It seems like Microsoft is everywhere these days, and it goes beyond just office productivity software at this Washington-based technology company. In addition to its Windows products and Xbox games, Microsoft is the name behind communications app Skype and social media site LinkedIn, besides many others.
While Microsoft is not the hyper-growth company it once was, it still increased sales 27 percent from 2014 to 2018, and it produced more than $16 billion in profit during its last fiscal year.
Here’s how to buy shares of Microsoft stock and what to consider before you buy.
1. Analyze Microsoft and its financials
Analyzing a company’s competitive position and financials is probably the single hardest part of buying the stock, but it’s also the most important. The best place to begin is with the company’s Form 10-K, which is the annual report that all publicly traded companies must file with the SEC.
The 10-K can help you understand a lot about the company:
- how it makes money and how much
- its assets and liabilities
- its profitability trend over time
- the competitive landscape
- the various risks faced by the business
- the management team and how they’re incentivized
The annual report is a great first step at finding out about the company, but you’ll want to do more than this. You’ll want to study what other companies are doing to compete, for example. It’s important to have a broader perspective on the industry.
For example, Microsoft is competing with some of the biggest names in the world. Its search engine Bing competes against Google and Facebook, and the company also competes against Cisco Systems, Apple and Slack, among many others in the enterprise software and services market. With its hands in so many businesses, Microsoft has rivals large and small across many sub-sectors.
2. Does Microsoft make sense in your portfolio?
As one of the largest companies in the world, Microsoft has the kind of financial and market dominance that most companies can only dream of. It generates billions in profit every year and is truly a blue chip stock. Its strong position in many markets and strong balance sheet make it a fit for almost any investor. Also, Microsoft pays a dividend, making it a likely candidate for investors looking for a regular cash payout.
So you’ll want to consider the following questions:
- Does a growth company fit your needs?
- Will you be able to continue analyzing the business as it grows?
- Given the stock’s volatility, will you be able to hold on if it drops or even buy more?
If you’re buying just a little bit of Microsoft as a starter position or to get some skin in the game, these considerations might not matter as much as when you take a full position.
3. How much can you afford to invest?
How much you can afford to invest has less to do with Microsoft than with your own personal financial situation. Stocks can be volatile. So to give your investment time to work out, you’ll likely want to be able to leave the money in the stock for at least three-to-five years. That means you should be able to live without the money for at least that length of time.
Committing to holding the stock for three-to-five years is important. You’d hate to have to sell the stock when it’s near a low only to watch it rebound much higher after you exited the position. By sticking to a long-term plan, you’ll be able to ride out the ups and downs of the stock.
If you’re investing in individual stocks, you’ll want to keep the percentage of any single position between three and five percent. This way you’re not heavily exposed to one investment breaking your portfolio. If the stock has more business risk, then you might choose an even lower percentage than this range.
In addition, rather than just committing a one-time sum of money to the stock, consider how you can add money to your position over time.
4. Open a brokerage account
While opening a brokerage account may sound like a difficult step, it’s actually quite easy, and you can have everything set up in 15 minutes or so.
You’ll want to select a broker that caters to your needs. Are you trading often or infrequently? Do you need a high level of service or research? Is cost the most important factor for you? If you’re buying a few stocks but investing mainly in funds, then a number of brokers specialize in offering commission-free trading for those funds.
After you’ve opened your account, you’ll want to fund it with enough money to buy Microsoft stock. But you can take care of this step completely online, and it’s simple.
5. Buy Microsoft stock
Once you’ve decided to buy Microsoft stock and you’ve opened and funded your brokerage account, you can set up your order. Use the company’s ticker symbol – MSFT – when you input your order.
Most brokers have a “trade ticket” at the bottom of each page, so you can enter your order. On the broker’s order form, you’ll input the symbol and how many shares you can afford. Then you’ll enter the order type: market or limit. A market order will buy the stock at whatever the current price is, while the limit order will execute only if the stock reaches the price that you specify.
If you’re buying just a few shares – and Microsoft has fluctuated from $94 to $134 over the last year – then stick with a market order. Even if you pay a little bit more now for a market order, it won’t affect the long-term performance much, if the stock continues to perform well.
Buying a stock can be exciting, but success won’t happen overnight. Investors should take a long-term perspective on their investments, and they should consider taking advantage of dollar-cost averaging, if they believe in the stock for the long haul.
With dollar-cost averaging, investors add a set amount of money to their position over time, and that really helps when a stock declines, allowing them to purchase more shares. High-flying stocks can dip from time-to-time, so the strategy can help you achieve a lower buy price and higher overall profits.
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Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.