Step 1 Understand what stocks are before you buy some

Understand how stocks operate. Stocks are a form of equity investing, because when you buy shares of stock you actually get partial ownership of that company. When a company does well, its value increases, and so does the value of the shares.

Step 2 Join NAIC and or choose an online brokerage firm with $10 or under trades.

Join the National Association of Investors Corporation (NAIC) to gain access to a low-cost stock purchase program. Members can buy stock in a long list of companies, paying as little as $10 a month, as a way to slowly build a nest egg. The cost to join NAIC is less than $50 a year and includes a monthly subscription to a magazine on investing.

Step 3 Get to know the various Stock Exchanges and the types of companies they offer

Get to know the stock exchanges. Stocks are traded on three major exchanges in the United States: the New York Stock Exchange, which includes some of the biggest companies in the world; the American Stock Exchange; and the NASDAQ National Market System, an electronic exchange. Each exchange trades the stocks of different companies, so once you choose a company to invest in, find out which exchange it is traded on in order to monitor it.

Step 4 Familiarize yourself with the different types of companies

Familiarize yourself with different types of (companies) stocks. Growth stocks are stocks in relatively inexpensive companies that have a good chance to increase in value. Income stocks have less growth potential but consistently produce high dividends. Other types include value stocks, which are a variant of growth stocks; cyclical stocks, which are tied to economic ups and downs; and international stocks, which are stocks in foreign companies that may or may not be traded on U.S. exchanges.

Understanding Market Conditions

Some types of companies do well in bad times and some do poorly. Understand the market conditions that will affect each company and how they will respond to those types of conidtions.

Step 5 Clarify your investment goals

Clarify your investment goals. Do you need to stockpile funds for your retirement or are you looking to purchase a house within two years? Or are you looking for investments that produce income? As a general rule, the longer the investment time frame, the more aggressive you can afford to be.

Step 6 Determine how stocks will fit into your investment plan.

Determine how stocks fit into your overall portfolio. Stocks, like all investments, should take up a limited portion of your assets according to your master financial plan. Construct an asset allocation for your entire investment portfolio, decide how much of it should go to stocks, and stick to that percentage. As stocks gain and lose value, you may need to buy or sell to maintain your planned mix.

Step 7 Only invest in companies that you are familiar with

Start with simple parameters. Pick companies that you know and products that you're familiar with. Do you use them? Are they good?

Step 8 Understand the intrinsic fundamentals that drive a stock

Understand the underlying fundamentals of the companies whose stock you buy. These include the markets they are in, their balance sheet (which shows assets and liabilities) and their competitors. Another indicator is the company's past and present earnings and how that relates to the number of shares the company has outstanding (known as earnings per share). This is a closely watched number among professional investors.

Step 9 Use independent research from your brokerage firm and Value Line

Review stock analysis from research firms like ValueLine and Morningstar, which sell subscriptions to their reports. Local libraries typically carry recent issues.

Step 10 Look at the Price/Earnings and Price/Cash Flow as an indicator of when to buy or sell a stock

Calculate the stock's price-earnings (P/E) ratio. This ratio divides the price per share of the stock by its earnings per share. This shows you how expensive a stock price is when compared with the company's actual earnings. As a rule, the higher the P/E, the more the potential of the company may already be priced into the stock.

Sometimes the P/E ratio is not a good indicator of the value of a stock. This is where you want to review the Price/Cash Flow. Basically a company is designed to kick off excess cash. If you take the share price and divide it by the cash-flow per share, you get Price/Cash Flow which is a strong indicator of how high or low a stock is valued. Based on this, you can determine whether it is time to buy a stock or sell a stock.

Step 11 If you use a full brokerage firm, ask the broker for research and analysis on any investment idea you have.

Get professional help. The most traditional avenue is through a brokerage house, where you can get firsthand advice from a broker. But you'll pay a commission for any transaction (which, depending on the house, can be substantial). See How to Choose a Stockbroker.

Step 12 If you can do your own research save money by using an online brokerage firm.

Look at online brokerages and discount houses. The commissions are low, the trades are quick, and the research resources are often extensive, but you won't get any hand-holding.

Step 13 Don't invest in a business you don't understand or take risks on an investment when you can't afford to loose your capital.

THE NUMBER ONE RULE OF INVESTING IS NEVER EVER LOOSE YOUR CAPITAL.

Always look at the downside risk before making an investment. Buying a company when the price is as low as possible, and growth prospects are good, is the best way to protect your money.

Match your stock to your needs and temperament: Invest in risky stocks only if you have the stomach and the time to ride out market fluctuations.

Step 14 Diversification or Not to Diversify - that is the question!

Some people choose to diversify. However, I think if you know your company really well, you may do better by staying with only a couple of good ideas a year.