In this webinar, our founder and personal finance expert Jasmine Birtles is joined by The Times columnist Bill Kay, David Henry from Quilter Cheviot and Paul Clifford from Sanlam. They talk all about how to pick stocks and shares and how to kickstart your career in investing.
Investing in individual companies and funds is a good way to make money. To avoid losing money, it takes a lot of effort, work and knowledge.
You can watch the webinar below, and recap by reading the written summary.
What is the most important thing to look for in a company you want to invest in?
First and foremost, it is important to look at yourself and at the personality you have and what you are willing to risk.
Then look into the type of company it is, whether it is large, small, well-established such as Marks and Spencer, or whether they’re brand new and have just arrived on the market.
You are likely to be attracted to one sort of company or another.
It is important to look at the basics to make strategic decisions.
In their savings, people often have ‘serious’ and ‘fun’ money – they may take 5% or 10% of their savings to invest.
One of the things I recognise about myself is that investing as part of my day job may give me a propensity to trade and get lots of new ideas within the firm.
The danger of this is that you are always attracted to the bright new shiny things.
For me, 5%-10% of my individual stock picking money is a mix of private investments and in a way I wouldn’t always recommend for new clients.
The key point of that money is that it helps me to stick with a core of sensible and diversified investment strategies.
With a company like Tesla, for example, it is in the news and media a lot, so if very high-profile stock. It is easy to be seduced by those who run the company and previous returns.
However, returns have fallen by 20% in the past year. Therefore, it is important to look at future returns over past ones.
It is good to look at the Price Earnings Ratio for stocks to determine whether or not they are overpriced, under-priced or fair value.
What are the fundamentals of a diversified investment portfolio?
It is very much driven by what individuals want and their objectives.
For me, I am only 33 and am going to be doing this job for a long time. That is why I am so invested in stocks, particularly when it comes to my pension as I cannot touch this for another 22 years at least. That’s why I am happy to take a risk with that.
In terms of diversification, Peter Lynch once said, “invest in what you know”.
One of the advantages of being a private investor is that if you have expertise in a particular sector, then that is an advantage as you have an informational edge.
The disadvantage, however, is that you may invest in lots of very similar things in the same market and your portfolio ends up pointing in the same direction.
Coming up with ideas is the fun side of it – the risk management is the boring bit. That’s why it is important to allow a third party to look at your portfolio.
It is important to have a spread geographically, across sectors and even by asset class.
We recently conducted an investigation into a typical portfolio, and we found there was a big country bias – people in the UK will tend to stick with investing in businesses in the UK.
In the last 10 years or so, this has really cost investors who aren’t investing in other countries, such as America.
Can you explain Price Earnings Ratios?
A company makes earnings, and if it doesn’t make earnings it makes a loss.
You want to value a company based on its earnings.
Each share has earnings per share – if you divide the actual share price by the earnings per share, then you find your Price Earnings Ratio.
It’s one way of establishing value – whether the company has good earnings, good free cash flow and low debt.
The share price is a reflection of long-term earnings.
Where’s the best place to buy and sell shares?
I personally use an execution only broker. You pay the minimum charges to buy and sell, with no advice, no frills. Then I get a tax statement every year and that’s about it.
It comes back to experience and handling the temperaments of each investor, as well as how much help you want, need or are willing to pay for.
You could go to a wealth manager or your bank. There are plenty of places you can go depending on what you need.
I use X-O, which is owned by Jarvis. You can log in, deposit money and state how many shares you’d like to buy and in which types of companies. It’s an online stockbroker essentially.
There are many pricing systems. Off the top of my head, AJ Bell does one, Fidelity has one, Charles Stanley has one.
You can also buy shares through fund supermarkets.
I personally use Interactive Investor. It costs about £10 per trade, but you get a lot of information and advice.
There are many platforms to choose from – some of them are even free! However, some are free as they sell your information.
eToro is a free platform.
What are the charges?
There is a minimum charge on each deal, and then they charge an admin fee of about 1%-1.5% a year. This is for your end of year analysis.
It tends to be minimal, only a couple of percent.
Which services are offered at Quilter?
At Quilter we offer a bunch of different services, everything from execution only to discretionary portfolio management.
Execution only is not receiving any advice and making your own decisions.
Discretionary is agreeing a strategy with a broker who then manages it and makes decisions on the portfolio.
The key thing is to work out what is right for yourself and you can use comparison websites for the cost of services.
You want a platform that is reliable and cost-effective. You may also choose a service depending on how intuitive the platform is and the customer service too.
Ultimately, what you want is something that works.
What does ‘shorting’ mean?
Shorting is essentially borrowing stock from someone, holding it and returning it to them at a prearranged date.
For example, if you hold 100 Tesla shares and I borrow them from you for three months, you could charge me 2% for that.
I then may sell the shares if I think the price is going to drop, and then buy them back three months later for less, thus making a profit. I then return them to you and profit the difference.
It is a big bet, you are assuming the price will fall, which is a risk.
A lot of hedge funds short shares. It creates a lot of volatility in the market. Some people argue however, it creates an equilibrium.
If you short a share and the price goes up, you have to rewind your position very quickly to avoid losing money.
Is it worth following what social media says?
If someone is sharing their opinion online but has no accountability for anyone else’s money, I have no interest.
I would caution against listening to people’s public opinions. Often what is said in public and the makeup of their portfolio look very different.
Ultimately what you have to know is what you want to get out of it.
Whoever is giving you advice – it is firstly important to know where they’re coming from, do they hold stock, and why are they telling you this?
Social media is a jungle – assume the worst. People are either being mischievous or pushing their own stocks.
At the very least, you need to know if they know what they are talking about.
In newspapers, it would be good to know what the writer is invested in.
In the Motley Fool, it tells you what the author is invested in.
Should you buy into ‘unloved’ stocks?
You can absolutely get a good deal with a stock that is not popular currently.
Cineworld was unloved during lockdown, and the returns have increased greatly.
Cyclical stocks are stocks that do well when the economy does well.
Banks are very cyclical in nature – many were unloved during the lockdown and have done very well since.
It is important to remember that just because something is a nice product, it doesn’t mean it’s a profitable company.
How do you make your first purchase?
If it is your first purchase and you are unsure of the route to take, it may be a good idea to invest in a fund first and foremost.
Go for a theme and area you like and start there, and then later find a platform to invest in shares on.
What’s the best way for beginners to buy stocks?
Hargreaves Lansdown and AJ Bell both have apps, but you can also use their website to communicate with them directly – although they may require you to pay a bit more.
The app allows you to see the latest views and trends of certain companies you are interested in.
Look at the fundamentals, whether there’s free cash flow, low debts, high earnings, whether it has a strong market position, technical analysis
There are many things to consider, and it’s important to draw a conclusion from the analysis.
Benjamin Graham wrote The Intelligent Investor – he said find very good companies that are going to do well for a long time, and buy shares whilst they are cheap
What are penny shares and are they worthwhile?
Penny shares refer to very small companies that are typically traded in America.
A lot of these companies carry significant business risk – I would probably stay away from them.
If you want to find small companies, go through a fund.
They are traditionally sold for pennies, often 20p or less.
The companies are usually very small, very risky and may have come down from a great height.
Is investing in ‘5G’ a good idea?
The future is 5G in certain tech spaces. I would advocate using a fund to expose yourself to that.
One of the risks is supply – many economies have closed, and prices have increased.
How do you know if you are getting a good stock price?
There is no real way of knowing, you can’t have an ego when it comes to investing.
If you are good in this business, you will only be right six times out of ten!
The longer you invest, the more chance you have at being right.
When someone thinks they are buying at a good price, there is someone who thinks they are selling at a good price.
Advice on eco investments?
It is important to look at the environment the stock is in currently – green and ethical investments are very on trend at the moment.
This is particularly the case due to Boris Johnson and Joe Biden signing mandates which promise a greener and more sustainable society.
I recently did a podcast in which I interviewed fund managers about green investments.
There is a lot of ‘green-washing’ which goes on, in which a lot of funds claim to be green and ethical, but at the centre are not.
How do you know when to sell stocks?
That is the most difficult decision to make in buying and selling.
People hold on to stock when they are going up, and it is important to look to the future.
The key is to be disciplined – what do you want to achieve from an investment?
Try not to get too emotionally attached to your stock.
You can’t beat yourself up too much about it.
You may not always get the most optimum outcome.
If you are too worried, take money out of your investment, or sell your shares.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.