How do you pick shares/investments?

hi,

relatively new to this board and wanted to ask some advice. Have some spare money that i was looking to invest as opposed to save. However, with all the options i am not sure where to start? Given that i am quite young and willing to take a risk (i have savings seperately so wouldn't be a disaster to lose this money) so my first thought was shares?

However i have no idea of how to pick a good share from a bad one so was looking for tips?

Thanks
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Comments

  • Rafter
    Rafter Posts: 3,850
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    Unless you are an expert, stock picking is usually a 'zero sum' game and you are better off investing in an index (IE a basket of shares in a certain market).

    If you pay tax it is worth considering a stocks and shares ISA so any investment returns or capital gains are tax free.

    The thing to watch our for is charges which can really eat into your returns.

    You also have to be careful about investing a lump sum in shares at a particular point in time - if you get your timing wrong just before a crash/ high point then you could have an immediate paper loss. Better to 'drip feed' over time to reduce this risk.

    Good luck

    R.
    Smile :), it makes people wonder what you have been up to.
  • Think about a funds ISA if you want to get into stocks and shares, but not personally do the dealing, as mentioned by Rafter. You can place up to £10,200 each year into this account and this can be in lump sums or via regular saving. If you have a cash ISA too this is reduced to £5,100 for each, but most cash ISAs are at less than 3% which is not currently keeping up with RPI.
    A funds ISA is usually many times this rate dependant on the risk ( a mid risk level 5 or 6 is usually between 5 - 20 % return per year, but this is over a period of time i.e. 5 years and some years may have a defecit. You have to be willing to accept the risk too, but if you going into stocks and shares you are doing that anyway. Higher risk funds, such as emerging markets can give greater returns still, but carry the greater risk.
    Try one of the fund supermarkets like 'the share centre' or 'iii' on the internet (othere available too). The share center even lets you set up a practice account.
  • Jake'sGran
    Jake'sGran Posts: 3,269 Forumite
    I use The Share Centre = Just Google Share.com to have a look at their terms etc.
    They issue a share tip each week to members if they request them but I have found my own choices have performed better. I followed a discussion that was started on here and invested in it. Last night I noticed it had gained 50% in a couple of weeks. There is a long thread about it on the first page of this forum, Xcite Energy.
  • Rafter wrote: »
    Unless you are an expert, stock picking is usually a 'zero sum' game and you are better off investing in an index (IE a basket of shares in a certain market).


    I don;t have time to get into the whole active v passive debate right now, except to say that there are just as many people who believe that certain fund managers can add alpha (i.e. out performance compared to an index) especially in situations where the market is less efficient e.g. smaller co's, BRIC countries, specialist funds etc.

    I'd also comment that it is not enough just to buy an index and hold it. If you are going to use passive funds, you must have an active asset allocation strategy. A simple search on google will show many academic studies that show circa 90% of the return is derived from asset allocation.

    It is not sufficient to simply buy an index and hold it.

    The Cautious Investor
  • It is not sufficient to simply buy an index and hold it.

    Why not? Particularly for non-expert investors.
  • googler
    googler Posts: 16,103
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    OP, you need to decide if you're going to buy shares and hold for long-term gain, and to receive a dividend on (hopefully) an annual basis determined by the company's performance, or if you want to buy and trade on a short-term basis in order to sell at a higher price than you bought, and therefore gain income.

    Or maybe a combination of both.
  • Aegis
    Aegis Posts: 5,688
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    middlepuss wrote: »
    Why not? Particularly for non-expert investors.
    Buying a single index will limit your investment to the components of that index. Buying into more than one investment means that you spread your money across different sectors, regions and asset classes to improve the diversification of your portfolio and increase the likelihood of a) absorbing losses from specific sector underperformance while b) holding on to sectors with significant overperformance.
    I am a Chartered Financial Planner
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
  • Kingboth,

    Are you investing to have a bit of fun or to make money over the medium to long term?

    If it's a bit of fun by all means gamble on a single company. But remember, RBS and BP both looked safe investments just before they tanked!

    If you're looking to start out on a lifetime of investing and want to dip a sensible toe in the water one option would be an index tracker unit trust held in an ISA. Have a look on the Legal & General and Fidelity websites, for example.

    You won't be short of advice on here and you'll probably find that whetever anyone suggests someone else will come along and rubbish it and suggest something quite different!
  • middlepuss wrote: »
    Why not? Particularly for non-expert investors.

    Hi

    I'd suggest that buying an index is actually better for people who know what they are doing.

    Asset allocation is key, decide how much risk you want to take, which asset classes (equities, fixed interest, property, cash, commodities etc) you wish to invest in and in which proportion. Then decide whether you want to fulfill this asset allocation with actively managed funds or passive funds i.e. trackers.

    Many very successful investors believe that in more efficient markets trackers are as good as you can get, but that active managers add alpha (i.e. outperformance) in less developed / efficient markets.

    If you had bought a FTSE 100 Tracker e.g. HSBC and left it you would have made a return of 16.98% over the past 5 years years. Hardly attractive when you consider the risk element, you would have been better in cash!

    The other things you need to remember is that because of charges a tracker will always underperform an index.

    Whatever way you invest, even if you use passives, you need to be active in your asset allocation.

    The Cautious Investor
  • Aegis wrote: »
    Buying a single index will limit your investment to the components of that index. Buying into more than one investment means that you spread your money across different sectors, regions and asset classes to improve the diversification of your portfolio and increase the likelihood of a) absorbing losses from specific sector underperformance while b) holding on to sectors with significant overperformance.

    I like index trackers, as an alternative to actively managed unit trusts. They have lower charges and the chances are if you pick an actively managed unit trust you won't pick one that will beat the index tracker over the medium to long term. I was suggesting that, for novice investors, an index tracker is a much better option than stock picking and probably a better option than an actively managed fund.

    I agree that for more experienced investors, and those with larger amounts to invest, also putting some into emerging markets etc etc etc - via investment trusts perhaps - spreads your risk and exposes you to the hoped-for outperformance of those markets.
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