Getting started with share investments

neorich

Hi All,

My first post on the forum but long time reader.

I'm interested to start investing in shares. The recent privatisation of royal mail was something I would have liked to have been in a position to invest in. The trouble is there's lots of confusing information around the place, and I'd like to find answers to some of the following general questions and seek advice to find the best broker for my situation.

Questions:

1.) If I have bought shares, and then suddenly want to sell them (because I expect they will soon crash) can I be sure the broker I use will always buy them (at their current price). If not then how can I avoid being stuck with shares I don't want?

2.) Ideally I would like to find a broker who I can deal with online, with unlimited trades of unlimited value, low commission rates, where I have access to all markets (whether I want to invest in FTSE 100, or a Brazilian market), and where I can start slowly with low investments (of order £1000) and build my way up. Does anyone know any such online brokerage?

If anyone could provide any input on these, or have any advice to give it would be appreciated.

Thanks for any help

Regards

neorich

grey_gym_sock

1.) the broker doesn't actually buy the shares from you; they are an intermediary who sells your shares to a third-party (and charges you a dealing commission). this third party is usually a "market maker", who is generally obliged to always offer prices to sell or buy the share. (and they buy for less than they sell, which is how they make a profit.) in times of extreme market turbulence, this might break down, but probably only for a short time (i.e. less than a day). when there is a current price, it can of course change constantly.

even if the market is operating normally, an individual share can sometimes be suspended by the stock exchange for various reasons, or even permanently delisted. some delistings are when the company is about to go bust, when the shares will soon be worthless anyway. in other cases, you could end up holding shares in an unquoted company, which are worth something but very difficult to sell. in the latter case, there is usually (though not necessarily) some advance warning, so you could sell your shares before the delisting; however, the share price is likely to fall massively at that point, since many shareholders will want to get out.

2.) there is definitely no broker with access to all markets. different brokers offer access to a different subset of overseas markets.

finding cheap brokers for the UK market is relatively simple. overseas markets are more complicated, because the forex charges (which are not always explicitly stated) can be far higher than the explicit dealing commission. for more on this topic, see http://the-international-investor.com/international-stock-broker-list

international diversification is important. it would take rather a lot of money to do it properly by buying individual shares in different countries. the alternative is to use collective investments (funds or investment trusts).

just to get reasonably diversified to the UK would take buying at least 15-20 different shares. (some say more.)

personally, i'm holding mostly individual for the UK, but collective investments to cover other markets. though i might not bother with individual shares if i were starting out now. some ppl take the approach of mostly using collective investments, but adding a few individual shares on the side, which is also workable.

when considering individual vs collective investments, the question is: can you beat the market? or can you identify (in advance) a fund manager who can? if both answers are no, then the obvious approach is to use a tracker fund - a collective investment which just buys a bit of everything, and hence is able to charge much less than actively managed funds.

regardless of how you answer those 2 questions, keeping costs down is always important.

Wilkins

neorich wrote: »

1.) If I have bought shares, and then suddenly want to sell them (because I expect they will soon crash) can I be sure the broker I use will always buy them (at their current price). If not then how can I avoid being stuck with shares I don't want?

2.) Ideally I would like to find a broker who I can deal with online, with unlimited trades of unlimited value, low commission rates, where I have access to all markets (whether I want to invest in FTSE 100, or a Brazilian market), and where I can start slowly with low investments (of order £1000) and build my way up. Does anyone know any such online brokerage?

1) As long as you stick to FTSE Main or Aim traded shares you should not have any trouble selling them, though perhaps not necessarily at the price you would like. Tradability of shares is going to a function of the market, not of the broker.


2) Unless you are very wealthy or very reckless, I can't see why you would want to consider trading individual equities in emerging or frontier markets. For most people, foreign equity exposure is best done through active or passive funds.

ChesterDog

You talk about trading, but - at the risk of sounding like splitting hairs - there is a difference between trading and investing. The latter involves little trading.

From your post, I have the impression that trading is really what you're looking for, but I suspect this may be the effect of a novice's view of equity-based investment.

The view of many investors who hold equities would be that the way to get the best performance is to choose carefully, hold long-term, reinvest dividends, hold in an ISA where possible.

Trading requires timing the market. The market will be ahead of you. That, coupled with likely losses on the spread (the difference between the buying and selling prices), and the actual costs of buying and selling make it very, very difficult to pursue it as a policy and come out on top.

For example, you suggested you might want to sell shares quickly because you think they might crash... By the time you think that, the price would already have collapsed. Timing the market is not something for the amateur investor, in my opinion. Choosing wisely with an eye to long term gains is. Within that policy, diversification is a must.