The Motley Fool’s 3 guidelines to starting off on the right foot.

As the market went crazy over the past couple of weeks, one of the questions that often comes up is what investors — particularly new investors — should be buying in this wild environment.

The good news is that whether we’re immersed in insane volatility or lull-inducing calm, the bottom line stays largely the same.

Three rules

If you’re a new investor — or a veteran interested in getting back to the basics — these three guidelines are essential to getting started on the right foot.

1. Stick to the blue chips.

The ‘home run’ stock is every investor’s dream.

We’re talking about buying companies like Fortescue Metals Group (ASX: FMG), Macquarie Telecom Group (ASX: MAQ), Sandfire Resources (ASX: SFR), Medusa Mining (ASX: MML) and Extract Resources (ASX: EXT), all huge winners over the past 5 years.

Many investors are lured into the stock market on the back of such massive returns. But the reality is most stocks appreciate slowly and steadily.

Blue chips stocks are given that label for a reason. They are generally big, solid, dividend-paying, dependable companies.

And after the recent sell-off, many are trading at attractive prices. You might want to check out BHP Billiton (ASX: BHP), Telstra (ASX: TLS), AMP Limited (ASX: AM), Metcash (ASX: MTS) and Treasury Wine Estates (ASX: TWE), for example.

2. Price matters.

Understanding stock valuations and what constitutes an attractive valuation is a learning process.

The basic idea is that based on factors like growth and profitability, a given stock/company is worth some theoretical amount. That’s called the stock’s value.

Our goal as investors is to pay a price that’s below that value. Finding stocks that sell below their value is challenging, but that doesn’t mean you should ignore it, even at the start.

3. Keep a record.

A big part of any learning process is looking back and improving your performance based on past successes and — more importantly — mistakes. But you can’t look back on anything easily if you don’t keep records.

When you buy a stock, take a few moments to write down why you’re buying it, what your expectations for the stock/company are, and anything else that has gone into your decision-making process.

With that at your fingertips, you can easily look back later to see where you were on point and where you slipped up.

Ideas for a head start

With thousands of stocks at our fingertips, there’s plenty to explore. That can also be a bit overwhelming though, so, with that in mind, here are five ideas that might be worth taking a closer look at.

Company Business P/E Ratio
Rio Tinto (ASX: RIO) Mining 11.0
QBE Insurance (ASX: QBE) Insurance 15.3
Platinum Asset Management (ASX: PTM Funds Manager 16.5
Carsales.com (ASX: CRZ) Media 19.0
SMS Management & Technology (ASX: SMX) Technology 15.2

Source: Capital IQ, a Standard & Poor’s company.

All of the stocks above could see more downside if the markets continue to wobble.

But as The Motley Fool’s Investment Analyst Dean Morel says, a minute spent thinking about what is likely to occur next in financial markets is a wasted minute.

As ever we wish you happy investing.

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Motley Fool staff and freelancers may have interests in any of the stocks mentioned in this report. These interests can change at any time. The Motley Fool has a disclosure policy.

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