A Guide For New Investors

Breaking into the stock market for first time investors can be a daunting task.  Between thousands of stocks, reports, and resources, new investors often find themselves overwhelmed by the flow of information. Setting up a system and following the necessary steps can help you sift through irrelevant information in order to construct a successful portfolio that fits your needs.

1. Get Involved in a Community

One of the best places to start when considering investment opportunities is to reach out to like-minded people.  There are a plethora of clubs and organizations that can connect you with other individual investors in order to help you learn and gain experience.

  • American Association of Individual Investors – AAII is a nonprofit organization that focuses on providing instruction and guidance for new investors.  Many wealth management professionals use this organization to share their ideas and insights, so take advantage of the articles posted here, as well as their local chapter meetups.
  • BetterInvesting – This site is another nonprofit organization that provides resources for local investment clubs to help its members become more educated and knowledgeable about the investment market.
  • Facebook and Meetup also provide a wealth of groups for any niche or corner of the investment market.  These can serve as valuable resources to help meet like-minded individuals and get you started on your path to becoming an investor.

2. Consider a Financial Adviser

Using a financial adviser (“FA”) may seem like you’ll be losing out on profits; however, this is rarely the case. Certified FAs go through extensive training and licensing requirements in order to lawfully manage other people’s money.  Most have spent years studying market trends and investment opportunities, allowing them to choose both smarter and safer choices for your capital. There are a number of options to choose from when considering what type of financial adviser you’d like to hire.  For example:

  • The Broker: Brokers typically charge an annual fee based on the market value of your portfolio, can sell other financial products, such as mutual funds, annuities, and insurance, and collect a commission based on how much you buy or sell. Brokers are often employed by a broker-dealer, such as Merrill Lynch, Morgan Stanley, or Goldman Sachs.  Because a broker is not bound by the fiduciary standard they can recommend investments that pay them a commission, even if the investment is not in your best interest or there are cheaper options.
  • The Independent or Dually-registered: Often identified as “fee-based” advisors, independent advisors charge a flat fee or percentage of your assets under management, and they also receive commission on certain investments.  They use a separate brand, but are affiliated with a broker-dealer, which should be indicated on their website or business cards.
  • The Fee-only Fiduciary: These are fiduciaries who are required to act in the best interest of their clients.  They do not earn commissions.  Their fees come directly from the clients and are either a percentage of the client’s assets or an hourly or flat retainer. These advisors are often found in smaller independent investment or financial planning boutiques and can help with more complex financial needs. This category of advisor also includes Registered Investment Advisors, who are registered with and regulated by state securities agencies and the SEC.

3. Know Your Tools

One of the most intimidating obstacles for new investors is the limitless amount of information in regard to stock market investment opportunities.  The best solution is to become well versed in one of the many investment research tools available online, such as Yahoo! Finance, MarketWatch, or Morningstar.  Most of these sites offer similar functionalities, so it may be easier to focus primarily on one in the beginning.

4. Check the Company Filings

Once you’ve learned the basics and chosen a company you likely want to invest in, it’s important to know what’s going on within the company from a legal perspective. Be sure to check a company’s most recent 8K filing through EDGAR or one of the aforementioned sites, as this can  inform you of important legal information, such as pending litigation against the company.  It’s extremely important to stay on top of this sort of information as lawsuits can have a drastic effect on the assets of a corporation and cause your stock to lose value.  These are some of the different types of litigation to be on the lookout for.

  • Shareholder Class Action – A lawsuit filed by investors who bought a company’s publicly traded securities within a specific period of time and suffered economic injury as a result of violations of the securities laws.
  • Government Investigations – Various government organizations such as the SEC and DOJ will conduct investigations into corporations suspected of wrongdoing.
  • ERISA Litigation – ERISA establishes uniform national standards for the administration of employee benefits plans and allows employees to sue when an employer violates these rules.
  • Whistleblower Litigation – Whistleblower lawsuits are civil suits that are brought by whistleblowers under the False Claims Act to stop many different types of fraud against the government.

There are numerous sources for finding information in regard to new lawsuits that arise, one of the most effective being media articles.  Sites such as Yahoo! Finance and MarketWatch consolidate various articles related to cases and produce them in an easy to read format.  Other sources to be on the lookout for are law firm press releases that contain information about what corporations are being sued for, as well as relevant case periods that inform shareholders if they are entitled to compensation.

  • A valuable tool investors can use once they are up and running is a portfolio monitoring service called StockWatch. StockWatch allows you to input your holdings and receive a notification when the executives or board members at a company you are invested in act to the detriment of the company and its shareholders.

Having information at your fingertips is easier than ever. Enroll in Robbins LLP’s free investment monitoring service, Stock Watch, for notifications of corporate misconduct impacting the value of your investments, advice on how to hold corporate officers and directors accountable for their misconduct, and to receive information about class action settlements. 

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