Advice please for stocks & shares

EdInvestor

... I had been a customer of H. Samuel over the years. I thought their range of products were OK, and , since H. Samuel was a household name, I began to look at the possibility of investing in this company as a recovery stock. I called up the accounts, and they made grim reading..... .

Every time I passed a signet shop in my town and in others I would see no one looking in the window and no customer inside, and the management reports still made grim reading.

But as time went on, window shoppers and customers began to appear, and - guess what, EdInvestor? - this showed up in the accounts. The Chairman's reports became more upbeat. A dividend began to appear, the share price started to rise. Several years after I bought Signet as a recovery stock, we sold for several times more than we paid for them.

The reason why I said people shouldn't buy shares based just on what they observe in their local shop, is because this is usually "in the price" .That is, institutional investors usually know all about what is happening on the ground before you do, and the price has already gone up or down accordingly.

Your story suggests that you bought way too early. Wouldn't you have been better to invest your money in something else until the shoppers started to come back, the Chairman started to get more upbeat and the company started to look as though a recovery was in prospect? How much of your gains came in the final stretch?

And in any case you don't invest just on the basis of peering through store windows either.Before buying shares you check the share price, you read the annual report and accounts.In other words, you Do Your Own Reseach, and it's a bit more than checking how many customers there are in Sainsbury's compared with Tesco's, isn't it?

There is a style called Value investing where you look for shares which are cheap and out of favour and where you need to have patience before the Value outs and the share price rises.But Value shares usually have a decent dividend yield so you get at least some reasonable return for your money while you wait.

superscotsman

Hi Edinvestor
This thread is very difficult because there is no such thing as a typical novice investor. The type of person I have in mind is the kind of people I see in town who spend enormous amounts of money on the national lottery, pools, scratchcards etc. Some like gambling, some would go on the stockmarket if they knew how or they had the nerve to make that last step. For them the equities market is not high risk but low risk. It is no good saying to them "make sure you've got this first, and that first, before you go on the stock market." They don't have this and that, and are never likely to. If their portfolio goes splat, ti won't make that much difference to them: they had more chance of being struck by lightning than winning the jackpot on the lottery anyway. That is why I recommend that the entry point is not a unit trust which has little to do with many people's lifestyles. Most people are familiar with membership of a coop, so it is only a small step from being a part-owner of a coop to being a part owner of their bank, supermarket, etc. The concepts are more easily grasped, and you don't have to plough through graphs sent you by companies with an x-axis that starts at 100%. it also means that you see your business in a new light: if you own shares in BP, you will not fill up with anybody else's petrol but yours. You might also get a discount card, too. When you have had your fill of these companies, you can then try something else. I would recommend investment trusts. But it is great fun trying out things like new issues for the first time. I would not recommend recovery stocks for a novice - not unless you really need a lot of money for some reason, and you want shorter odds than the national lottery.
I am sorry that I did not make clear on my last posting that the signs of recovery on the high street was visible BEFORE it appeared in the accounts. I admit that lots of people in a shop does not mean it is making a profit. Where observation does make a difference is if you are holding shares, you can see signs that not all is well, and you can get out before the herd find out. For instance, we have no Sainsbury's in this town, so I was in Sainsbury's in another town a few years ago for the first time for a long time. I have no shares in Sainsbury. It used to be good, but this time we had to find the food among shelf after shelf of crisps. Again, I got the feeling that something was wrong, and some time later the share price plummetted.
I agree that unless you are a gambler, you can reduce your risk by calling up the accounts and studying them. In the Signet case, it was more the H Samuel name and gut instinct that made the decision. If we had decided just by looking at the accounts, we would not have touched it with a bargepole.
Did we buy too early, with hindsight, certainly; but as I have said you only buy too early and too late. So long as you don't panic and sell - that's the mistake. With retailers, what is going on in the high street is very relevant.

cheerfulcat

superscotsman wrote:

Hi Edinvestor
This thread is very difficult because there is no such thing as a typical novice investor. The type of person I have in mind is the kind of people I see in town who spend enormous amounts of money on the national lottery, pools, scratchcards etc. Some like gambling, some would go on the stockmarket if they knew how or they had the nerve to make that last step.

But this thread was not about a " typical novice investor " - as I said earlier, your posts would be perfectly appropriate on such a thread. This is about one *specific* novice, who asked a specific question. And for that poster your advice ( and remember, we are not allowed to give advice! ) could be the worst possible - you just don't know.

As to venom, I find it difficult to detect in any of the responses to you - perhaps you could point out where you see it?

superscotsman

Don't bother trying to find it. He only wants attention. Ignore it.

To your point. All sorts of people read these things, so I try to aim my missives at all sorts of people. Bit of a challenge, perhaps, but what the hell. Anyway, a lot of these threads finish up on a different subject than what they started as.

Season's Greetings.

deemy2004

Talking about cycles....

US stock markets tend to make a significant low during the 2nd year of the US election cycle, since the market is already up into its third year (average life of a bull market), which supports the view that 2006 is going to be a tough year.

How to play it ?

Well unlike last year when sell in may and go away did not work, it is likely it will work next year, probably sell in April and go away until October

deemy2004

Okay I am well into cycles to day

Why was not 2005 a down year when it was a post US election year ?

Well another cycle suggests that every mid decade year i.e. 1995, 2005 ends in a GAIN !

cloud_dog

"They", say that 2006 (certainly for the FTSE) is likely to be another good year - views??

I have to say I'm already getting itchy feet considering the rise we've had.

EdInvestor

Hi SS

superscotsman wrote:

That is why I recommend that the entry point is not a unit trust which has little to do with many people's lifestyles. Most people are familiar with membership of a coop, so it is only a small step from being a part-owner of a coop to being a part owner of their bank, supermarket, etc.

I agree:if you want to learn about the stockmarket there is no substitute for actually buying some shares.

it also means that you see your business in a new light: if you own shares in BP, you will not fill up with anybody else's petrol but yours. You might also get a discount card, too. When you have had your fill of these companies, you can then try something else.

Indeed,people can do a lot worse than taking say 500 quid and buying shares in 10 FTSE100 companies they have heard of, 50 quid each. (They can do this cheaply in a Halifax sharebuilder account) Then they can just log on and observe what happens to the shares as the market goes up and down.Note that some (maybe all) of them will pay you a dividend (tax free). Some will rise some will fall. You can check how your portfolio performs compared with the index.

I would teach an interested teenager how to invest using this method.

deemy2004

cloud_dog wrote:

"They", say that 2006 (certainly for the FTSE) is likely to be another good year - views??

I have to say I'm already getting itchy feet considering the rise we've had.

The ftse should still continue higher for another 200 points or so, after that ?

I'll be looking for sell signals on the rally towards 5700 to lighten my portfolio further, though not much left to sell in the UK - just UU, LLOY and the some oils. Still likely keep the overseas unless there is a breakdown in their chart patterns.

I'll see if the seasonal pattern holds up or not, if it does then I'll look to come back into the market on a buy signal in Oct/Nov.

redux

I'll just say what I did, or do, as a novice or not very experienced investor. In rough chronological order I subscribed to a magazine, bought a couple of books, did some imaginary portfolios with ten shares at a time, and after a while started with investment trusts savings schemes. Read what the fund managers and journalists say, get a few ideas, and think about whether you agree or disagree.

It depends on how active you are going to be. Some of the techniques on the thread are more interesting for experienced people, not beginners. Some of the famous investors have taken long-term views on a fairly small number of companies, whilst you get the impression that some fund managers churn their portfolios so much that potential gains are hampered by buy/sell margins.

I can remember at the time of the tech shares bubble, Warren Buffett was criticised by all the "new paradigm" trendies. On the other hand I read a quoted from Sir John Templeton that when even the lift attendant was talking about which shares to buy, then it was time to get out of the market. A friend who is a fund manager was buying oil shares ...