Most of us know someone who deals with stocks and shares – and it can certainly sound like an attractive proposition. But remember, there are certain risks to be considered too. In this article we look at some of the key issues around stocks and shares and consider some of the things you should most certainly know.
How do I pick shares? Where do I start?
There are perhaps three key methods of deciding how to pick your shares:
- You can look at the current economy and familiarise yourself with what are known as ‘cyclical’ companies i.e. the more resilient companies committed to economic growth.
These type of companies are often considered to have ‘defensive shares’ i.e. they might not grow very fast but they’ll always use services or products which people will always need, for example, medicines or supermarkets. Think about Covid-19 and who you might have bought from through the Government’s ‘lockdown’ period. These are the type of companies you might well want to invest in since they’re still very much in demand, regardless of the UK’s economy or environment.
- In addition to this company type, you can also look at those companies best placed to adapt to changing environments going forward – those companies set and geared for the ‘long haul’.
If you’re looking for a longer-term investment then you need to look into the future a little bit too. What will the next 10, 20, 30 years look like? (And of course, this very much depends on your current age and likely investment period too). Three key areas here are most probably – ‘technology’, ‘healthcare’ and ‘climate change’. For example, will electric cars be the way forward? (Probably). Will solar energy command the market? (Probably). What will cybersecurity look like? (Better than now). Of course, most of these are questions we can’t currently answer but they might well be worth investing into.
- Finally, you can, of course, invest in the companies you know and love from a personal perspective – for example, the high street leaders or perhaps companies you regularly use yourself as a consumer. After all, familiarity can never a bad thing when it comes to investment strategies!
If you’re familiar with a certain product or service then it’s likely you’ll know why it’s so popular and what makes you buy it. Let’s not forget that one of history’s biggest investors, Peter Lynch, invested in ‘Dunkin’ Donuts’ purely because he loved them so much! Think about which products you couldn’t possibly live without and then consider whether they’re worth investing in (just remember, not everyone will share your view but that’s not to say that you’re wrong either!)
How do I research potential companies?
If you’re thinking of buying shares then it’s certainly not something you should do overnight. As with any investment, you should take as much time as possible to consider your market and then ensure that you’re making the right decision.
Think about:
- How the company are performing overall – and don’t be tempted to base any decision based on ‘past’ performance. You need to be totally convinced about their ‘future’ performance too.
- What other investors are saying about the company. How many shareholders does the company have? How many do they ‘retain’ (retention being key here) and how many of those re-invest or recommend their shareholding to others?
Will I be able to sell my shares?
Yes – in fact, ‘selling’ your shares is as easy as buying them. Of course, the procedure for this will naturally vary between companies but in essence you can either sell your shares by number or sell your shares by value.
If you want to sell the full holding (i.e. all the shares which you’ve purchased in the company) then you’ll have to select the number of shares and you’ll be given a price to sell them for.
Are there any risks involved?
Yes. There are never any guarantees in the stock market and you MUST remember that share values can very quickly go ‘down’ as well as ‘up’. For this reason, it’s always advisable to invest over a longer period of time, so that you can basically get a feel for the shares and see what happens to them (i.e. take the ‘rough’ with the ‘smooth’). That said, whilst there are obvious risks there are most certainly major benefits too so, as long as you do your homework in advance, there’s certainly nothing to suggest that you won’t enjoy watching your investment from a safe distance and hopefully without too much drama!