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Oct. 4, 2016, 11:08 p.m. EDT

How to get started buying stocks

10 things you need to know to make money in the stock market

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By Jonathan Burton, MarketWatch


Stock tips spill from everywhere: on social media, on TV, at parties, in the gym. Email boxes are full of pitches for can’t-miss moneymakers to buy right now. Even your own scouting efforts spot stocks whose solid growth seems like solid gold.

Pick any stock and someone will be able to spin a story about why it’s a great opportunity.

But when you are interested in investing in stocks, here’s what you need to know.

What to watch out FOR

Stocks need a catalyst, a spark to get them moving. Maybe it’s a new product, a management change or gaining market leadership. Being in a hot sector helps, but don’t count on a rising tide to lift all prices. A company in a good industry isn’t necessarily a good stock. Do your homework.

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How to get started buying stocks

Learning to invest in stocks requires keeping a level head and a long-term view. Here are some basic strategies to keep in mind, as well as things to watch out for.

Professional investors follow myriad sleuthing methods, from computerized screening programs to gumshoe field work. Check out the American Association of Individual Investors , which features several dozen screening programs. For both custom and ready-made screens, try Morningstar and Zacks .

Check out the quote pages on MarketWatch for stocks you are researching. (Here’s the quote page for Apple.) You’ll be able to look at charts, the company profile, news about the company, see financials and SEC filings, learn what insiders are doing and see what the analysts say.

Here are two buying tips from the pros:

Compare a stock’s price to its expected earnings-growth rate. The price-to-earnings-growth ratio, or “PEG,” should be at or close to 1.0.

For example, a stock at 30 times earnings might seem overpriced if the average company in the industry commands a price-to-earnings ratio, or “P/E,” of 20. But if analysts expect 30% earnings growth for the company over the next year, a PEG ratio of 1.0 is eye-catching.

“It’s the biggest metric we look at,” said Alec Young, a global equity strategist at Standard & Poor’s. “A company may have a high P/E, but, until you know what the earnings growth is, it’s hard to ascertain whether the stock is attractive or not.”

Also, study the corporate balance sheet, a financial summary that — along with the cash-flow and income statements — reflects the quality of earnings. These documents tell you whether management makes, spends and invests shareholders’ money wisely. Company websites should post 10-Q quarterly reports and 10-K annual reports, or the Securities and Exchange Commission website offers these and other informative disclosures.

What to WATCH OUT for

Overpriced goods: Cost matters. Purchase price, more than the selling price, determines return on investment. Be cautious about highfliers that may be closer to the end of their runs than the beginning. That sports drink you can’t get enough of, for instance; the market probably knows it’s a top seller and has bid up the stock accordingly.

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