Complete Beginner's Guide to Stock Investment: From Your First Trade to Portfolio Management

Choosing a Securities Firm and Opening an Account: The Starting Point of Success

Stock investing begins with deciding which securities firm to trade through. This decision is as important as choosing a bank. It’s recommended to carefully review transaction fees, app usability, customer service quality, and other factors before selecting a securities firm.

The account opening process is simpler than you might think. It can be completed in 5 to 10 minutes via a smartphone application. After preparing your ID(Resident Registration Card, Driver’s License, Passport), you can proceed to the next steps.

Account Opening Procedure:

Step 1: Download the securities app and scan your ID
Step 2: Verify your phone and enter personal information
Step 3: Select the purpose of financial transactions and agree to terms
Step 4: Complete digital signature and submit application
Step 5: Receive notification of account approval

Note that if you have recent deposit and withdrawal transaction records, you must wait 20 business days when opening a new account at another financial institution. However, internet banks like Kakao Bank and K-Bank have partnerships with securities firms that are exempt from this restriction.

There are various account types. A standard custodial account allows trading of domestic and international stocks and various financial products. An ISA account offers tax benefits and is advantageous for medium- to long-term asset management. A CMA account accrues interest on deposits and is suitable for short-term fund management.

Starting with What Is Stock

To understand the basics of stock investing, you must first know exactly what a “stock” is. A stock is a security that proves ownership in a company. Buying shares of a specific company makes you a partial owner of that company.

For example, owning 1 share of Samsung Electronics as of February 21, 2025( means you own approximately 0.0000018% of Samsung Electronics). Although this is a tiny fraction, you can earn profits based on the company’s performance. These profits come in two forms: dividends and capital gains from stock price increases.

Is Stock Investing Suitable for Me?

The biggest appeal of stocks is the potential for higher returns compared to other financial products. For high-quality companies, long-term holding can steadily grow your capital.

Historical data shows that the S&P 500 index(comprising 500 major US companies) has achieved an average annual return of about 10% since 1957. This is a real return well above inflation. Additionally, stocks are highly liquid, allowing you to sell and cash out anytime you need. Unlike real estate, it doesn’t take a long time to convert stocks into cash, making it attractive.

However, stocks are not suitable for every investor. It’s essential to accurately assess your investment personality, financial situation, and risk tolerance. Also, success is difficult without continuous learning and market analysis.

The stock market can experience unpredictable and rapid fluctuations. For example, in March 2020, at the start of the COVID-19 pandemic, the S&P 500 index plummeted about 34% in just one month. You must be able to withstand the psychological stress caused by such volatility.

Understanding Different Stock Trading Methods

How to trade stocks is not limited to one method. You can choose from several approaches based on your investment goals and personality.

Direct investment in individual stocks involves buying and selling shares of specific companies. It offers the potential for high returns but also carries significant risk, as it is heavily influenced by the stock’s price movements.

Indirect investment through ETFs and funds involves diversified products that hold multiple stocks. This greatly reduces the risk of a sharp decline in any single stock and is popular among beginner investors.

Fractional shares(are gaining popularity recently). Although the fees are somewhat higher, you can own high-priced stocks worth hundreds of thousands of won with a small amount of money.

Dollar-cost averaging involves investing a fixed amount regularly each month. It promotes long-term asset growth and can help lower the average purchase price.

CFD(Contract for Difference) is an advanced product that uses leverage. It allows for large profits with a small investment but also entails significant risk of loss. For example, if you expect Nvidia’s stock price to rise, you can buy a CFD contract to profit from the increase; if you expect it to fall, you can take a short position. This product should only be used after thorough understanding.

Technical Analysis and Fundamental Analysis: Two Approaches

Making informed stock investment decisions requires thorough analysis. The two main techniques are:

Technical analysis predicts future stock prices based on past price movements and trading volume patterns. It uses charts and indicators such as Moving Averages(Moving Average) and MACD(Moving Average Convergence Divergence) to determine trading entry and exit points. It is mainly used by short-term traders.

Fundamental analysis examines a company’s financial statements, management performance, and industry trends. It uses financial ratios like PER(Price-to-Earnings Ratio), PBR(Price-to-Book Ratio), and ROE(Return on Equity) to assess the true value of a company. Long-term investors prefer this approach.

Choosing an Investment Strategy: Short-term vs Long-term

Your investment strategy varies depending on your time horizon.

Short-term speculation and day trading aim for quick profits over a brief period. They utilize technical analysis, real-time news monitoring, and momentum trading techniques. While offering high potential returns, they also carry the risk of rapid losses. Frequent trading can increase transaction costs.

Long-term investing involves holding assets for over five years. Warren Buffett’s value investing is a prime example. This approach maximizes compound interest effects, as investment returns can grow exponentially over time. Many countries also offer tax benefits for long-term investments.

Portfolio Diversification and Risk Management

To minimize losses and achieve stable returns, diversification and risk management are essential.

The principle of diversification is simple: “Don’t put all your eggs in one basket.” Holding stocks of multiple companies like Samsung Electronics, Hyundai Motor, and Naver simultaneously can significantly reduce risks associated with individual stocks or sectors.

Specific risk management methods include:

Stop-loss orders(Stop Loss): Set automatic sell orders if stock prices fall below a certain level to limit losses. It also helps reduce emotional stress.

Periodic portfolio rebalancing: Regularly review your holdings and adjust to your target allocations. This helps respond to market changes and maintain balance.

Dollar-cost averaging: Invest gradually over multiple periods instead of all at once. For example, investing 20 million won each month over five months. It lowers the average purchase price and reduces market timing risk.

Long-term holding: Keep promising stocks for the long haul without being swayed by short-term market fluctuations. The power of compound interest and dividend reinvestment can gradually increase your assets.

Practical Advice for Beginner Investors

Start small: Don’t invest a large amount initially. Gaining experience with a modest amount helps develop your investment sense.

Avoid market hype: Don’t get caught up in themes like hot stocks or rapid surges. Make objective decisions based on analysis.

Continuous learning and monitoring: Spend 30 minutes daily reading economic news, and regularly check earnings reports and key economic indicators of your interest stocks.

Keep an investment journal: Record reasons for each trade, entry and exit points, and outcomes. This helps analyze and improve your investment patterns.

Compare transaction fees: Placing orders through staff can cost around 0.5%. Using HTS(PC trading programs) or MTS(smartphone apps) online orders is much cheaper. Since you tend to stick with your initial securities firm long-term, starting with a low-fee broker is wise.

Conclusion: Steady as a Marathon

Stock investing is not just a simple financial tactic but a field requiring continuous learning. For beginners, thorough analysis and risk management are key to success. Carefully choosing your investment strategy, avoiding greed, and persevering like running a marathon can help you achieve long-term asset growth.