You’ve probably heard stories of people doubling their money, or maybe you’ve seen a stock that’s trending on social media, and now you’re itching to get a piece of the action. But hold up before you put your hard-earned money on the line, let’s slow down a bit.
Buying your first stock is a big deal. Warren Buffet but his first stock at age 11 and he is currently one of the best-known investors in the world.
Buying stock it’s not like picking a new pair of sneakers; it’s more like choosing which seed to plant in your financial garden. The wrong choice could mean losses, while the right one might grow into something extraordinary.
I’m here to help you make a smart decision, not a rushed one. I know how overwhelming it can feel when you’re just starting out. There’s a ton of jargon, countless companies to pick from, and that lingering fear of losing money. That’s exactly why you need a game plan—a set of questions to guide you through the process.
These eight questions will help you look beyond the hype and understand if a stock is truly worth your investment. But before we go any further, let’s define stocks
What are Stocks?
A stock represents ownership in a company. When you buy a stock, you’re essentially buying a small piece of that company, known as a share. Stocks are issued by companies to raise money for their operations, it could be funding new projects, expanding their business, or paying off debt.
As a shareholder, you get to share in the company’s success. If the company does well and its value increases, the price of your stock typically goes up, allowing you to sell it for a profit. Some companies also pay dividends, which are regular payments made to shareholders from the company’s earnings. However, owning stocks also comes with risks. If the company performs poorly, the stock price could drop, and you might lose part or all of your investment.
Stocks are traded on stock exchanges, like the Nigerian Exchange (NGX) or the New York Stock Exchange (NYSE), where buyers and sellers come together to trade shares. Understanding what a stock is and how it works is crucial before you start investing.
Questions to Ask Before Buying Stocks
1. What is the Company’s Business Model?
Before investing, ask yourself: what does this company do, and how does it make money?
You wouldn’t buy a product without knowing what it does, right? The same logic applies to stocks.
For example, let’s say you’re considering investing in a company like Netflix. Its business model is straightforward: It charges users a monthly subscription fee to access their streaming platform.
2. Is the Company Profitable?
This is one of the most fundamental questions to ask. If a company isn’t making money, then why should you invest in it? Look at its financial statements to see if it’s turning a profit. You don’t need to be a finance expert to understand the basics. Terms like “net income” or “profit margins” can give you an idea of how well the company is performing.
Take Tesla, for instance. It’s a company that was unprofitable for years but promised immense potential. Many investors believed in its vision, and those who took the risk early were rewarded handsomely when Tesla finally turned profitable. However, not all unprofitable companies will have a happy ending. You need to weigh the risks against the potential rewards.
3. What are the Growth Prospects?
It’s not just about how a company is doing now; it’s about where it’s headed. Does the company have room to grow, or is it already at its peak? This question is especially important if you’re planning to hold onto the stock for a while.
Research the industry the company operates. For example, renewable energy companies like SolarEdge are in a fast-growing sector as the world shifts towards sustainable solutions. On the other hand, investing in a company tied to outdated technology might limit your returns. Look for signs of innovation, new product lines, or market expansion opportunities.
4. How Does the Stock Fit Into Your Investment Goals?
Not every stock is suitable for every investor. Are you looking for quick gains, or do you prefer steady, long-term growth? Knowing your investment goals can help you decide which stocks to buy.
For instance, if your goal is to build wealth over time, you might lean towards established companies with a track record of stability, like Coca-Cola or Johnson & Johnson. But if you’re open to taking more risks for potentially higher rewards, you could explore smaller, high-growth companies. Always ensure that the stock you’re considering aligns with your risk tolerance and financial objectives.
5. What Is the Current Valuation of the Stock?
A stock might seem attractive at first glance, but is it fairly priced? Understanding valuation helps you avoid overpaying. One popular metric is the price-to-earnings (P/E) ratio, which compares the stock price to the company’s earnings per share.
For example, if two companies in the same industry have vastly different P/E ratios, it could indicate that one is overpriced or underpriced. Don’t just buy a stock because everyone is talking about it. Instead, ask yourself if the price reflects its true value.
6. How Does the Company Compare to Its Competitors?
Every industry has competition. To truly understand a stock’s potential, you need to see how it stacks up against others in its space. Does it have a unique selling point? Is it gaining or losing market share?
Think of the tech sector. Apple and Samsung dominate the smartphone market, but Apple’s loyal customer base and ecosystem give it a competitive edge. When comparing companies, look at their strengths, weaknesses, and how they’re positioned in the market.
7. What Risks Are Associated with This Stock?
Every investment comes with risks. Some are specific to the company, while others are tied to the broader market. It’s important to identify these risks and decide if you’re comfortable with them.
For example, a company heavily reliant on one product could face challenges if demand drops. Or, a business operating in a highly regulated industry might be vulnerable to changes in government policies. Acknowledge the risks and make an informed decision instead of diving in blindly.

Conclusion
Buying your first stock is an exciting milestone, but it’s also a responsibility. By asking these seven questions, you’re setting yourself up for success. Remember, the goal isn’t to make a quick buck; it’s to build a portfolio that grows steadily over time.
Take your time, do your research, and don’t be afraid to start small. Every successful investor was once in your shoes, and they all started with that first stock.