What Happens After You Buy Stock?

by Sam Ashe-Edmunds, studioD

Making money in the stock market requires more than just buying growth stocks at low prices. While pre-buy research is important to creating a healthy stock portfolio, management of stocks after you purchase them is just as critical. Understanding the basics of managing stocks will help you minimize losses and maximizes gains.

Set Goals

When you purchase a stock, you may be looking for a short-term gain to help you fund a purchase or other investment, or a longer-term investment that helps you grow a retirement portfolio, for example. Whatever your goals, create specific parameters for your stock that include an estimated sale date or a high or low price that will trigger a sale. You might wish to increase your position in a particular company by reinvesting those profits into more stock.

Track Individual Stocks

Long-term investors don’t panic when stocks move up or down during the short term. That doesn’t mean they don’t keep an eye on individual stocks. Visit your portfolio online each day to look for trends. If you have an online trading account, look for new articles or reports on the company or stock. Compare analyst evaluations, ratings and projections against the personal goals you’ve set for the stock. Read the quarterly earnings reports and annual reports of companies in which you own stock.

Stock Split

You may notice you have more or fewer shares of a stock than you originally purchased. This can happen when a stock split or reverse split occurs. When a split occurs, the company changes the number of shares and their per-share value, but investor’s value doesn’t change at the time of the split. For example, if you own 1,000 shares of a $10 stock, a 2:1 split would give you 2,000 shares of $5 stock. A reverse split would give you 500 shares of a $20 stock.

Track Sectors

In addition to tracking your stocks, track the industry sectors they’re in. For example, if you own Apple or IBM, look for news about trends in the tech sector. If you own Home Depot or Caterpillar, watch the housing and construction markets. This will help you spot trends that might affect your stock.

Watch Economic News

Look for macroeconomic news that might affect your stock. For example, if the American economy is doing badly, oil prices may decrease, while gold and bonds increase. If energy prices rise, businesses that rely on manufacturing and transportation will see rising costs. A natural disaster might result in a temporary spike in construction in a particular geographic area.

Set Triggers

If you know how much you can afford to lose on a stock or have a set profit you want to make, set trade triggers that activate a sale at a certain price. Many online accounts offer these features, or you can set stop-loss orders with your broker. When your stock reaches your pre-set sell price, the sale is made without you having to do anything.

Create a Tax Strategy

To minimize your tax burden related to your stock performance, meet with a financial adviser to discuss how you will handle capital gains. You may want to automatically reinvest dividends or shift some profits to a tax-free retirement account, for example. Whether you keep your dividends in your account as cash or reinvest them, you will realize a capital gain and may need to sell some stock to pay the resulting taxes.

About the Author

Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.

Photo Credits

  • Jupiterimages/BananaStock/Getty Images