Buying shares?

Question

I have about £5000 to invest and was looking at buying some shares, does anyone have any hints and tips?

Answer 1

Sure. Buy low cost index funds and diversify according to your risk tolerance and stay the course no matter what for 30 - 40 years.

Your returns will beat about 90% of people who trade in stocks, time the market, chase past returns, use financial advisors (brokers). If you start doing this in your 20's, you'll be able to retire in your 40's or 50's. I did.

Here are some more hints and tips from the best minds in the investing world:

"Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement."
William F. Sharpe, Nobel Laureate in Economics, 1990

"The results of this study are not good news for investors who purchase actively managed mutual funds. No investment style generates positive abnormal returns over the 1965-1998 sample period. The sample includes 4,686 funds covering 26,564 fund-years."
Davis, James L.

"The deeper one delves, the worse things look for actively managed funds."
Bernstein, William

"[Most investors would] be better off in an index fund."
Peter Lynch

"..the best way to own common stocks is through an index fund..."
Buffet, Warren

"Most of the mutual fund investments I have are index funds, approximately 75%."
Charles R. Schwab

"The road to financial perdition begins with a call to your broker who claims to be able to 'beat the markets.'"
Daniel R. Solin

"This message (that attempting to beat the market is futile) can never be sold on Wall Street because it is in effect telling stock analysts to drop dead."
Paul Samuelson, Ph.D., Nobel Prize laureate

"Q. So investors shouldn't delude themselves about beating the market? A. "They're just not going to do it. It's just not going to happen."
Daniel Kahneman, Nobel Laureate in Economics, 2002

“If there's 10,000 people looking at the stocks and trying to pick winners, one in 10,000 is going to score, by chance alone, a great coup, and that's all that's going on. It's a game, it's a chance operation, and people think they are doing something purposeful... but they're really not.”
Miller, Merton Nobel Laureate and Professor of Economics, Univ. of Chicago

"It's just not true that you can't beat the market. Every year about one-third of the fund managers do it. Of course, each year it is a different group."
Stovall, Robert , Investment Manager

"After taking risk into account, do more managers than you'd see by chance outperform with persistence? Virtually every economist who studied this question answers with a resounding "no." Mike Jensen in the Sixties and Mark Carhart in the Nineties both conducted exhaustive studies of professional investors. They each conclude that in general, a manager's fee, and not his skill, plays the biggest role in performance."
Fama, Jr, Eugene, DFA

"99% of fund managers demonstrate no evidence of skill whatsoever."
Bernstein, William

"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what`s going to happen to the stock market."
Benjamin Graham, Legendary investor and author

"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor - the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know."
Bernstein, William

"By day we write about "Six Funds to Buy NOW!"... By night, we invest in sensible index funds. Unfortunately, pro-index fund stories don't sell magazines."
Anonymous Fortune Magazine Writer

"Why does indexing outmaneuver the best minds on Wall Street? Paradoxically, it is because the best and brightest in the financial community have made the stock market very efficient. When information arises about individual stocks or the market as a whole, it gets reflected in stock prices without delay, making one stock as reasonably priced as another. Active managers who frequently shift from security to security actually detract from performance [compared to an index fund] by incurring transaction costs."
Burton G. Malkiel, author of A Random Walk Down Wall Street

"IN THE STOCK MARKET (as in much of life), the beginning of wisdom is admitting your ignorance. One of the many things you cannot know about stocks is exactly when they will up or go down. Over the long term, stocks generally rise at a nice pace. History shows they double in value every seven years or so. But in the short term, stocks are just plain wild. Over periods of days, weeks and months, no one has any idea what they will do. Still, nearly all investors think they are smart enough to divine such short-term movements. This hubris frequently gets them into trouble."
James K. Glassman, Co-Author of Dow 36,000

"All the time and effort people devote to picking the right fund, the hot hand, the great manager have, in most cases, led to no advantage." and "Most individual investors would be better off in an index mutual fund."
Peter Lynch

"Contrary to their oft articulated goal of outperforming the market averages, investment managers are not beating the market; the market is beating them."
Charles D. Ellis

Answer 2

£5000 is not really enough to invest direct into shares - typically you need to buy at least 10 different Company shares to have enough diversity to avoid heavy looses when one share performs badly or one Company goes bust.

You really need about £15,000 for a reasonable portfolio .& the absolute MINIMIUM you should invest in any one share is about £1,000 or so..

So I would put it into a stocks&shares ISA and buy an Index Tracker fund ...
.. this spreads your risk over the entire Market .. which (of course) can still go down just as easy as single shares BUT will never go 'bust' (unlike a single share).

Answer 3

Think about your invertment goals:
Are you looking for Short term, Medium term or Long term gains..
Usually investing in stock involves medium to long term. In other words, you are happy to let your money sit and work for you over a long period of time, and hopefully the economy and financial condition of the company you invest in will permit growth.
Short term is referred to as speculating. In other words you want to make some fast returns. This takes you to:
Think about your risk tolerance.
Is your personality suited to: Low risk, Medium risk, or High risk.
The higher the risk, the higher and faster the returns. The lower the risk the slower the gains but as the term suggests the more secure is your money.
Don't take the word of telephone brokers. They just want the commission.
Don't risk your rent money.
For safe returns (no risk) of around 4.25% to 5.00% talk to your bank about a CD Certificate of Deposit or a Money Market fund.
Many on line brokers have virtual trading accounts with full access to up to the minute stock prices and statistics. Some of them will give you a free trial with a virtual account where you can trade with fake money to test your skills. Some will ask you to open an account (your money will be safe) while you play with the virtual account. (MAKE SURE IT IS VIRTUAL MONEY YOU ARE PLAYING WITH AND NOT YOUR OWN).
Remember, the only person who cares about your money is you. Investing can be risky. Visit on line brokers watch what happens and make your own decisions.

Answer 4

I was in the same place as you a few years back. I did loads of research, but there was just so much information out there that I knew I needed someone to point me in the right direction.

I came accross a share tipping service called Top Share Tips ( http://www.top-share-tips.co.uk ). They send me regular newsletters giving me tips on what shares to buy, what companies to look out for and also give me a rundown of what the market is doing. It is really clear and easy to understand. It also shows me companies that I would never have come accross / considered before. It leaves me free to research them on my own, and if I like I buy.

It has worked very well for me!

Good luck!

Answer 5

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http://workathomeandearnmoney.blogspot.com

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