Stock Market - need an idiots guide

[CJ2010]

I know nothing about the stock Market, how it works etc but I would like to read up on it and buy some shares.

Any advice on what books to read/ websites to look at. TIA

Me too.

Marking my place.

Hi, there's a lot of sharks and snake oil salesman in the world of investments (most of them!).

The FT do some useful guides, also have a look at:

Smarter Investing by Tim Hale.

There is a fantastic book called 'Where are all the customer's Yachts' by Fred Schwed. A bit American & old, but still relevant, but it tells the (apparently) true story of someone being shown round Wall Street and seeing all the brokers yachts lined up and he asked this innocent question.

We've been in investments for years. There is no such think as guaranteed or risk free. Take your time, spread it about, keep costs low and leave well alone!

Beware funds - they are often rip offs and you are paying for under performance - almost 80% of fund managers under-perform the market.

Good luck!

I have bought a few shares recently but they have all gone down. I appear to have a knack of picking losers.

Mainly because I have no idea what I'm doing.

In terms of spreading risk, what would you suggest? If I had, for example, £5k.

I mean in terms of how many companies per £5k

There are hundreds of books and websites around, same as there are hundreds of books on spread betting or how to beat the tables at Vegas!

And that's what you have to remember- fundamentally, investing in the stock market is a gamble. Someone once told me that if you're going to do it seriously, you need about £5k that you don't mind never seeing again. :) When you buy a share or stock in a company you are gambling that the company will perform well. If it performs well, the price of the stock goes up and you cash them in and keep the profit. If the price goes down you could lose every penny you've invested. Like horse-racing, you can reduce your chances of losing by studing the 'form'... accounts, profit statements, track record, business plans.... and the 'going'.... what type of business it is, how vulnerable they are to competition or economic conditions. And then there is the 'sheer dumb luck' factor, which you can't do a lot about.

There are different levels of risk and they are usually correlated with reward. Some people opt for new companies hoping to spot the next Microsoft and make a million. Others go for established 'blue chip' companies that perform steadily and give out reasonable dividends but aren't going to make their fortune overnight. Managed funds like unit trusts are not necessarily rip-offs and can be a good entry-level for a novice investor wanting to understand more. They let you invest your money across a range of companies ... if one fails, you haven't lost the lot. And you can even decide to leave specific or groups of companies to one side and simply invest in a 'tracker'... a fund that follows one of the stock market indices like the FTSE.

If you want to understand your own attitude to risk, see if you can find a stock market simulator game online. Gambling fake money can often show up what kind of investor you're likely to be. And I always like www.thisismoney.co.uk for company information and prices. Have fun!

Thanks for all the advice. Silly question - how do you actually 'buy' the stocks and shares, do you have to go to a bank or to a broker? How does the actual purchasing happen?

Generally, you need to go through a broker - google 'buying shares online' and you'll find there are a lot to choose from. http://www.money.co.uk/share-dealing.htm this site compares dealing accounts, for example. Some banks offer share-buying services and managed funds are available through various investment companies. There is usually a dealing fee attached to buying and another to selling so check the costs before deciding. Some have a minimum dealing charge, others charge a percentage.

link

One of America's wisest and most successful investors (Warren Buffet) advises that one should only invest in companies that have products the (potential investor) knows and understands. I think that is good advice.

I would advise doing a great deal of reading of the financial pages in newspapers (daily), then choosing a few companies you know/understand to follow closely. Watch the stock prices daily so you begin to understand the 'normal' range in which they (generally) trade. In this way, you will know when they are 'high' (don't buy at the high point), and when they are in the lower ranges (in theory are more of a bargain). Read up on these companies/stocks at least weekly so you understand why the price is fluctuating (general market conditions, a successful new product, a disaster (such as BP experienced with the oil spill), a change in senior leadership, etc). You can then start to understand which companies are 'healthy' and have good long term prospects, and which are in a downtrend.

I'd advise starting with a 'mock portfolio' where you trade/track fictitious shares. Perhaps 'buy' 100 shares in 10 different companies (on paper, not in reality). Follow the stock prices daily. Read about the companies daily. Study their press releases and any news stories about them. Read their quarterly and annual reports to shareholders.

You can then see how the stocks move and whether or not you would have lost or made money 'on paper'. When you feel comfortable/familiar with your level of knowledge, then you can begin to invest 'real' money.

The academics behind 'modern portfolio theory'

en.wikipedia.org/wiki/Modern_portfolio_theory,

say you need 12-15 stocks for diversification. Funds do help with this, must most active ones under perform, plus turnover your portfolio destroying value and making fees for the manager. The average turnover is about 90%, but 500% isn't uncommon. Warren Buffet's is 10%.

Some people like passive investments like ETFs. Careful, they are not all equal or physically backed.

It's a confusing world, go slowly and spend time learning.

Good luck!

Agree with honestlybanking about portfolio diversification - different companies, different business sectors. Essential for good investing.

And one important note: you will lose money, so be prepared for that. However, hopefully it will more than balance out in your favour with the stocks that make money.

I regularly day trade and taught myself from watching bloomberg.

And use Barclays Stockbroker.

Yeah I read up a lot on the markets as well seeming as it was something everyone was getting into. I couldn't get into the knack of it neither, lost quite a bit until I started finding some user-friendly programs to help me... :(

But yeah I'm now using the free one at www.indextradings.com which hasn't failed me yet - even when there are losses it balances out in my favour so in the end I'm winning a nice profit :o

If anyone else uses this or wants to try use it, message me and we could have a chat about it - they use a good referral program too!

Need to consider whether you are 'investing' or 'trading'. If trading, listen to all the above, do the research and lose money. ( One of the reasons we are in the economic mess we are is that all the 'traders' got it wrong)

If investing, ie looking to earn money at a better rate than a cash deposit over the long term, then:
If you will need the money in less than 5 years, or is a rainy day amount, leave in a cash ISA
If looking at over 5 years and less than £50k, then invest in a tracker fund through a fund supermarket - low fees and spreads risk - avoid ETF and leveraged funds
If looking at over 5 years and more than £50k, use an advisor, but on a time based fee basis. Many investments charge high initial and annual fees and a 'free' advisor gets a cut, so advises these. A fee paid advisor has a fixed cost and advises the best thing. This will depend on your attitude to risk, family situation age etc.

Here's a basic guide about how shares trading works www.financial-spread-betting.com/basics/stock-market.html