New to investment

firehawk_2

I know its a bad time in the financial market but I want some advice.

I am new to "shares" so from what I know, if you invest some money into something, you have a chance of gaining more, or losing - but the gaining is the key here (lets think positive!)

how does this work?
how do I invest?
when can I "get" that money out if say, it gained and put it into my account?
where do I go for investing money/buying shares?

how does the whole think work? I am a total newbie and have no clue what so ever, but would like to ideally gain more money.

Thanks!

itsmickdundee

firehawk wrote: »

I know its a bad time in the financial market but I want some advice.

Quite the contrary. If the financial market is in a "bad time", it's usually a good time to start buying shares. However, with recession looming, there are still further drops to go with the stock market, so I would hold off for at least another 6 months.

Further, I seem to be seeing this all the time at the moment - the markets are in feefall and now every Tom, !!!!!! and Harry thinks it's a no-brainer to throw money at the stockmarket, without even knowing the very nature of the beast, let alone even the basics.

Don't get me wrong, it's a good thing to diversify your (spare) cash between savings and investments, but let's not jump the gun here...

firehawk wrote: »

I am new to "shares" so from what I know, if you invest some money into something, you have a chance of gaining more, or losing - but the gaining is the key here (lets think positive!)

how does this work?
how do I invest?
when can I "get" that money out if say, it gained and put it into my account?
where do I go for investing money/buying shares?

Gaining is the key, but positivity is a little idealistic and naive. You need a realisitic, shrewd attitude, otherwise you'll quickly start making losses. It's not as easy as the media/your friends/people on these boards might think or make out. The best looking companies might end up bust (Enron anyone?), the worst looking might end up making you a fortune (GEICO). You could do as much research as possible about a company and it might look brilliant, but something comes up which sinks the company. Likewise for a company that might look like it's about to go bust. That's why there is always an element of risk, but usually, investing in shares are are safer bet than say... a bet.

Ok, let me explain:

First, if you buy shares in a company, you own part of that company. A company issues a certain number of shares - and can keep issuing more and more to raise capital. Capital is what it uses to pay bills, wages, suppliers, research, etc - it's basically the money they have in the bank which they use for all expenditure and overheads. Companies like issuing shares to raise cash because, unlike a bank loan, there is no interest to pay, among with a few other perks.

So let's say Company A is worth £10million and has 10 million in listed shares, each share is worth £1. The value of the company - called market cap - is worked out by multiplying the number of shares in issue (in this case, 10 million) by the individual value of the share price (in this case, £1).

So let's say you purchased 1 million shares, you'd own 10% of Company A.

So how do you know which companies to invest in? Three things: research, research and research. And if you cannot be bothered with this, stick with the bookies.

You need to work out a number of things by analysing the company's annual (financial) reports. Working out PE ratios, dividend yields and a fair few number of other technicalities. Also phoning the company for additional info. Checking newspapers/internet for reports. Further sector analysis. Too many things to list or go into with any depth, otherwise I'd be writing you an essay. Also, never take advice from anyone other than your own research. Your family and neighbours are probably recycling the bull they read in the papers. Share message boards are full of complete morons who wouldn't know an EPS from a PSR. And professional analysts always have their own agenda.

The best thing you can do is go to Amazon and buy a good 5-10 books on stocks and shares and investing and read them all, thoroughly.

how does this work? It works by you using a broker. You can use a human one, but unless you have hundreds of thousands or millions to invest, I wouldn't recommend it as their commission fees will be high (5-10%+ on top of other fees) and to be quite honest, they are unecessary in the 21st century as well.

So you would use an online broker, whereby you act as your own broker. That is, you action the buy or the sell. Online brokers typically charge around £12-£12.50 per trade (buy OR sell), with 0.5% capital gains tax on top. Almost all charge inactivity fees - so if you only make one or two trades a year, you could end up paying up to £28 a year in extra fees. The more trades you make, the cheaper it is, although I would not recommend this, as short term trading is utterly useless if you want to make real gains... In other words, day trade if you have insider information. If not, you are throwing your money away.

how do I invest? By using an online broker like Barclays, Selftrade or e*trade. I recommend (and use) selftrade as there are NO inactivity fees.

when can I "get" that money out if say, it gained and put it into my account? By selling the shares. The money is then held in your trading account for 3 working days to "settle". After this, you can then transfer it to your nominated bank account. Application to your online broker will be done by post. This is so that they can confirm your identity as you will have to send with your application your passport or drivers licence and (if my memory serves me correct) any tax form with your name on it.

Note you should really look to invest at minimum amounts of around £2000.

I say this because let's say you buy £1000 worth of shares in Company X. Minus £12.50 broker commission + 0.5 CGT = £982.50. So you have already lost £17.50 before the share price has even risen. To make it worse, there is a spread. I won't go into this in any detail, but basically, if each share in Company X is worth say £1, you will buy at slightly higher than this price and sell at slightly lower than this price. So the difference between these buy and sell prices and the actual price is called the spread. This is so that the marketmaker - the guy who sets the price of any given company - can make his share in any deal. He also works with the brokers to capitalise on profits. So your initial investment has probably already lost a good 3%. If you want to sell, you have to pay the £12.50 broker fee again + the 0.5% CGT + have the spread to contend with. So you'd need to make back 6% on your initial £1000 to even break even. This is a relatively big rise, especially over the short term. The bigger your investment, the smaller % rise needed to break even or profit. But also the bigger your losses should everything go t!ts up...

where do I go for investing money/buying shares? A number of places - newspapers, books, magazines, newsletters, websites, etc, etc. Only those who have a huge amount of cash will work with a human broker due to the excessive fees. If you only have thousands to invest, that will probably be eaten away in fees alone. If you have a million to invest, then you're talking - a few thousand in professional brokering fees then becomes peanuts...

firehawk wrote: »

how does the whole think work? I am a total newbie and have no clue what so ever, but would like to ideally gain more money.

Thanks!

My advice? First of all, do what I said about buying a good few books on the subject. So long as you can READ and have BASIC mathematics skills, anyone can "successfully" invest on the stock market - with enough research and a bit of a luck, of course.

Second, sign up to MSN Virtual Trader and invest using virtual money on the "real" stock market. It's a good way to get a grounding and understand how a real online broker works.

Third, what's the rush? The market is in freefall and won't stabilise for a good few years yet. The high's seen around December 2007 will not bee seen again for a good 3-5 years, probably much longer.

Rush anything when it comes to investing with shares, and I guarantee you will lose money. Take your time, you have plenty of it before plunging your money into the stock market. You could still pick up some real bargains in another 2 years - things really are that bad with the world economy, it would take some miracle for them to recover in such a short space of time.

Fourth, ONLY invest money which a) you are prepared to lose and b) you are prepared to keep locked up for a good few years, if not longer.

Fifth, NEVER invest with money which you don't actually own. NEVER buy shares in a company which you are sure will "rocket" on some hunch on money which is borrowed, either on loan or from your broker. The risks are just too high and it is best left to professionals to do this. Otherwise, look what happens when it all goes wrong. It started last year and is called the Credit Crunch.

I hope this helps.

Blah99

I am new to "shares" so from what I know, if you invest some money into something, you have a chance of gaining more, or losing - but the gaining is the key here (lets think positive!)

In the current market, unless you know exactly what you're doing, you have far more chance of losing money than making any. In the current market, if you only have a vague idea of what you're doing, you'll be lucky to make a return greater than what's available through cash deposits. Keep this in mind - there are no guarantees in market trading.

how does this work?

I assume you know what shares are, and how companies issue them? The market works by people buying and selling shares. The share price goes up and down based on lots of factors, including wider economic factors, a company's prospects, rumour, psychology etc etc. Can you clarify your question a bit more?

how do I invest?

First you buy a couple of books on the topic. I recommend "The Naked Trader 2" by Robbie Burns, although some people complain his writing style grates on them. When you've read the books you then buy investment magazines - at a minimum you should buy the Investor's Chronicle weekly.

When you've done all that you'll know how to select an execution only broker, how to get quotes, how to research a share and how to conduct a trade.

when can I "get" that money out if say, it gained and put it into my account?

You can buy and sell shares at any time, providing the markets are open (or you'll take the hit on the spread) and there are no special conditions such as a delist or suspension. Once you've bought shares and, in your perfect world, they've increased in price, you simply sell them through your trading platform. The money is deposited back into your account that you hold with your broker, and you can transfer it back to your bank account as and when you want.

where do I go for investing money/buying shares?

Those are 2 different questions. To invest money you either do the research yourself or engage an IFA. To buy shares you either do the research yourself and use an execution only broker, or you engage an advisory broker who will help pick trades for you.

My honest advice to you: it feels like you've heard about shares and heard about how people can make lots of money. You know the markets are bad at the moment but you're still very attracted to the idea of making money, especially because people are talking about this "shorting" thing. But you don't know the very basics of how to go about doing any of this. You need to spend some time reading and researching to learn how the whole stock market and trading system works. Give yourself several months to get your head round it - maybe aim to look for your first trades in January.

If you don't do this fundamental research you're going to lose money, fast.

Blah99

lol, ok, well itsmickdundee and I didn't plan that, but the fact that we posted the same basic message - do your research & studying - at the same time should tell you something!

StevieJ

Tell you what, just get a Ftse tracker.

firehawk_2

thank-you so much for this, i greatly appreciate the in depth responses and now have a basic understanding of it all excellent

so, who wants to help me make money? jk.

thanks again!

itsmickdundee

And I bet both Blah99 and myself start investing on the stock market again later on in 2009 or perhaps mid 2010...

When things bottom out, you literally could take your pick of any top 20 FTSE 100 companies and see a profit in 10 years.

Don't beleive me? Enough studies have been shown by Barclays and the Wall Street Journal among others, that bilnd investing in big companies - picking a handful of the top 20 on the DOW or FTSE at the end of a crash will almost always lead to a profit in the long term.

I would still recommend a lot of research - and the mid-caps are historically your best bet...

StevieJ

itsmickdundee wrote: »

And I bet both Blah99 and myself start investing on the stock market again later on in 2009 or perhaps mid 2010...

When things bottom out, you literally could take your pick of any top 20 FTSE 100 companies and see a profit in 10 years.

Don't beleive me? Enough studies have been shown by Barclays and the Wall Street Journal among others, that bilnd investing in big companies - picking a handful of the top 20 on the DOW or FTSE at the end of a crash will almost always lead to a profit in the long term.

I would still recommend a lot of research - and the mid-caps are historically your best bet...

Just a point, the market tends to bottom early in a recession e.g. in the early 90s recession the market bottomed around end Sept 90 i.e first quarter to go GDP negative.
It then flattened out for a quarter or so and then moved up.
Nothing is ever the same but I suggest if you wait until 2010 you may have missed the boat.

itsmickdundee

StevieJ wrote: »

Just a point, the market tends to bottom early in a recession e.g. in the early 90s recession the market bottomed around end Sept 90 i.e first quarter to go GDP negative.
It then flattened out for a quarter or so and then moved up.
Nothing is ever the same but I suggest if you wait until 2010 you may have missed the boat.

Well, nothing's a given, but I find it unlikely that the FTSE will be back to its former glory by 2010. It might have maybe halved the current shortfall from the highs seen a good several months ago, but I doubt a full recovery will be on the cards for a good 3 years yet.

gozomark

itsmickdundee wrote: »

Well, nothing's a given, but I find it unlikely that the FTSE will be back to its former glory by 2010. It might have maybe halved the current shortfall from the highs seen a good several months ago, but I doubt a full recovery will be on the cards for a good 3 years yet.

if it halves the current shortfall, it will be up nearly 50%....

sh856531

I just want to say thanks to "itsmickdundee" for taking the time to write that detailed answer.

That was one of the best posts I've read for quite a while

Thanks matey