook is a leading social media platform that owns other platforms like Instagram and WhatsApp. Reports suggest that Facebook alone boasts over two billion active users. The company has massive scale with users all around the world and its network effect sets the bar high for virtually every other like-minded company out there. Facebook is also free, which means that it has a competitive cost advantage because it can monetize with targeted ads through its own data collection.
Netflix is a pioneer video streaming platform with so much potential. The company has more than 167 million subscribers. Of those, 61 million registered in the US and more than 106 million are from all over the world. Netflix is likely to continue to grow as highly populated countries continue modernizing their internet infrastructures. In fact, Netflix reportedly added about 26 million subscribers in the first half of 2020. That is nearly as many as it added throughout the entirety of 2019. Besides, Netflix has operated with little to no disturbances over the years, making it an attractive beginner stock worth considering
Tesla is a trailblazing company that’s making waves in the electric car industry, disrupting the entire auto market. It’s the world’s largest automaker by value. And it’s not just cars. Tesla also purchased SolarCity, and it is involved in the battery sector. It’s no wonder why retail investors are flocking to Tesla. The company continues to post consecutive quarters of profitability.
When Tesla went public in 2010, it offered investors 13.3 million shares at $17 each. As of mid-2020, shares were trading for over $400 per share. That’s a massive return on investment. And because Tesla has competitive moats like intangible assets and great scale, it’s an exciting company for many beginner investors.
Disclaimer: At Q.ai, we are not necessarily recommending these particular stocks; rather, we are simply suggesting that they are common beginner stocks. In fact, we don’t recommend stock picking at all. It comes with a lot of risk, which is why we always say to invest in strategies, not stocks!
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