The Reality of Stock Profit Generation: Key Investment Principles and Practical Strategies Every Beginner Should Know

Many people want to learn how to invest in stocks, but simply opening an account and starting to trade is not enough. True success comes when you understand market movements, identify your investment style, and develop a systematic strategy. In this article, we will cover everything from the basic principles of stock investing to building a practical portfolio, essential for beginner investors to grasp.

Is Stock Investing Truly Your Investment Method?

Before starting stock investing, one thing must be clarified. Stocks are not just financial products promising high returns; they are assets representing ownership in a company. Buying stocks is akin to owning a partial stake in the company, which provides two main sources of profit: dividends and capital gains from price appreciation.

For example, owning one share of Samsung Electronics means owning a tiny fraction(about 0.0000018%, as of February 21, 2025). This is not mere speculation but a genuine ownership stake in the company.

Long-term Asset Growth Potential and Realistic Risks

The appeal of stock investing lies in its superior long-term returns compared to other financial products. The S&P 500 index, for instance, has recorded an average annual return of about 10% since 1957, significantly outperforming inflation over the long term. Additionally, the high liquidity of stocks allows you to cash out anytime when needed, and investing long-term in quality companies can lead to exponential asset growth through compound interest.

However, the stock market is highly volatile in the short term. During the pandemic in March 2020, the S&P 500 plummeted about 34% in just one month. Such sharp fluctuations can cause psychological stress, especially for novice investors. Therefore, understanding your investment style, financial situation, and risk tolerance is the first step in how to invest in stocks.

Diversity of Investment Methods: From Direct Trading to Indirect Investment

Stock investing can be broadly divided into two main approaches. First is direct trading of individual stocks, which offers high potential returns but also involves significant risk. Second is indirect investment through ETFs(Exchange-Traded Funds), mutual funds, CFDs(Contracts for Difference), etc., which diversify across multiple assets, reducing risk.

Recent trends include notable methods such as fractional trading, which allows entry into high-priced stocks with small capital, and dollar-cost averaging, where a fixed amount is automatically invested monthly to build wealth over time. Leverage products like CFDs can offer large profits with small investments but also carry the risk of amplified losses, so they should be approached with thorough understanding.

For example, if you anticipate NVIDIA’s stock will rise, you can buy a CFD contract to profit from the increase; conversely, if you expect a decline, you can take a short position to profit from the fall.

Correct Understanding of Choosing a Brokerage and Opening an Account

A crucial step in learning how to invest in stocks is opening an account. Nowadays, you can open an account within minutes via a smartphone app, with just an ID(such as a resident registration card, driver’s license, or passport).

When selecting a brokerage, consider trading fees, quality of services, and the convenience of the mobile platform. Trading fees directly impact your returns. While direct orders through staff may incur about 0.5% in fees, online trading via PC-based HTS(Stock Trading System) or mobile MTS(Mobile Trading System) has become mainstream. Choosing a broker with low fees over the long term significantly affects your accumulated profits.

Account types are generally three: standard custody accounts for trading domestic and international stocks and various financial products; ISA(Individual Savings Account) for tax benefits and mid- to long-term asset management; and CMA(Cash Management Account) combining deposit interest with flexible fund management.

The account opening process involves downloading the broker’s app, verifying your identity via ID scan, entering personal info and income sources accurately, and signing digital agreements. Note that if you have recently opened a deposit or withdrawal account, you must wait 20 business days before opening a new account with another financial institution, due to regulations to prevent financial crimes. Some partner brokerages may be exempt from this restriction.

Valuing Companies: Fundamental and Technical Analysis

To make stock investment decisions, understanding two analysis methods is essential.

Fundamental analysis involves evaluating a company’s financial statements, management performance, and industry outlook to estimate its intrinsic value. Key indicators include PER(Price-to-Earnings Ratio), which shows how many times the stock price exceeds annual net profit; PBR(Price-to-Book Ratio), reflecting the relationship between stock price and company assets; and ROE(Return on Equity), measuring how efficiently a company generates profit from invested capital. These metrics help identify discrepancies between a company’s actual value and its stock price.

Technical analysis predicts future stock price movements based on past price trends and volume patterns. Indicators like Moving Averages(Moving Average) and MACD(Moving Average Convergence Divergence) can identify trend reversals and overbought/oversold conditions, helping to pinpoint optimal entry and exit points.

Both methods are complementary. Fundamental analysis determines “what” to buy, while technical analysis guides “when” to trade—together forming an efficient how to invest in stocks approach.

Investment Strategies: Short-term Gains vs. Long-term Asset Growth

The nature of stock investing varies significantly depending on the investment horizon.

Short-term speculation involves frequent trading over brief periods to profit from price differences. Day trading exemplifies this, utilizing technical analysis, real-time news monitoring, and momentum strategies. While offering high profit potential, it also entails higher transaction costs and psychological pressure.

Long-term investing involves holding quality stocks for over five years. Warren Buffett’s value investing philosophy epitomizes this approach, leveraging compound interest to exponentially grow wealth over time. Many countries offer tax benefits for long-term investments.

Ultimately, for beginners, long-term strategies are less psychologically taxing and provide a smoother learning curve.

Portfolio Construction and Risk Minimization Strategies

Risk management is as vital as seeking returns in stock investing. Diversification—“not putting all eggs in one basket”—reduces the impact of poor performance in individual stocks or sectors. Holding multiple blue-chip companies like Samsung Electronics, Hyundai Motor, and Naver across different industries provides stability.

Specific risk management techniques include: Stop Loss orders(Stop Loss) that automatically sell stocks when prices fall below a set level, limiting losses; regular portfolio rebalancing to adapt to market changes and maintain target asset allocation; and dollar-cost averaging, where you invest a fixed amount (e.g., 2 million KRW) monthly over several months to average out purchase prices.

Practical Tips for Beginner Investors

When learning how to invest in stocks, keep these principles in mind:

First, start small. Gaining experience through real trades with actual capital is the most effective learning method. Keep initial capital at a manageable level to minimize psychological shocks from potential losses.

Second, avoid market hype. Theme stocks or “limit-up” stocks driven by speculation are gambling, not investing. Making objective decisions based on analysis rather than market euphoria is key to long-term success.

Third, make continuous learning a habit. Dedicate 30 minutes daily to economic news, and weekly review of earnings reports and key economic indicators of your interest stocks to sharpen your investment sense.

Finally, keep an investment journal. Record reasons for buying/selling, expectations, and outcomes for each trade. Over time, this helps objectively analyze your patterns and improve your strategy.

Conclusion: Patience and Systematic Investment

Stock investing is not a skill learned overnight. It requires substantial time and effort to develop thorough analytical skills, emotional control, and risk management. For beginners, approaching this as a marathon—steadily and carefully—is essential. By resisting the temptation of short-term gains and focusing on long-term wealth growth, you will truly grasp the essence of how to invest in stocks.