Your Questions About Investing For Beginners

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Richard asks…

How do you invest in the stock market uk?

I need the basic of the basic stuff here. I don’t even have a clue where to go to invest in stock markets in uk or if you do it on line or over the phone. I just need to know how. I don’t need tips or what i should be investing in. Also what age can you invest in the stock market?

Justin answers:

Step 1) When you are over 18yrs old, you can open a Share dealing account with either a dedicated stockbroking firm, or do it through your bank……… Personally I prefer Halifax Sharedealing
http://www.halifax.co.uk/sharedealing/

Step 2) Read the articles at personal finance websites such as “The Motley Fool (UK)” to learn what you’re letting yourself in for….. This one’s a good primer: http://www.fool.co.uk/Investing/guides/When-Not-To_Invest.aspx

Step 3) Research the companies you’re thinking of investing in (again, see “The Motley Fool (UK)” as it’s more beginner friendly… Just use the search box on their website)….. Main tab I concentrate on is the “Forecasts” one, and the column “EPS Grth.” column:
if it’s a minus figure in red it’s not a good sign
if it’s a green figure with a modest figure of 1% – 12% it’s usually promising
if it’s a green figure with an over-optimistic figure like +75% or +125% or +925% avoid it…. These always seem to end up making a big loss on your investment (like a near total wipe-out)
It’s also a good idea to read through the company data under the “Fundamentals” tab + any news about the company.

Step 4) You may want to set-up a “Stock watch list”….. Think you can still create a portfolio at http://finance.yahoo.com to follow what some shares you’ve researched have been doing lately…. Or you can also do it via a Smartphone app.

Step 5) Practise via Fantasy stockmarket games such as http://www.bullbearings.co.uk – there’s also one at the Halifax Sharedealing website you can use, but the Bullbearings one is what I’ve used the last several years.

Step 6) Once your Sharedealing account has been set-up, and you’ve researched enough to be confident in knowing what you’re doing, add some funds to your sharedealing account (remembering you’ll also be charged a commission fee for buying & selling)….. I’ve found it’s best to place a chunk of money on 1 company’s shares, rather than making lots of little minimum purchases… Then hang onto them for as long as possible (the more often you buy & sell, the more commission fees you pay… And the more commission fees you pay, the more it eats into your profits, and defeats the point). Every so often you may get paid a “Dividend” (usually no more than 1p to £1 per share)… Reinvest that money into buying more shares, keep on doing so for as long as you can.

Step 7) Read about a guy called “Warren Buffett”…… One of the Top3 richest people in the world, all from investing in Shares (mostly in the USA, but alot of the principles are the same)…. You’ll learn alot about the things you need to be successful at investing in shares (e.g. Look before you leap by researching companies before buying their shares + being patient and hanging onto them for years for bigger profits to build up).
Http://beginnersinvest.about.com/cs/warrenbuffett/a/aawarrenbio.htm
http://www.investopedia.com/terms/w/warrenbuffet.asp

Chris asks…

What is the best stock trading site for a beginner?

I’m 18 years old, saved a few thousand, really trying to find alternate ways to secure financial stability on the side of a good career. Heard about investing in stocks before, but not quite sure what I’m doing. What site would be best for me to purchase stocks from, and how do I decide which stocks to buy?

Justin answers:

If you want to get the whole saving/investing thing started early, I would just toss the money in a set of index funds. I recommend Vanguard (low fees and high quality product – index funds are more or less all the same), diversifying across a few different indices (depending on what you wish, you could spread it across the S&P500 fund, the international equity fund, a corporate bond fund, and treasuries).

AFTER THAT, I would then begin the “learning” phase. What most people do not understand is that putting your money in a few companies is unbelievably risky unless you really know what you’re doing. You can’t just invest in names you know, the key is how much you’re paying for them. With your money tied relatively safely in index funds, I would start researching individual companies. Take a look at the Investor Relations section of their websites, and read through the most recent 10-K. Don’t worry if its unbelievably confusing, it’s honestly not meant to be fully understandable by the general public. Your first time through, look through the verbal parts. Read the sections that describe the business, read sections like the Management’s Dicussion and Analysis – skim through some of the numbers if you wish. Watch, if you have access, financial news programs, the Wall Street Journal, finance sections of news websites like CNN. Go to Yahoo! Finance or similar sites and see what the recent news is for specific companies as well as the economy as a whole, and look at how this news is impacting stock prices. Use Investopedia and Wikipedia.

What’s important that this stage is that you learn. Avoid getting trapped into the world of people who have never opened a 10-K but think they’re stock market geniuses because their uncle’s brother’s friend’s barber had a great stock tip. One really good thing to do once you get into college is go to the business school library if there is one and ask how you can get access to equity research reports of companies. I would recommend that, at all costs, avoid technical analysis. It’s an interesting idea but at the retail level (what you and 99.9% of the rest of the public is at), it’s just not a very good idea.

Michael asks…

How can I invest my money so that I can make more money?

I am only 17 years old but I am interested in investing some of the money that I have saved so that my money will begin to grow. Is there something that I could do?

Justin answers:

Explore your world. If you like investing, learn fundamental and technical analysis. It takes hard work to be informed and to get an edge. This is long-term — I’d recommend Stikky Stock Charts for a beginner in TA, then graduate into more complex indicators. Experiment with some phantom trades before you use real money and see how you do. Use a multiplicity of indicators, and try to integrate fundamental analysis into company stock picks. Then, graduate into options, and NEVER risk it all.

Any financial advisor would agree that you need more risk while you’re young, then you switch it over to secure when you grow older.

It looks like you’ve got your head on straight at an early age. Good luck to you. Plan for the future and set goals.

Republican Capitalist.

Robert asks…

How can I assess the real value of a stock, for buy and hold investing?

I am a beginner and would like to get started in building a portfolio of stocks for long term holding. I have been looking at using America’s Finest Companies strategy, and would like some tips on how to assess if the current stock price is good value.

Justin answers:

“Good value” is a relative term when it comes to stocks, because stock prices rise and fall with the economy. You just have to expect that you will lose some of your money sooner or later. If you can handle that kind of risk, then the next thing you might want to consider is the history of the company that you want to buy into. Is this company ethical? Does it make a profit only seasonally? Is it a green company? What is the history of the CEOs and management practices? What happens when scandal hits or profit margins fall?
And you might want to ask yourself: what is your acceptable risk – high, medium or low? How much are you willing to invest and possibly never see again?
Of course, what you do is all up to you, but research, research, research is by far the best way to go in my opinion. Good luck!

George asks…

Do you need a Degree for investing, Whats the best way to understand investing?

Do I get a degree in business, Take courses on investing, or just keep studying and reading books like i have been doing? I think the only way to fully understand investing is through experience but reading has helped understand the basics so far.

Justin answers:

First off, completely disregard everything the guy above suggested in regards to options. He is leading you down a dangerous road because if you do not understand how stocks move, than you certainly could never understand how options function.

As for learning to invest, here are my suggestions:

1. Ask around as you are doing now for advice.
2. Find someone to talk with in person, to have your questions answered immediately.
3. Find a good book to learn the basics from. As silly as it sounds, I strongly suggest the “investing for dummies” or “stocks for dummies” books. The reason why I suggest these books for beginners is because they avoid all the extra details ands really focus on the basics.
4. Watch the news, CNBC is the best. Not only are they focused 100% on the stock market, but they have experts explaining how they think.
5. Last one, watch the stock market on your own. Watch how the news effects how the stocks move up and down and figure things out on your own. Sometimes its better to learn through discovery than just to be told the answers.

In regards to the 2nd item I posted, if you have any questions about anything feel free to ask away. I’d be glad to share my thoughts to help you understand! Good luck!

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