How to Purchase Shares of Stock in a Company

Not all listed shares are suitable for every investor.

Purchase shares of a public company when capital appreciation potential adds value to your investment strategy. The stock market has historically outpaced inflation: 1930's dollar is worth $12.50 in 2010, according to DollarTimes.com's inflation calculator. The Dow Jones Industrial Average closed at less than 100 throughout the early 1930s. The DJIA's peak of 14,000+ in 2007 shows proven capital appreciation potential to investors.

Instructions

1. Research a public company's financial and business prospects. Review the financial press, stock analyst reports and investor relations materials. Use the Securities & Exchange Commission's EDGAR portal to obtain more information.

   Purchasing stock requires a customer account with a broker-dealer, bank or discount broker. Enter stock orders through a registered representative or the firm's online trading portal. Ask about the broker's commission structure before trading stocks. Settle transactions within three business days according to the Federal Reserve Board's Regulation T.

   Buy some companies' shares from Direct Stock Purchase Plans. Not all companies have DSPPs. DSPPs sell shares directly to investors without commission charges.

2. Investigate new and secondary market offerings. If a company plans to go public, the preliminary offering statement -- a prospectus -- circulates to interested investors. If planning to invest in an initial public offering, an IPO, make an indication of interest in purchasing shares with a registered broker-dealer. The broker will mail a preliminary prospectus prior to the new issue's release for trading on a stock exchange. Contact the company's investor relations department or your broker with any questions.

3. Read the preliminary prospectus of a pubic company's secondary offering. Learn why the company plans to offer more shares. As with an IPO, contact your broker to indicate an interest in purchasing shares.

   IPOs and secondaries provide investors with interest in purchasing shares with a preliminary and final prospectus, issued after the company's shares start to trade on a stock exchange. The investor pays no commission on the shares. In a "hot new issue," know that your indication may not result in purchasing shares from the broker-dealer's syndicate. Your indication may result in a smaller purchase or no shares at all.

   Your broker must be one of the firms underwriting the issue in order to distribute shares. Syndicates distribute shares in a new issue to the firm's customers.

4. Purchase shares in the open market after an IPO trades on a stock exchange. With more buyers than sellers, a hot new issue may "gap open" higher than the issue offer price. Investors with an interest in owning the shares may purchase them by directing their broker to buy shares. "Hot money" may move a newly public company's shares up in the aftermarket. Market demand for the shares determines whether stock price goes up or down.

5. Check the public offering calendar to learn when companies plan to issue stock. A link to CNBC's public offering calendar is provided in the fifth reference of this article. This calendar contains a list of companies planning to issue stock and the date the stock will become available for purchase.

References

• Securities & Exchange Commission: Filings & Forms
• Preliminary Prospectus Supplement: Microsoft Corporation
• Financial Industry Regulatory Authority: Secondary Offering
• Merriam-Webster: Hot Money
• CNBC: Public Offering Calendar

Resources

• Financial Industry Regulatory Authority: Stocks
• Financial Industry Regulatory Authority: IPO
• Financial Industry Regulatory Authority: Research
• Financial Industry Regulatory Authority: Performance
• Financial Industry Regulatory Authority: Investment