I have never understood how to make money in shares, is it a skill you can learn or acquire, if so where? Or do you just have to have a knack for it?
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410manzanilla postedI am assuming you mean investing directly in shares, rather than buying index funds / unit or investment trusts / ETFs.
Things you need:
- enough capital. If you only have a few thousand, then there is no point in trying to invest in shares directly - the transaction costs will kill you - go for a collective vehicle.
- capital that you can afford to lose. Playing with money you know you may need in the next few years is just too stressful - you can't make good, rational decisions about what size to buy, when to sell etc
- time. How much depends on how active you want to be - if you want to buy long-term buy/hold shares in blue chip companies, a few hours a month will be fine. If you want to invest in bio-tech start ups, you need to be prepared to look at prices during th working day and spend time most evenings.
- enough interest to do the background research. If looking at the annual report seems boring to you, then you would just be gambling, not investing
- enough interest to put the effort into learning new skills - if balance sheets and debt details make your eyes glaze over, you have to make an effort to learn the basics. I like Leach's "The Investor's Guide to Understanding Accounts". And it may mean only looking at certain types of companies, which you get familiar with. The best mining investor in the world will struggle with a major bank's accounts.
- most of your best lessons will come from experience. If you haven't had a decent size portfolio in a 'crash' period, then you have no idea what it is like or how you will react
- the confidence to admit when something is not working. You HAVE to be able to take a loss, not sit and cross your fingers and hope the position will recover at some stage.
Getting started tips:
- don't believe hype on bulletin boards. They are good sources of ideas and over time you will get to know names you think you can trust. But too many people there are either idiots or deliberately ramping / de-ramping a share
- diversify. never put too large a % of your money into one share
- ALWAYS check the market capitalisation before you buy a share. This is the first, basic sanity check. So you hear a company is drilling for oil in the Flaklands and it may be the 'next North Sea'. Do you rush out and buy? No - you look at the market capitalisation - wow, Desire's market cap is £334million pounds, and it has NO production or income - that suggests to me that the time to buy it was 6 months ago, not now.
- before you buy a share, write a paragraph on WHY you are buying it. If you cant do this, then don't buy it. What price do you hope it will get to and by when? Will you then sell? Or are you bying it for the dividends and you never expect to sell? If it drops 20% will you sell? 40% ?
- never fall in love with a share. Forget what you paid for it, that doesn't matter, what matters is whether it is going to improve from here.
manzanilla (still learning, me)
Posted on 03 March 2010 |
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272Swarbs posted
You can learn how to make money in shares, but there is generally a degree of aptitude involved as well. There are three main ways to make money from shares:
1. Buy lots of different shares representing different sectors of the economy. Wait for them to go up in value - shares generally rise in value by around 8% a year, and pay dividends of around 3%. So if you buy a decent range of shares, you can expect to make 11% a year on average just from waiting. This is the easiest way to make money, and can be done by buying ETFs or index tracking funds that track the value of a certain number of shares, such as the FTSE 100. You don't really need any skill or knowledge to do this.
2. Buy shares in companies that you think are likely to rise in value faster than the rest of the market over time. For example, in 2000 if you had worked out that Google was going to be as successful as it was, you could have bought Google shares in 2004 for $85 and sold them in 2007 for $700. This is Warren Buffett's speciality - he bought shares in companies like the Washington Post and Coca Cola when they were still quite small, and has benefitted ever since. The main skills and knowledge you need here are a good understanding of business fundamentals, i.e. what value does the business add to its customers, and how will that help it to become more profitable and successful over time. These skills can be acquired, but there needs to be a degree of natural insight into how a business works, and the ability to spot market trends.
3. Buy shares in companies that you believe are undervalued. This is basically what manzanilla discusses above: you look for a company that you think, based on analysis of its balance sheet, profitability and market situation, is not valued highly by the market. You then buy it, and wait for the value to rise. This is the most dangerous of the three methods, as you are relying on the market as a whole coming to see the shares as being as valuable as you think they are. You need to have good mathematical skills to work out the various financial ratios that show how the share is performing relative to the rest of the market. You can learn most of the skills from any good book on stock picking, but you will need lots of experience to become any good and also need nerves of steel to make the right decision, particularly when you have bought a share and it has fallen in value - you need to decide whether it is likely to recover and, if not, you need to cut your losses quickly and without emotion. This is generally the fastest way of making money - you can make 11% return in a week rather than a year, but is the one that needs most skill and hard work.
A couple of useful books are:
Posted on 03 March 2010 | Love 1 love
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272Swarbs posted
If you do decide to have a go, I recommend you start with a fantasy trading account first. This is an account where you have a simulated balance to trade with, and so you can see how your trades will work out, the impact of the cost of buying and selling, the potential for shares to fluctuate in value sharply etc.
http://www.bullbearings.co.uk/ is a good place to start, and they also contain general information about the buying and selling process. Just bear in mind that the fantasy option will never truly teach you how you will feel when it's your own money on the line.
Posted on 03 March 2010 | Love 1 love
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35Ruthless Investor posted
A good advise & read.
After having trading on the stockmarket since early 1980s, I am still learning from my mistakes.
Good Luck & Best Wishes to All
Posted on 22 March 2010 | Love 0 loves
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