Share Portfolio Guide
Can I beat the Stock Market? Another way to invest in the stock market Make sure you can see the wood for the trees Which is the right strategy for me? What is the right company? Where can I find these companies? Read, Listen and Watch Getting the lowdown on companies FinallyBefore we get down to the business of how to set up your own share portfolio, we need to look at whether or not it is advisable for you to do it. The old saying ‘you should only invest money you can afford to lose’ is especially true today with the extreme volitility within the stock market. Ask yourself the question, if my share portfolio went down the drain, would it significantly affect my quality of life, and if answer is yes, then do not go down the road of your own share portfolio. You may be looking to raise a deposit for a house and have played with the idea of ‘playing the market to achieve it. This is not a good idea as you would be far better advised to put your money in a high interest earning account.
Perhaps you are thinking of setting up a share portfolio to raise money to pay off your credit card, this is also not a good idea as the average interest on credit cards is around 15%, so you would need your share portfolio to do better than this, and as you are new to investing in the market, the chances of you achieving 15% or more are virtually nil.
Pay the card off first before investing in the market and don’t, repeat don’t ever borrow money to start your share portfolio, the risk far outways the reward.
Investing in the stock market is a long term investment, the minimum term of the investment is usually quoted as five years, and the longer the period of time you invest in the market for, the better your chances of success. Forget trying to beat the market by forecasting the up and downs, in the short term you might just as well put your money on your lucky number at the roulette table.
If you are determined to set up your own share portfolio, you need to think about the types of shares you are going to invest in. It is no good picking shares because they feel good or you have an inkling that a particular share is going to take off, picking shares on feelings alone is a certain way to lose money. To be successful in the stock market you need to have a disciplined and structured way of buying shares, and a clear idea of what you are aiming for. It may be that you choose to purchase shares in companies of a certain industry, or buy shares in companies that have a particular financial pattern, whatever strategy you choose, make sure that you are comfortable with it, because if you are not, you could easily fall over (in the financial sense of the word).
| Can I beat the Stock Market? | Top |
Unless you are prepared to devote a lot of your time to actively researching, studying and learning all there is to know about investment stratagies and companies that you are preparing to invest in, the answer is probally no. Choosing the right shares to invest in takes a great deal of dedication and effort. If you are not prepared to put something in, you will not get anything out.
A lot of the research and studying includes number crunching, reading company reports, studying the balance sheet and profit and loss account. You will need to have a full understanding of these if you are to succeed with your investment strategy, because if you do not, you will inevitably fail.
The very nature of the stock market is its volitility, and when you invest in shares, the value of your portfolio will fluctuate dramatically. If you have not got the stomach for watching your shares possibly lose half of their value for no reason, then playing the market is not for you.
There are no guarantees that you will be successful. You can do all the research, study all the charts, investigate annual reports and still not outperform the market. Could you accept the possibility that even though you have given it your best shot over a reasonable period of time, you will not have matched the market average?
| Another way to invest in the stock market | Top |
One of the tools at our disposal when looking to invest in the market is the index tracker investment fund. Historicaly, the index tracker has outperformed most of the other forms of investment including the majority of managed funds and most other private investors. Added to this is that when you invest in an index tracking fund, you do not need to allocate any time to research to study your investment. So, unless you are prepared to knuckle down at being a successful share picker, investing in an index tracker may be a good alternative.
| Make sure you can see the wood for the trees | Top |
Starting out on setting up your own portfolio can be a daunting prospect, within the stock market there are many hundreds of companies who are operating in different fields of industry, all producing corporate news, account information etc, etc, all of which can end up giving the new invester too much information. By using a particular strategy, an opening begins to appear and things become clearer, by having a clear understanding about what you are looking for in a share, will make the decision making process of what or what not to buy a far less stressfull experience. Once you have decided on a particular investment strategy that suits you, stick with it honing it to a fine edge.
| Which is the right strategy for me? | Top |
There are many different strategies that can be employed when investing in the stock market. The only strategy that is any good for you is the one that works for you, in other words when looking for the right strategy, remember the saying ‘horses for courses’. Different types of people have different strengths and weaknesses, a person who is good at figures may go for a strategy that homes in on information contained within company reports and accounts. He or she then acts accordingly depending on what criteria they are looking for to employ their chosen strategy. Remember that the ideal strategy should not be too complicated, able to allow you to easily assess the information and indicate the best time to buy and sell. Any strategy employed should also follow good and safe investment principles. One strategy that has stood the test of time is value investing, how this strategy works is by investing in shares that when measured by certain financial ratios such as P/E and yield, look to be good value. Once these shares become more expensive you sell them. Another favourite type of strategy is to concentrate on a specific sector of the market that you understand. By deeply researching and understanding the specific sector, you will be able to ‘read the market’ and act accordingly. A similar stratgey to this is one known as 'top down' investing whereby you discover a sector that will benefit from a major trend, and then buy the shares of the best companies within that sector. Technical analysis is another strategy that is used by some investors, and involves using price charts and other technical data like the volume of shares traded, to predict what will happen in the future, as to whether a particular share will go up or down.
As I have said before, there are many different types of strategies that are employed by investors when buying and selling shares, and to find one that directly suits you will involve quite a bit of trial and error. It pays to experiement with some different types of stragety before settleing down with your final choice. As with most things, there are those stratagies that are the ‘flavour of the month’ and work better than others. However, nearly all strageties work well when the stock market is going up, so it makes sense to benchmark your personal results against those of the market in general to ascertain whether or not your successes were due to your skill in investing, and not in luck.
| What is the right company? | Top |
So, you have decided on a strategy as an investment vehicle, now is the time to find the companies that are fit for your needs. It is a bit like fishing, you have chosen your equipment, chosen the right bait, found a good spot and decided what fish to catch. Although you might catch a lot of fish, you will only keep one or two and throw the rest back. First thing to do is to make a list of potential investments that match your particular investment strategy. When you have compiled a list of potential investments, the next thing to do is research them all to find out which ones fit the bill. After much deliberation you finally end up choosing one or two of them, or if none of them fit the bill, you do not choose any. Armed with the final shortlist, you take the plunge and buy shares in them. Sounds easy, but belive me it is not, finding the right company to invest in is very difficult. The London stock market has literally thousands of companies listed, and in Europe there are thousands more companies. Going further still and taking into account all of the world's stock markets, you can see that there could be millions of companies to choose from, making the whole process of selecting a suitable company for your needs impossible. The answer to this is to cut your search down to a few companies that you can study and follow, once you have done that you can research them even further which will enable you to make better and informed investment decisions.
| Where can I find these companies? | Top |
One way is to call upon your own personal experiences of companies you have either worked for, or bought their products, or used their services. If you have had some personal experience of a company, if you work for them, or are a customer of theirs, then you may well be able to assess the quality of that business. However, great service does not neccessarly mean they are making great profits, make sure you also research their accounts.
| Read, Listen and Watch | Top |
OThe only real way of finding that diamond of a company, the company that nobody else has found and is about to rocket up in value, is to read, listen and watch all sources of relevant information associated with your particular segment of the market. Buy the Financial Times and the Investors Chronicle on a regular basis, and read them from cover to cover. Gather as much information as you can about companies and investments and compare what you have read with what criteria you have set for buying into a company, and if it matches, then make a note of it so you can do further research on it. If it does not fit, throw it away and move on.
The internet offers the investor an almost endless source for information regarding investment opportunities, you can take out a subscription to the online edition of the FT, which means that you can access articles from the FT archive and other publications, too.
The Investors Chronicle publishes all company results from the previous week in more detail then the FT. The Investors Chronicle is available to everyone but you need to be a subscriber to use the whole of the site.
Bloomberg and CNN broadcast financial news and financial articles around the clock, giving up to the minute information on various aspects of the financial situation around the world.
| Getting the lowdown on companies | Top |
Now that you have found some companies that fit the requirements of your investment strategy, you will have to find out far more specific and detailed information about them.
You could visit the FTSE website to get information such as current share price, past share performance and recent articles. You could also visit the company’s website as nearly all listed companies have subscribed to the idea of having their company information accessible on line. As with most things in life, some company web sites are better than others, a general rule of thumb is that the bigger the company, the better the information for the potential investor. Company websites usually have a website address that is very like their own company name, or at the very least, has a website address that contains the company name. With a variety of search engines available you can search the web by combining the name of the company you are trying to gather information about with other words such as investor and information.
Now probably, the most important and useful document that a company provides a potential investor is their annual report. This report is published once a year by every company listed on the stock exchange, and contains the latest details on their financial and operational performance. The annual report is a vital piece of information for any would be investor, and by studying it thoroughly a picture can be formed as to how the company is doing and what the fundamentals of the company are. The majority of companies provide access to their annual report via their websites, some companies even provide a historicial record of past annual reports going back a number of years. This gives you the opportunity to study the past performance of the selected company in more detail. If you are unable to download past annual reports from the website, it still may be possible for you to get hold of them by ringing up the company concerned and asking to have the past annual reports sent to you.
| Finally | Top |
Before you all go rushing off to research that company that is going to make your fortune, it is worth remembering that investing should be fun as well as rewarding.
You will also need one other thing to become a successful investor in the stock market. Although you can do all the research, make all the right moves, the final ingredient required to get to the top of the tree is luck.
Best of luck to you all.
