The Broke-Ass Guide to the Stock Market

This post was written by Tyler Thompson

At some point, every one of us gets sick of the “broke” part of our young, broke, and beautiful status. It’s usually when someone we know manages something that seems really grown up or really awesome, like actually taking a vacation, moving into a fancy condo (without seven roommates) or shopping at Whole Foods because they like the food (and can finally afford to buy it), not because they’re trying to score with the produce chick.

If you’re impulsive (and do things like move to San Francisco on a whim) one of the first places you usually look is the stock market. We’re trained practically from birth to think of the stock market as the best way to get rich quick. You buy a couple of stocks in a hot company; wait a few days and Bam! Money falls from the skies!

Except…not really. No matter what that creepy talking baby might tell you or how snazzy Kevin Spacey is in those eTrade commercials, playing the stock market when you don’t know what you’re doing is a really good way to lose your shirt and wind up broker than you are right now.

At the same time, it can also be a good way to earn some cash and maybe even set up one of those responsible retirement fund things your parents are always bugging you about.

If you’ve been thinking about trying your hand at stocks and trading, here are a few things that you need to know before you get started.

1. Thoroughly research every company whose stock interests you.

Even companies that look very stable can have their issues. Overstock.com, for example, is a great company (who doesn’t love that place? How else can YBBs like us afford designer comforters and table lamps?) but it’s been having its share of problems. The founder, Patrick Byrne, has been in the news lately because he’s convinced his board naked short saled the company’s stock…which, in spite of the word “naked” is a really bad thing. He’s fighting to regain his integrity and his company’s integrity (good for him) right now but maybe wait to buy up shares in a company that is experiencing so much financial turmoil.

2. It Really Is Dangerous to Go Alone

If you just sign up for a stock trading account with a company like eTrade or one of the others you find after your thirty second Google Search you will wind up losing your money. You’re not picking out a scratch-it at the grocery store. You’re buying part of a company. There are different ways to do that and each piece is differently priced and offers different returns. You don’t have to hire a broker right away (those guys can be expensive and are shark-like; they eat n00bs like you for lunch). You do have to learn how the market works before you hand over even a single penny. Learn about stocks, dividends, mutual funds, etc. At the very least, read a guide like the one offered by Mint or check a Dummies book out of the library.

3. Treat it Like Vegas

The possibility of huge returns can be heady. “The more I invest, the more I get, right?” is something you’ve probably thought while looking longingly at expensive shares in Apple, Google or Twitter. This is when it’s okay to treat stocks like scratch its. You only buy what you aren’t afraid to lose. It might not be enough to invest in Apple stock but that’s okay: has the company really been the same since Steve Jobs died?

Basically, if you’re looking for some extra cash right now, you’d be better off peddling doodles down by the Wharf. Still, why not learn about it so that you’re prepared for later…like when you want to impress that girl or guy next to you at the bar in the Financial District during Happy Hour.

image from BustedKnuckles