Profit Generation Guide Starting from Stock Basics: Practical Investment Methods for Beginners

The First Condition for Investment Success: Psychological Management

Stock investing is not a game of making money. It is a game of psychological management.

Many beginners label “stocks as gambling.” But this is only half true. Without a systematic approach, it becomes gambling. Conversely, with knowledge and strategy, stocks become a powerful means to grow assets most efficiently.

What do successful investors have in common? It’s decision-making free of emotions.

Look at the S&P 500 index. Since 1957, it has recorded an average annual return of about 10%. But during the COVID-19 pandemic in March 2020, it dropped about 34% in just one month. During such sharp declines, panic selling can cause you to miss the recovery point and incur significant losses. On the other hand, investors who remained calm turned this into an opportunity.

What Are Stocks: Owning Part of a Company

To understand the basics of stocks, first clarify what stocks are.

Stocks are simple. They are securities representing ownership in a company. Buying one share of Samsung Electronics is like owning a tiny fraction of Samsung Electronics(as of February 21, 2025, approximately 0.0000018%).

What income can holding stocks generate?

1. Capital Gains: When a company grows and performs well, its stock price rises. You profit from this difference.
2. Dividends: Companies share part of their profits with shareholders. This creates a regular cash flow.

And there’s one more important advantage: Liquidity. Real estate can take months to sell, but stocks can be instantly converted to cash anytime.

Am I Truly Suitable for Stock Investing?

Before starting, ask yourself some questions.

What is your financial situation?
Do you have an emergency fund of 3-6 months of living expenses? Do you have spare funds to invest in stocks? If your answer is “No,” then you are not yet fully prepared.

What is your psychological resilience?
Can you withstand a 50% drop in stock prices? Can you avoid panic selling with shaky hands? This is the most critical aspect.

What is your investment horizon?
Do you plan to hold for more than 5 years, or do you need to realize profits within a few months? Your strategy will differ greatly depending on this.

If you can answer all these questions positively, stock investing can be an excellent tool for asset growth.

Individual Stocks vs ETFs vs Other Products: Choosing Your Investment Method

There are various ways to buy stocks. Choosing the method that suits your situation and temperament is important.

Investing in Individual Stocks
Buying shares of specific companies like Samsung Electronics or Hyundai Motor directly. It offers high potential returns but exposes you to the risks of individual companies. It’s risky for inexperienced beginners.

ETF (Exchange-Traded Fund) Investment
A product that bundles shares of multiple companies. For example, buying an S&P 500 ETF automatically diversifies your investment across 500 top U.S. companies. It’s less risky and easy to manage.

Fractional Trading
Even expensive stocks can be bought in fractions less than one share. For example, you can buy a stock worth 10 million KRW with just 1 million KRW. It’s good for beginners to gain experience with small amounts.

Dollar-Cost Averaging
Automatically investing a fixed amount every month. For example, investing 1 million KRW each month allows steady asset accumulation regardless of market fluctuations.

Opening a Stock Account: A 5-Step Process

To start stock investing, you need a brokerage account. Nowadays, it can be opened in about 10 minutes via smartphone.

Step 1: Choose a Brokerage
Compare fees, app usability, customer support. Since you tend to stick with the same broker long-term, choose carefully.

Step 2: Download the App and Verify Identity
Install the brokerage’s account app and scan your ID. Complete mobile authentication.

Step 3: Enter Personal Information
Accurately input your name, address, income source, etc. Avoid mistakes to prevent future issues.

Step 4: Agree to Terms and Submit Documents
Read and agree to trading terms, risk disclosures, etc. Digital signatures are sufficient.

Step 5: Account Opening Complete
Once finished, you’ll receive a notification. Now you can deposit funds and start trading.

Tips for Choosing Account Types

• General Custodial Account: For basic trading
• ISA Account: Tax benefits for long-term investments
• CMA Account: Offers interest on deposits

Two Main Approaches to Stock Analysis: Technical vs Fundamental

Before making investment decisions, thorough analysis is essential. The two main analysis methods used in stock investing are:

Technical Analysis: Reading Market Signals via Charts

Analyzing past price movements and trading volume patterns to predict future trends. Indicators like moving averages, MACD are used.

For example, if the stock price is above the moving average, it indicates an upward trend; below suggests a downward trend. Capturing these signals helps determine trading timing. This is technical analysis.

Strengths: Quick decision-making, suitable for short-term gains.
Weaknesses: Cannot incorporate news or political factors not reflected in charts.

Fundamental Analysis: Evaluating a Company’s Value

Analyzing financial statements, performance, industry outlooks comprehensively. Key ratios include PER (Price-to-Earnings Ratio)(, PBR (Price-to-Book Ratio)), ROE (Return on Equity)(.

For example, if Company A has a PER of 10 and Company B has 50, A is relatively cheaper. It involves assessing whether the current price aligns with the company’s intrinsic value.

Strengths: Understanding the true value of a company, ideal for long-term investing.
Weaknesses: Time-consuming, requires expertise.

The Best Approach: Combining Both
Experienced investors use both methods together. They select good companies via fundamental analysis and then buy at optimal timing using technical analysis.

Investment Strategies: Short-term vs Long-term, What’s Your Style?

Investment strategies vary mainly by holding period.

Short-term Trading )Day Trading, Swing Trading(

Buying and selling within days or weeks. It offers quick profits and frequent wins.

However, there are issues:

• Transaction costs increase exponentially
• Psychological stress is high
• Most individual investors earn lower returns than long-term investors
• Tax burdens are higher

Long-term Investing )Hold for Over 5 Years(

Find good companies and hold them long-term. Warren Buffett’s philosophy is exactly this.

Advantages:

• Compound interest effect leads to exponential growth over time
• Less psychological stress
• Many countries offer tax benefits
• Minimized transaction costs

Disadvantages:

• Requires patience and can be easy to give up midway
• Takes a long time

Practical Advice:
For most ordinary investors, long-term investing is far more advantageous. According to data from the Bank of Korea and Financial Supervisory Service, over 80% of individual investors suffer losses in short-term trading.

Investing Without Risk Management Is Suicide

The most important aspect of stock investing is not profits but minimizing losses.

Diversification: “Don’t Put All Eggs in One Basket”

Focusing only on one company can lead to huge losses if that company declines. Diversify across multiple companies, sectors, and asset classes.

For example:

• Samsung Electronics)Manufacturing( 30%
• Hyundai Motor)Automotive( 20%
• Naver)IT( 20%
• Bank stocks)Finance( 15%
• ETFs)Overseas Stocks( 15%

This minimizes the impact of a single stock’s crash on your entire portfolio.

Stop-Loss: Insurance Against Losses
Set a rule: “Sell if the stock drops 10% below my purchase price.”
If you emotionally hold on, thinking “It will recover,” losses can snowball.

Dollar-Cost Averaging: Accepting Imperfect Market Timing
Don’t invest all at once. Invest 2 million KRW each month over 5 months. This reduces the risk of buying at high prices.

Regular Portfolio Rebalancing
Review your portfolio quarterly or semi-annually, and adjust to your target allocations. Sell overperformers, buy underperformers.

5 Practical Tips for Beginners

1. Start Small
Begin with a few hundred thousand KRW. Losses are inevitable while learning. Ensure losses are within your manageable limits.

2. Avoid Fads in Theme Stocks
Don’t be swayed by hype like “This stock is hot” or “Aim for the first-day surge.” These often end in losses.

3. Make a Habit of Reading News Daily
Spend 30 minutes daily on economic news. Track earnings reports, industry updates, macroeconomic indicators—essential for informed decisions.

4. Keep an Investment Journal
Record why you bought each stock and the outcome. After three months, patterns emerge. You’ll identify weaknesses and improve.

5. Beware of Putting All Your Assets into One Trade
Concentrating all assets in one stock or using leverage products like margin trading or futures can wipe you out with one mistake. Never do it.

Final Advice to Complete Your Stock Basics

Stock investing is a marathon, not a sprint.

Successful investors share one trait: Unwavering consistency. No matter how the market changes, they stick to their plan, stay calm, and keep learning.

It can be difficult at first. You may not understand charts or news. That’s normal. It’s a process all investors go through.

Don’t try to grasp all the basic concepts at once. Learn one thing each month, slowly.

When you buy your first stock, you’ll feel fear and excitement. But the joy of your first profit and the sense of achievement when your assets double or triple after years will make the journey worthwhile.

Start your stock investment journey. Slow but steady progress will surely bring you closer to financial freedom.