What and how much do you need to know when buying individual shares?

masonic

krish123 wrote: »

yes I was wondering whether you could just copy successful investors surely you wouldn't go to far wrong with going down this route?

Copying successful investors might not seem a bad thing to do, but what are the advantages to copying their trades over investing your money in their products? Would it be cheaper? Probably not, unless you have tens of thousands of pounds to invest to keep trading costs low in percentage terms.

On the flip side, what are the disadvantages? By the time you find out about an investment, the price might already be a lot higher than the successful investor paid (in fact, they might have been able to buy on special terms). When they sell or take profits, you might not find out for quite some time and could get caught out by bad news anticipated by the successful investor.

It's all very well getting a bit of inspiration from someone else's portfolio, but if you haven't done your own research and don't have objectives and exit strategy then you could be asking for trouble.

Rewind a couple of years and suppose you saw this Citywire article showing Warren Buffett was buying up shares in Tesco...

C_Mababejive

My best advice is just keep drip feeding your money into funds. Dealing in individual shares with relatively small amounts of money will likely prove to be very costly and painful.

puk999

krish123 wrote: »

yes I was wondering whether you could just copy successful investors surely you wouldn't go to far wrong with going down this route?

Made me think of Copy Trading. You open an account with a copy trading site, deposit some cash and pick trader(s) to copy. When they trade, your account automatically copies their trades. I've never used one, but think the idea is interesting. Not ideal for you as you'll still have those transaction costs! (EDIT: unless the system pooled the trades in the copying/copied accounts to share transaction costs?) I am not recommending you use copy trading, just mentioning it as it seemed to be close to what you were talking about.

Ryan_Futuristics

Well I've seen failed experiments (already) of people trying to copy Woodford's fund (because it discloses all its holdings) ... And not only are they paying ridiculous dealing charges, the performance lags because they're always playing catchup ... 'Coat tail investing'

And yes, there'll be more chance of mistakes - like Buffett buying Tescos - but there can be greater reward from being less diversified

E.g. if you'd held just AstraZeneca recently, you'd be beating the index ... And Glaxo's trading quite cheap at the moment, and income chasers would be looking at a 5.99% dividend and no fees ... So holding a top holding of someone like Woodford essentially just pushes you further up the risk/reward chart



But it does help if you can value companies, otherwise you can fall down when it comes to selling ... Benjamin Graham would work out underlying share value, so if a share's worth $30, but trading for $15, then it might be a good purchase ... But when it reaches $30, you might want to sell (or revalue) ... Every investor has their own favoured formulas for valuation

You can do the same with indexes ... Some of the best performing portfolios on sites like portfolio123 will just switch between an S&P500 index and a government bonds or short index (market timing), and Meb Faber's back tested incredible returns from holding undervalued foreign indexes until they reach their median valuation (just like Ben Graham), and it helps spread risk, cuts dealing charges, and the maths is easier

Ryan_Futuristics

Also this is some great advice - from Jim Slater

http://www.jimslater.org.uk/investment/become-a-successful-investor/


Successful Investing

Putting it all together
The steps necessary to become a successful private investor can be summarised as follows -

Devote at least four hours a week to investment.

Read a primer. Needless to say, I recommend Investment Made Easy.

Read three further books, including The Zulu Principle, as shown in
detail in recommended reading.

Consider joining an investment club to widen your circle of competence and add to your overall strength and know-how. Within every club there is always a ‘faster gun’ – someone who knows more about investment than the other members and can add knowledge of the group. Also, in a club, it is easiest to stick to a discipline and to gain moral support from other members. Last, but not least, the cost of newsletters and necessary investment services like Company REFS can be shared to reduce the expense to a very affordable level per member.
Anyone interested in joining an investment club or forming one should contact ProShare. In particular they should obtain a copy of the ProShare Manual, which explains everything they need to know about investment clubs.

Apply The Zulu Principle by concentrating on a particular approach that suits your temperament and abilities. I recommend growth shares, but many investors prefer high-yielders or recovery stocks. Another way of applying The Zulu Principle is to concentrate on a particular sector or sectors and become expert in a relatively narrow area of the market.

Develop a method of investing that you can hone and temper with experience. Look at it like improving a golf swing. Once your swing (method) is right, your game (portfolio performance) should improve.

Read the Financial Times daily if possible. If you cannot spare the time, at least, be sure of reading the Saturday edition which summarises the week’s activities and gives most share prices.

Subscribe to the Investors Chronicle and MoneyWeek and read them both carefully.

As you progress obtain access to reliable investment information from a publication such as Company REFS.

Keep in close touch with your portfolio through a reliable online service such as Digital Look.

Do not spend too much time worrying about the market as a whole. Investment is the art of the specific and selection is much more important than timing. If you find that your investments are causing you sleepless nights, sell a few shares down to your sleep level. When you select the shares to be sold, choose the most speculative and those with the highest PEGs. This will improve the margin of safety of your residual portfolio.

Run profits and cut losses. This way your losses will always be small and profits should be big. Running profits is also very tax-efficient.

If you can spare the time try to attend an investment class or seminar. The cost should be looked upon as a kind of one-off capital investment that should help to improve the performance of your portfolio over a long period.

Measure your performance against the market at least once a month and preferably more frequently. There will be times when the market beats you, so do not be phased by a few bad weeks. Keep a running check year by year. If, after a few years, you are failing to beat the market, you will be advised to delegate the investment of your portfolio to a professional manager with a good track record, through the medium of a unit or investment trust.


And this
http://www.jimslater.org.uk/investment/investment-philosophy/