Stock Investment First Step: Essential Guide for Beginners

Stock Investment is regarded as an effective way to grow assets, but at the same time, it is often misunderstood as “dangerous gambling.” However, with a systematic approach and proper knowledge, you can learn and implement step-by-step following the Stock Study Order. In this article, we will provide practical information about stocks to help beginner investors successfully start from choosing a securities firm to opening an account and analyzing stocks.

What is a stock?

A stock is a security representing ownership in a company. When you purchase stocks, you own a part of the company, which allows you to earn dividends and capital gains from stock price increases. For example, holding 1 share of Samsung Electronics means owning a tiny fraction of the giant company Samsung Electronics(as of February 21, 2025, approximately 0.0000018% stake).

Am I suitable for stock investing?

The biggest appeal of stock investing is the potential for higher returns compared to other financial products. Historical data shows that the S&P 500 index has achieved an average annual return of about 10% since 1957, significantly exceeding inflation over the long term.

Another advantage of stocks is liquidity. Unlike real estate, stocks can be sold and converted to cash anytime without long waiting periods. Consistent investment in quality stocks can lead to long-term asset growth through the power of compound interest.

However, stock investing is not suitable for everyone. You need to accurately understand your own temperament, financial situation, and risk tolerance. It’s especially important to consider that stock price volatility can be greater than expected. For example, during the COVID-19 pandemic in March 2020, the S&P 500 dropped about 34% in just one month. You must be psychologically prepared to withstand such rapid fluctuations.

Choosing an investment method: direct vs indirect investment

Stocks can be traded mainly in two ways:

Direct investment in individual stocks involves buying and selling shares of specific companies directly. It offers the potential for high returns but also carries significant risk of loss.

Indirect investment includes ETFs(Exchange-Traded Funds), mutual funds, CFD(Contract for Difference), etc., which allow investing in multiple stocks simultaneously. The diversification effect helps reduce risk.

Recently popular methods include:

• Fractional trading: Although the fees are somewhat higher, you can invest in high-priced stocks with a small amount of money.
• Dollar-cost averaging: Automatically investing a fixed amount each month to pursue long-term asset growth.
• Leverage products(CFD): Can aim for large profits with small capital, but carry high risk, requiring thorough learning before investing.

How to open a stock account and types of accounts

Account Types

Opening an account through a securities firm generally falls into three categories:

• Discretionary Account: A standard account for stock trading, allowing buying and selling domestic and international stocks and investing in financial products.
• ISA(Individual Savings Account): A mid- to long-term investment account with tax benefits, allowing income deductions.
• CMA(Cash Management Account): Pays interest on deposits, suitable for stock investments and short-term fund management.

Opening Procedure

1. Choose a securities firm: Compare fees, service quality, mobile app usability, etc.
2. Download the app: Install the dedicated application for opening an account with the chosen firm.
3. Identity verification: Scan your ID and verify your identity via your mobile phone.
4. Enter information: Accurately fill in personal details, income sources, etc.
5. Agree to terms: Review and digitally sign the account application, transaction purpose documents, and terms of use.
6. Complete: Receive notification of account opening completion.

Note: If you have a record of opening deposit/withdrawal accounts, you can open accounts at other financial institutions after 20 business days(preventive measures against financial crimes). However, this restriction does not apply to affiliated securities with Kakao, K-Bank, Toss Bank, etc.

Importance of fee comparison

Fees for phone orders through staff are about 0.5%, which is relatively high. Recently, online orders via HTS(Home Trading System), MTS(Mobile Trading System), etc., have become standard, with much lower fees. Since investors tend to stick with the initially chosen securities firm, selecting a low-fee broker early on is crucial. The Korea Financial Investment Association provides a disclosure service comparing transaction fees across securities firms.

Stock study order: stock analysis methods

Technical Analysis

Technical analysis involves analyzing past price and volume patterns to predict future stock prices. It uses charts and indicators(such as moving averages, MACD) to determine trading timing. It is mainly used by short-term investors.

Fundamental Analysis

Fundamental analysis evaluates a stock’s true value by comprehensively analyzing financial statements, management performance, industry trends, etc. Metrics like PER(Price-to-Earnings Ratio), PBR(Price-to-Book Ratio), ROE(Return on Equity) are used to assess company value.

Investment strategies: short-term vs long-term

Short-term Trading

Day trading and other short-term trades aim for quick profits over a brief period. They utilize technical analysis and real-time news monitoring but have the disadvantage of higher transaction costs.

Long-term Investment

This strategy involves holding investments for over five years. Known as value investing, it is exemplified by Warren Buffett’s investment philosophy. The power of compound interest can cause profits to grow exponentially over time. Many countries offer tax benefits for long-term investments.

Risk management and diversification strategies

To pursue stable returns, minimizing losses is essential.

• Diversification: Holding stocks of multiple companies like Samsung Electronics, Hyundai Motor, Naver, etc., to mitigate risks from individual stocks or sectors.
• Stop Loss: Automatically selling when stock prices fall below a set level to limit losses.
• Periodic portfolio rebalancing: Regularly reviewing and adjusting holdings to match target ratios in response to market changes.
• Dollar-cost averaging: Investing, for example, 2 million KRW monthly over 5 months instead of a lump sum of 10 million KRW.
• Long-term holding: Keeping stocks of promising companies for the long haul, unaffected by short-term market fluctuations.

Practical tips for beginner investors

• Start small: Begin with a modest amount to gain experience.
• Avoid hype: Don’t blindly follow overheated markets like “theme stocks” or “first-day surge stocks.” Objective analysis is key.
• Continuous learning: Spend 30 minutes daily reading economic news, and regularly check earnings reports and economic indicators of interest stocks.
• Maintain an investment journal: Record reasons for each trade and its outcome to analyze patterns and improve.

Conclusion

By systematically following the Stock Study Order and approaching stock investing, even beginners can become successful investors. Thorough analysis and risk management are the foundation of success, and choosing an investment strategy that suits you is crucial. If you proceed steadily and cautiously like a marathon, you can achieve your goal of long-term asset growth.