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investments Fancy a dabble on the Footsie? You don't have to be in the City to make a slicker return on your investments and you don't need to be rich or have an MBA to make (or lose!) large amounts of cash. In fact, thanks to the power of the Internet, you can now buy and sell shares in less time than it takes to down yer pint! All it takes is a Web connection, a little preparation and some common sense. When a company needs to raise money, it sells shares to investors, in effect giving you a little piece of its action in return for your cash. As a shareholder, you now own a portion of the business, albeit a fairly small one in the cosmic scheme of things. However, your hope is that in time the company will grow, your small portion of it will grow in value, and you'll receive a dividend payment as a twice-yearly thank-you for parting with your cash in the first place. Of course, being a part-owner of a corporate behemoth does confer certain rights and responsibilities. Don't worry, you won't be personally liable if your company's new line in soap turns half the population purple. However, if your company folds, your chances of getting any cash back are thin indeed; shareholders are at the back of a long queue of creditors. But you do have the right to vote on resolutions at the AGM, and some of them just might prevent misfortunes like these occurring in the first place. Just like any other commodity you own - your house... your car... your collection of Des O'Connor albums - shares are marketable. You can contact a stockbroker who, in turn, contacts a market maker to take them off your hands. The broker earns a commission, while the market maker turns a few bob by buying from you at the lower, or bid, price, then selling to someone else at the higher, or offer, price. Between these two is the share's mid-price, and that's what you see quoted in the press, online and on Teletext.
There's an obvious risk from putting all your cash in just one company, so as a canny investor, your aim will be to build a portfolio of different investments in various market sectors. Now I should know about this having invested heavily in the 'dot com' market just before the bubble burst - yes I do own Lastminute.com shares!! The idea is that, as time goes by, each investment grows, though not necessarily all at the same time. Whilst technology and Internet stocks are slowly recovering from the doldrum years, shares in food companies have been performing well and are pretty recession proof (everyone needs to eat after all). We can spread risk by investing in different companies or product sectors, but we can also invest in different markets. There are stock exchanges all around the world from Adelaide to Zurich. London is a world leader, but the exchange that really calls the tune is New York. Stock markets are driven by sentiment - what people think or know, or think they know, about factors affecting markets. What happens in New York tends to be followed around the world. As we saw with the September 11th bombings, the economic effects have been felt on the global markets. One of America's most dynamic markets is the Nasdaq, an exchange index based entirely on technology stocks such as Microsoft and Intel. An investment here could provide a very exciting ride. But surely it's impractical to invest in a market over 3000 miles away? Not with a Net connection.
As an Internet investor you now have access to the kind of research information that was once only the preserve of professionals. You can check prices and volumes, read a company's latest press release or accounts, plot its share price graph, even discuss with other investors, via bulletin boards, what their views are on a particular stock. Then, log on to your online broker and trade. It really is that simple. Can you give up the day job, then? You've got to kidding! The Net provides you with all the tools to do the job, but successful Internet investing is a skill that, like any other, has to be learned. One well publicized case of where giving up the day job didn't pay off was with Jonathon Maitland who blew his 50k from his re-mortgaged flat. He was last seen signing autographs in Waterstone's with his book on the subject "How to Make Your Million from the Internet (and What to Do If You Don't". The book tells of Jonathan Maitland's attempts to get rich by buying and selling shares from his own front room on the Internet. Despite being a complete e-dunce, he mortgaged his house for £50,000, which he tried to turn into £1 million within a year. The book takes the form of a diary, kept over a year, at the end of which the author sells his portfolio and sees how much he has won or lost. During the year, he interviews key players like Martha Lane Fox, Raymond Snoddy and Nick Leeson, who gave him advice, insights and tips, as well as the lesser known names like the 26-year-old Atlanta man who made $7 million without leaving his flat, and the growing numbers of builders, cabbies and barmaids who've been hooked.
Start by surfing the investment sites to get a feel of what's available; check out the online brokers; look at sites that provide corporate news coverage such as the FT and the Telegraph and research sites that offer information on company fundamentals such as Hemscott. Then I suggest you build your dummy portfolio to start off with to get an idea of what might happen if you start dabbling on the world's share markets. On the one hand with fantasy shares you will no get your fingers burnt but then on the other you might kick yourself for not buying stock for real. Indeed I could have been thousands of pounds better off had I bought shares in certain stocks in the past. Anyway, fantasy shares are fun and safe method to see how successful your stock selections are. I use the Times Fantasy Shares game for my fantasy losses. Before investing for real, consider two final pieces of advice: In a bank or building society your money is pretty safe. You won't lose your shirt, which can happen on the stock market. So, only invest money that you can afford to lose. Be patient. Fortunes are rarely made overnight but history shows that a long-term view is usually profitable.
Build yourself a dummy portfolio with a starting value of around £20,000. Research some companies and then allocate £2,000 each to your ten favourite ones, without weighting your portfolio to any one category of stock. Record all this in one of the many sites offering free portfolio management. Values are updated every 15 minutes or so. Take a look at moneyworld, or the excellent Motley Fool site, the Interactive Investor (the one I use) or UKinvest, run by Freeserve. Now watch what happens. Plot price movements and try to understand why a particular stock has moved up or down. Was it a general market trend, a movement within that company's sector or some other factor? Follow this simplest of investing maxims: run the winners, cut the losers. If one of your selections falls significantly in value, 'sell' it and 'buy' something else with the remaining cash. After a few weeks, review the results, being ruthlessly honest. If you showed a gain in your portfolio, was it just because the markets generally were up? Remember, anyone can pick winners in a rising market. And if you 'lost' money, what might you now do differently to avoid that happening too often? Investment is a constant learning curve, even for the experts. But, with practice, and by developing care and good judgement, you can prepare yourself for the fast lane.
How to choose your stocks wisely - With well over 3,000 listed British companies to choose from, where should the new investor start? With research, that's where. Research is everything. Never buy any share without some deep research first. The old saying 'Knowledge is power' was never truer than with stock market investing. Send for annual reports, search the Web for facts and news stories, but always conduct research. Check out the company's liquidity and earnings growth, its price-earnings ratio, its asset growth - these are called fundamentals. Choose stocks you understand - If you know about a company's products and markets, it's easier to judge its performance and potential. Good track record: read annual reports or visit Web sites like Hemmington Scott to find evidence of steady and consistent growth in revenues, profits and assets over the last four or five years. Go for growth - Choose growing companies with active markets and plenty of potential for expansion. Sound management - Avoid companies with old-fashioned management. Seek evidence of active, dynamic, effective managers, leading from the front and constantly striving for excellence. Check that they hold shares in their company, too. High profitability - It might seem blindingly obvious, but a company with high profitability gives a better return on capital employed, and that means it's worth more to investors. Innovation - Companies need new ideas and new products or services to stay ahead. Has the company anything new in the pipeline? News about product launches often pushes share prices ahead. Good cash flow - A company with heavy debt has a millstone around its corporate neck. But one with plenty of cash is stronger and can usually move faster to take advantage of new opportunities for growth. Does it have a trading edge? Is it the biggest or best in its business? Is it in a niche market? Does it own strong brands, unique patents or special processes and techniques? Yes to any of these is always encouraging. What did the chairperson say? Read annual reports. Are they confident and upbeat or cautious and pessimistic? A growing dividend - The dividend can be high or low in relation to the share price. What matters is that, over the years, the amount paid has steadily continued to increase.
Road to riches or path to penury? Look at any share price graph and you'll see a wobbly line. It may show an upward or downward trend, but it certainly won't be straight. Every day, most shares move a few points one way or the other. Some move quite spectacularly, and that's what the day trader is looking for - a quick in and out for a quick profit. But if most daily price movements are fairly small, what's in it for the day trader? Well, if you could clear a profit of, say, two or three per cent in a day, and do that most days, pretty soon you're going to be sitting on a massive cash pile. Ah, if only it was that simple. Unlike the long-term investor, where minor price movements are usually irrelevant, the day trader is the extreme speculator. If the price goes his way, great. But if it doesn't, he's stuffed. He either takes the loss or his duff day trade becomes a long-term punt. And that's not his game, at all. Day trading began in the USA, then spread to Europe. Tips from bulletin boards, a word from 'someone in the know', plus at least one permanent Net feed - these are all part of the day trader's stock-in-trade. But the risks are huge, requiring nerves of steel. Recent research indicates that the majority of day traders don't beat the market. But a few - just a very few - make it seriously large. And that's enough to fuel the myth and keep day trading up there as an ultimate Midas opportunity. I have gambled (and lost) on rumours and jumped in to buy stocks only to find that years later I am still making a loss. I therefore advise you not to try your hand at day trading unless you are 100% sure of your info - in which case mail me!!!!
The broker is the essential link between you and the markets. Each time you buy or sell shares, you must use a broker to acquire or dispose of them through a market maker on your behalf. Even online, your trades go through a broker, because that's the way the game is played. Not so long ago, brokers were often frightfully decent chaps with pin-stripes and cut-glass accents. They offered advice, hopefully had a good ear to the markets, and nothing made them happier than when you assigned them a big wedge of cash and let them get on with it - a so-called discretionary portfolio. Your elderly Auntie in Brighton may still use such a service. But when, in the early eighties, Mrs Thatcher's handbag thumped the table with the declaration that she wanted us all to be part of a share-owning democracy, changes started to appear. You could discuss your ideas with a broker - and pay for the privilege - or you could make your own decisions, request an 'execution-only' service and pay a lot less. Then along came the Internet. Now you can connect to your online broker, check prices instantly and, with a few mouse clicks, complete a trade. Confirmation of your instructions is usually emailed to you automatically, while confirmatory paperwork follows in the post. In just seconds you can become the proud owner of a chunk of ICI, the latest Dot.com sensation, or whatever else takes your fancy. Scary isn't it? The Internet has opened up competition and dealing costs are now lower than ever, while the quality of service continues to rise. So, just what should you look for when choosing an online broker? A stable Web site - the last thing you want is the site going down just as you are about to snap up a bargain or need to sell out quickly. Real-time prices - are prices quoted in real time or is there a delay? Accuracy - does the paperwork arrive correct and on time? Good backup - is there someone you can talk to if you have a query or, worse, if you've made an error? Costs - is there a flat rate or
sliding commission scale for trades? Is there an additional
subscription fee? How do these suit your trading style and typical
size of transaction? A nominee service - the broker conveniently keeps the certificates for you, which can make selling faster/easier. Is this service available? Is there a charge? Indemnity - it may seem unlikely, but are you well covered for financial loss should your broker go down the tubes? Security - are details of your Internet share dealings safe from prying eyes? Additional services - what are they? Can you trade within an ISA (Individual Savings Account), for example? Can they deal for you in overseas markets? Hidden Costs - So you have decided to buy shares in Getrichkwik plc, wait for them to tick up a point or two and you're in the money. Well, not quite. First you must overcome the spread - the difference between the buying and selling prices of a share. On large cap stocks, this is usually fairly small. For example, the offer, or buy, price for Meyboom plc was 1106p, while the bid, or sale, price was 1101p, a spread of 5p, or under half a per cent. But for small cap stocks, the spread can sometimes be 15 per cent or more. Then there's the broker's commission. This varies, but reckon on around £27 for a £3,000 trade. There's also a tax to pay on purchases. It's called Stamp Duty and neatly removes another half per cent of your hard-earned cash. Finally, your profits will be liable for Capital Gains Tax levied at a minimum of 20 per cent, although currently the first £7,100 of gains is tax exempt.
Barclays Stockbrokers www.barclays-stockbrokers.co.uk - Behind the minimalist opening screen of Barclays Stockbrokers lies a wealth of services, including Price Improver, an electronic facility that guarantees best share prices Screentrade www.screentrade.co.uk - Screentrade.co.uk is the UK’s longest established online broker (est. 1997) and recent independent research ranked them as the second most competitive UK insurer for car insurance. Halifax Stockbrokers www.halifax.co.uk - Now I use the folks at the Halifax who I have found to be the most reliable (Barclays have locked me out before and I have had problems with their security certificates). Halifax are also the cheapest I have found. Be wary of those brokers who either advertise to be free or offer their services cheaper than a pint. They are likely to charge you for having an account with them and may also charge you various other admin fees.
The Contrarian Investor - Likes to buck trends. Zigs when the others are zagging. Probably right now piling into the likes Marconi, simply because they are currently out of favour. A technique worth exploring, but beware: the herd mentality drives the markets. Going against the flow could leave you high and dry. And broke. The Day Trader - A phenomenon of the Internet revolution. Sits glued to a screen, attempting to cash in on daily price movements by buying and selling shares on the same day. Tiny returns but, in theory, by making lots of trades, huge profits. In practice, only a few day traders make it big. If you want to make a small fortune day trading, best start with a large one. The Risk Taker - Diamond exploration on the Goodwin Sands... a travel agency specifically aimed at Afghanistan... well, you must speculate to accumulate. They're often penny shares, too, so massive potential and limited downside, right? Wrong. Tiny, obscure companies can easily sink without trace, so your 100,000 shares in a now worthless company are worth... you guessed it, nothing. The Dabbler - Buys the occasional share - "yeah, I dabble in the markets (knowing chuckle)" - often on a tip overheard in the pub. Does no research, yet expects to make shedloads. Weeks later, surprised to be showing a loss, he sells and buys another 'sure-fire certainty'. Also holds 50 quid's worth of Premium Bonds, and they've never come up, either. The Shorter - Shorters sell shares they don't own ('go short') in the hope that the price will fall before buying them back. As they must repurchase within the settlement period - usually ten days - this is a deeply risky strategy. Mood swings between euphoria and depression, according to price movements, are common. So are facial tics. The Long-term Investor - Buys shares for the long haul, maybe taking a five-, even ten-, year view. Tends to favour blue-chip companies - often those that feature in the FTSE 30 share index. Sleeps easy and rarely worries over the inevitable dips in the market. A worthy strategy that unfailingly makes money.
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP PAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT. Meijboom.co.uk accepts no responsibility for any representations unless these are incorporated in the Offer of Loan or are subsequently confirmed by Meijboom.co.uk in writing
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