"Do Your Own Research" - How?

MyLastFiver

OK a real noob question I know, and one of many I'm going to be asking over the next few weeks.

I'm considering buying individual shares in the future but would not pull the trigger on a share unless I understood the company's fundamentals and its prospects for adding value. I guess many people buy shares because they are household names, or have paid good dividends in the past, but there has to be more to share selection than that!

So:

1. What are the factors within a company to take into account when deciding whether to buy a share?

2. Are there websites which enable you to find this information quickly and easily?

I've read about things like P/E ratios but don't really know what this means or how important it is. I expect I'll get a flaming for asking these questions but if anyone would care to explain then I think it would be useful to a lot of people on this forum.

westy22

but there has to be more to share selection than that!

Surprisingly, in many cases there isn't! Lots of private investors just say to themselves ' I think Tesco are going to continue to grow and be profitable and their shares are cheaper at the moment than they were 3 months ago' and go out and buy £10,000 of Tesco shares.

Others spend hours pouring over the past annual accounts and after much deliberation and devising spreadsheets of comparative figures and analysis decide to take a punt on £500. You can't even say that group B always consistently produces a better result than group A.

There are many sites where you can research as much information as you could possibly need - try Motley Fool, Hargreaves Lansdown, or Interactive Investor - you will find enough facts, figures and analysis to keep you fully occupied for the next 6 months!

brianrhill

I'm interested in your apetite and capacity for loss. Are you happy to risk, and can you easily replace, 100% of your 'bet' (sorry, stock picking)?

Peeky_Joe

Remember you can research as much as you like, but look at BP. Very profitable company, a very good dividend return but then the oil spill in the Gulf of Mexico happens.

As with any form of gambling, only stake what you can afford to lose.

MyLastFiver

westy22 wrote: »

Surprisingly, in many cases there isn't! Lots of private investors just say to themselves ' I think Tesco are going to continue to grow and be profitable and their shares are cheaper at the moment than they were 3 months ago' and go out and buy £10,000 of Tesco shares.

Others spend hours pouring over the past annual accounts and after much deliberation and devising spreadsheets of comparative figures and analysis decide to take a punt on £500. You can't even say that group B always consistently produces a better result than group A.

There are many sites where you can research as much information as you could possibly need - try Motley Fool, Hargreaves Lansdown, or Interactive Investor - you will find enough facts, figures and analysis to keep you fully occupied for the next 6 months!

Thanks - I'll give the "research" tab on HL a good going over.

Your comments are interesting - perhaps there is no "black art" - just different methods and degrees of attention to detail. I guess that if you buy shares with good (historical) dividends then this may provide a buffer to any capital losses.

I remember something Warren Buffet said in an interview; he used to pore over company listings identifying the ones which were undervalued. I wish I knew his criteria. Maybe I should read one of his books

psychic_teabag

I've just found "The Naked Trader" in the local library. He talks a little about how he does his research, what he looks for in the annual reports, etc. Quite an easy read.

MyLastFiver

brianrhill wrote: »

I'm interested in your apetite and capacity for loss. Are you happy to risk, and can you easily replace, 100% of your 'bet' (sorry, stock picking)?

My - ahem - "speculation" would constitute approx 10% of my annual savings/investments. Another 30% in funds (Aberdeen EM, FTSE All Share Tracker, Asia Pacific ex-Japan tracker plus others as yet undecided) and 60% in cash. Approx £15k a year in total.

Say I spent £1500 on Vodafone shares and they went completely bust tomorrow it would sting but I would still be able to send my son to university in 15 years.

Having said that, if Vodafone went bust tomorrow, a whole load of other economic factors would have also changed and I doubt the rest of my S&S ISA would be worth very much either. Nor would my cash for that matter.

The reason I'm asking the question is that I'm seeking some income to offset capital losses in my other investments. Owning shares in one or two FTSE 100 companies may provide that.

Feel free to point out the flaws in my logic. I need to learn!

westy22

I guess that if you buy shares with good (historical) dividends then this may provide a buffer to any capital losses.

It does provide a buffer - there are many companies that have consistently increased their dividend payment every year for 25 years or more! Many investors decide to build a high-yield portfolio (HYP) made up of reliable dividend paying companies that are likely to sustain a 5-6% annual dividend yield. With such portfolios most HYP investors totally ignore the constant daily ups and downs of the share price.

gadgetmind

MyLastFiver wrote: »

The reason I'm asking the question is that I'm seeking some income to offset capital losses in my other investments. Owning shares in one or two FTSE 100 companies may provide that.

I'm not sure how income can offset capital losses, but dividend income does have tax advantages for basic rate tax payers.

I suggest you do some reading of the "High Yield Portfolio" board on the Motley Fool forums. Nasty forum format but some very experienced investors hang around there.

It's best to diversify your portfolio so as to avoid >5% in any single share, and >10% in any sector, but these are just rules of thumb. Also keep an eye on dealing fees. Some platforms allow regular trades at £1.50 but you're going to be looking at closer to a tenner for a real-time trade. I tend to avoid any trade of less than £2k as otherwise the fees start getting silly percentage wise.

gadgetmind

westy22 wrote: »

With such portfolios most HYP investors totally ignore the constant daily ups and downs of the share price.

No, we just pretend to.

And 5-6% is a high initial yield to aim for as an average. Very high yields are a warning that the share price has slumped, maybe because of widespread panic, but maybe for a good reason.

Linton

MyLastFiver wrote: »

My - ahem - "speculation" would constitute approx 10% of my annual savings/investments. Another 30% in funds (Aberdeen EM, FTSE All Share Tracker, Asia Pacific ex-Japan tracker plus others as yet undecided) and 60% in cash. Approx £15k a year in total.

Say I spent £1500 on Vodafone shares and they went completely bust tomorrow it would sting but I would still be able to send my son to university in 15 years.

Having said that, if Vodafone went bust tomorrow, a whole load of other economic factors would have also changed and I doubt the rest of my S&S ISA would be worth very much either. Nor would my cash for that matter.

The reason I'm asking the question is that I'm seeking some income to offset capital losses in my other investments. Owning shares in one or two FTSE 100 companies may provide that.

Feel free to point out the flaws in my logic. I need to learn!

As you already have a FTSE All Share tracker why do you want to chose a few more FTSE100 shares - why not just increase the % in the tracker? The FTSE Allshare is 80% comprised of FTSE100 companies anyway.

But if you want to decide which UK shares to buy I suggest you learn about the basics of company accounts (if you dont already know). You can then look at https://www.advfn.co.uk and https://www.digitallook.com. These sites will give you the financial fundamentals of any quoted share.

Armed with this you should be able to identify the obvious dogs weighed down with debt, the small highly speculative company ramped on the forums that has unfortunately yet to make a profit, the solid yet unexciting company bringing in the profits and paying the dividends year after year etc etc.

You can also take advantage of any specialist knowledge you may have. If for example you work in IT you may well have a better idea of which companies in that field are really worth investing in then many newspaper city column tipsters.