Investment Tip 2: How to Buy Stocks

In Investment Tip 1, I suggested that you go to the markets; starting a retirement savings account (401K, 403B, etc.) or opening a personal IRA or Brokerage savings account are the best ways to enter the market. In Investing 1.0, there is a list of IRA or Brokerage account options; for a retirement account, consult your employer’s human resources department.

Buying a stock is buying a portion of a corporation, giving you access to part of the corporation’s assets and earnings. Stocks are sold as shares at a particular price, which varies through trading hours (9:30a – 4:00p ET) each day.

Sample of Stock Prices and Performance

Sample of Stock Prices and Performance

Based on the chart, Toyota (TM) price was at $122.62 as of October 31, 2015. If you bought TM stock 10 years ago (10/31/05), then you would have made +32.12%. Performance is calculated by:  (New price – Old price) / Old price. The new price is $122.62 and the old price (10/31/15) is $92.81.

(New price – Old price) / Old price =

($122.62 – $92.81 ) / $92.81 =

0.32119 or 32.12%

If you bought TM stock 5 years ago (10/31/10), then you would have made +73.14%; if you bought TM stock 3 years ago (10/31/12), then you would have made +58.28%; if you bought TM stock 1 years ago (10/31/14), then you would have made +1.05%; if you bought TM stock 3 months ago (07/31/15), then you would have lost -8.12%. The same applies to Volkswagen (VLKAY), General Motors (GM), and Autozone (AZO) stocks.

Understanding industry basics is paramount when buying stock. Changes in company management, new strategies, products, and services, and general global events can have significant impacts on a company’s stock. TM stock is fairly steady, as it is comparable to the auto industry benchmark. VLKAY stock has recently dropped as a result of the bad press around their inconsistent emissions testing. GM didn’t go public (v.s. private) until November 17, 2010, after the infamous bailout; private companies do not trade on the stock market — therefore, stock is not available to the public. The best investment of the four companies is Autozone (AZO) stock. For the 1-Year, 3-Year, 5-Year, and 10-Year numbers, AZO outperforms all of its peers (TM, VLKAY, and GM) as well as the benchmarks (General Auto Industry and S&P 500 Index).

Graph of stock performance

Graph of stock performance

Comparing AZO stock to all of its peers, the general auto industry, and the S&P 500 index is known as benchmarking. Benchmarking is the key to finding a good investment. Would you rather own AZO or TM? AZO, of course. So while TM is performing in line with the industry and S&P 500, there are other auto stocks, like AZO, that are performing better. When buying a stock, you’re looking for the optimal performers, or the best returns for the least risks.