Learning how to invest in stocks takes time, determination and study. It also takes finding and sticking to a proven set of rules for determining when to buy, sell or hold a stock, with several factors coming into play.
You'll also need to find the best online broker to fit your needs and style of investing.
For decades, beginning investors, as well as seasoned veterans, used The IBD Methodology to handle all aspects of investing in stocks. Here's a look at what the IBD Methodology is, how it started and has evolved, and how it continues to help people of all walks of life and all skill levels.
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Investing In Stocks: The IBD Story
In the late 1950s, future Investor's Business Daily founder William J. O'Neil was a young stockbroker. Eager to master how to invest in stocks, he asked a simple question: What do the best stocks to buy and watch look like just before they make their biggest price moves?
To find the answer, he launched a groundbreaking study of every stock market cycle and top-performing growth stock, looking for common traits.
Covering over 130 years of stock market history, this research identified common factors found in today's stocks as well as those of the past.
Those tell-tale traits gave O'Neil a blueprint for finding the best stocks to buy and watch in the early stages of their big runs. He used that insight to develop the CAN SLIM Investing System, the predecessor to The IBD Methodology.
In the early 1960s, O'Neil used the rules and insights from his study to grow his personal account from $5,000 to $200,000 in 18 months. With those profits, he became the youngest person at the time to buy a seat on the New York Stock Exchange and launched William O'Neil + Co., a securities research firm that today serves over 350 of the world's mutual funds and leading institutional investors.
Investing For Beginners Made Simple And Accessible
In 1984, O'Neil launched Investor's Business Daily, then known as Investor's Daily. Many Wall Street and media pundits thought he was crazy to launch a national newspaper. But from his decades in the market and long experience working with large institutional investors, O'Neil knew something was missing.
He knew it was time to level the playing field and give "ordinary" people access to the type of stock research and stock ratings that, before IBD, were only available to professional investors and money managers.
The creation of Investor's Business Daily instantly revolutionized how the stock market is covered and empowered individual investors with the rules, research and ratings they need to learn how to make money in stocks.
Editor's note: In May 2021, Dow Jones parent News Corp acquired IBD.
The IBD Methodology
Our goal is simple: To help you make money when the stock market is up, and help you protect your gains as the market indexes start to weaken. It all starts with a basic game plan following the four pillars of The IBD Methodology.
For both beginning investors and market veterans, this approach forms the basis of the ratings, research and tools you'll need to grow and protect your portfolio. It's a strategy investors have been using for decades to minimize risk and maximize profits.
Each of the four pillars of The IBD Methodology showcases one key, interconnected element of our comprehensive investing approach. By simultaneously putting all four factors into practice, investors are empowered with a step-by-step blue print for identifying and properly managing the most promising stock picks, as well as their overall portfolio.
1. Fundamental Analysis
It's important to understand the story behind a stock before investing. That's where the fundamental analysis — i.e., the company-related factors — come in.
What does the company do? What products and services does it offer, and what's in the pipeline? What trends are positively or negatively impacting the company, its peers and the industry as a whole?
This pillar of The IBD Methodology includes a company's short- and long-term sales and earnings growth rates, profit margins, return on equity and other business performance metrics that ultimately affect the stock performance. Besides studying a company's track record of quarterly and annual financial results, investors will want to monitor estimates of future growth and emerging company and industry trends. These are critical parts of fundamental analysis.
Institutional ownership — that is, demand for the stock from mutual funds, pensions and other large investors — is also key to a stock's price performance. In this way, institutional demand crosses over into both fundamental analysis and technical analysis.
2. Technical Analysis
Think of fundamental analysis as focused on company-related factors and technical analysis as focused on stock-related metrics — in particular, price action and trading volume. Tracking both is crucial.
The most timely and accurate way to monitor a stock's technical action is by using stock charts. Besides revealing heavy buying or heavy selling, and support or resistance at key moving averages, stock charts also show when to buy stocks, as well as when to sell stocks.
To a large degree, investors who ignore technical analysis and don't use charts are essentially flying blind. The annals of Wall Street history are filled with good companies that have impressive fundamentals with strong earnings and sales growth, but are bad stocks with sharply declining share prices.
To keep the odds of success in your favor, always take both technical analysis and fundamental analysis into account.
3. Stock Market Trends
Roughly three out of four stocks move in the same direction — up or down — as the general market, represnted primarily by the Nasdaq composite index, S&P 500 and Dow Jones Industrial Average. That's why always taking this pillar of The IBD Methodology into account is an integral part of any successful investing strategy.
When 75% of stocks are declining, investors who try to buck that trend are likely fighting a losing battle or, at best, taking on undue risk.
On the other hand, in a bull market where most stocks are going up, the chance to make strong gains is strong — particularly for investors who follow the rules of pillars 1 and 2, above.
After the close each day, you'll find analysis of the market indexes and leading stocks to watch in The Big Picture column. You can also track action the latest action with the Stock Market Today, updated multiple times during each trading session — including overage of premarket trading.
4. Risk Management
Pillar No. 4 is crucial for investors who want to stay profitable and protected in any market. Here's one stock market reality all investors should note: Making big gains in the market over the long haul starts with protecting the money you already have.
Each day on the Investors.com homepage and in The Big Picture column, IBD shows the current recommended stock market exposure level, or percent of an investor's portfolio that should be invested in stocks given the current market trend. The five tiers of exposure range from 0%-20% to 80%-100%.
Based on a range of factors, this indicator helps investors gauge how aggressive or defensive to be and how much money to invest right now.
Regularly check this feature on Investors.com to stay in sync with rising or decreasing risk and opportunity levels.
So in summary, rather than looking at individual companies in a vacuum, follow the four, integrated pillars of The IBD Methodology. That will help you spot the best stocks to buy and watch, stay in sync with stock market trends and actively manage your risk to protect your gains and cut short any losses.
How To Invest In Stocks With A Simple 3-Step Routine
Whether you're a beginning investor or have been at it for years, you can put all the pieces of The IBD Methodology together using a simple three-step investing routine.
The routine covers all the bases, providing a holistic view of the fundamental and technical aspects of both individual stocks and the general market.
Learn More About How To Invest In Stocks
Use the links below to learn more about stock investing and how to invest in stocks using IBD and The IBD Methodology — and discover how to stay both profitable and protected.
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• Investor's Corner: Daily articles providing lessons on all aspects of investing • Investing Videos: Videos featuring stock investing experts • Investing With IBD Podcast: Weekly look at stocks to watch and market trends • More Educational Resources: Online and in-person webinars and workshops |
