Complete newbie to Shares, Penny Shares - Thoughts?

jimjames

AnotherJoe wrote: »

It's a classic beginners mistake. Terrible idea. Penny shares are penny shares for a reason.

It's worth pointing out that penny shares doesn't necessarily refer to the share price. There are some shares trading at the under £1 level that wouldn't fit that description and are blue chip, FTSE companies.

steampowered

martinsurrey wrote: »

The best thing IMO, and the general gist of this thread is that the OP shouldn't buy a single share in a company.

p00hsticks wrote: »

I really wouldn't be advising the OP to invest in any individual companies at this stage, blue-chip or not.

I personally think that it is a good idea for the Op to buy individual shares.

I think this because we are not talking about huge sums of money, and because the Op has expressed interest in learning more.

In my opinion, the best way to learn how to invest is to start doing it with modest sums of cash. You only really learn from your successes and failures. Playing around with fantasy money can be useful but it is much less motivating.

I agree that buying individual shares exposes the Op to an increased risk of losing money. However, if the Op purchases a few different shares in large companies across different industry sectors, the chances of the Op losing large sums of money are vastly reduced.

steampowered

p00hsticks wrote: »

If you arbitrarily take 'blue-chip' to be the FTSE 100 companies, there's still been plenty of scope to lose a packet over the years on companies like lloyds, RBS, Marks and Spencer, BP etc etc

I think this list of shares demonstrates my point.

You describe these shares as "losers". But they all go up and down at different times. If the Op bought a portfolio with those 4 shares at any point during the last few years he would have done well.

If the Op had bought those shares in 2013 he would have found that by today Lloyds' share price has doubled, BP's share price increased from 365p to 375p, M&S dropped from 550p to about 350p, and RBS dropped from about 350p to 250p. Winners balancing out the losers. The Op would be ahead overall, plus he would have received dividends.

If the Op had bought those shares in 2014-2015 he would have done extremely well, since he would have benefited from a significant increase in BP's share price during that time.

The only time the Op would have lost money on a portfolio of those shares is if he invested just before the 2008 credit crunch. But that is because two of the shares you name are banks. Hence why I suggest the Op diversifies into different sectors. Four different shares in four different sectors should do the trick.

martinsurrey

steampowered wrote: »

If the Op had bought those shares in 2013 he would have found that by today Lloyds' share price has doubled, BP's share price increased from 365p to 375p, M&S dropped from 550p to about 350p, and RBS dropped from about 350p to 250p. Winners balancing out the losers. The Op would be ahead overall, plus he would have received dividends.

lets look at your numbers

LLoyds lowest price in 2013 was 47.02 on 5th April 2013, so lets use that as our base date.

Lloyds is now trading at 65.84 so £100 of shares bought on 5th April would be worth £140 today.

Add the £12.50 trading fee to buy, and the potential £12.50 fee to sell, and £100 of shares cost £125 to get in and out, so £15 gain.

BP was at 447 on 5th April 2013 and now is 475p so £100 of shares is worth £106, less the £25 fees, £19 loss.

M&S 377 (5th April) to 339 £100 of shares now worth £90, less £25 fees, £35 loss

RBS 270 - 224 £100 of shares now worth £83 less £25 fees £42 loss.

Add back dividends

LLoyds - 4.35p per share since 2013, OP would have 151 shares so total of £6.57 in divi

M&S 58.3p per share since 2013, op would have 26 shares so £15.16 in divis

RBS - None

BP - 97.5p per share OP would have 22 shares so £21.45 in divis.

total.

If OP had bought £100 of each of the 4 shares on 5th April 2013 and held them until today.

paid - £450.00 (£400 + 4 X £12.50)
Worth - £419.00
Cash from divis - £43.18
Cost to realise shares - £50.00

Net cash value of shares today = 419+43.18-50 = £412.18 against a cash input cost of £450.

HSBC FTSE 250 accumulation tracker was trading at about 167 in April 13 and is now at 235 so £450 invested in April 13 would be worth £633, fess are about 0.7% per year so 4 years lets be generous and take of 2.8% of the closing amount giving a value of £615.50

so over the same period of investment those 4 shares would give a small time investor a £38 cash loss against a £165 cash gain of a tracker.

martinsurrey

martinsurrey wrote: »

paid - £450.00 (£400 + 4 X £12.50)
Worth - £419.00
Cash from divis - £43.18
Cost to realise shares - £50.00

Net cash value of shares today = 419+43.18-50 = £412.18 against a cash input cost of £450.

HSBC FTSE 250 accumulation tracker was trading at about 167 in April 13 and is now at 235 so £450 invested in April 13 would be worth £633, fess are about 0.7% per year so 4 years lets be generous and take of 2.8% of the closing amount giving a value of £615.50

so over the same period of investment those 4 shares would give a small time investor a £38 cash loss against a £165 cash gain of a tracker.

just to add to that, if you invest £4000 in shares at day 1 (dilutes the trade fees)

paid - £4050.00 (£4000 + 4 X £12.50)
Worth - £4190.00
Cash from divis - £430.18
Cost to realise shares - £50.00

Net cash value of shares today = 4190+430.18-50 = £4570.18
net value of Tracker £6,155, so a difference of £1,600

Malthusian

steampowered wrote: »

I personally think that it is a good idea for the Op to buy individual shares.

I think this because we are not talking about huge sums of money, and because the Op has expressed interest in learning more.

This is the "throw them in at the deep end" school of swimming tuition.

Throwing people in at the deep end is a crap way of teaching people to swim. Some of them will drown, or be too traumatised to ever swim again. The rest will be no better at swimming than if you had taken them to the shallow end and taught them to swim the normal way.

There is no need to lose money in order to learn about investing.

People tend not to buy a bunch of individual shares, lose money (or make significantly less money than a diversified tracker portfolio) and then shrug their shoulders and say "Well, lesson learned. I'll now sell this junk and switch it into the diversified portfolio I knew I should have bought in the first place. And work a bit harder to make up for the mistake of the last five years." What they actually tend to do having "learned from their mistakes" is decide the stockmarket is a casino and put all their money in the bank, or gold or buy to let or something random. If they understand why they would be better off in the long run by diversifying they would have done it in the first place.

System

I think individual shares suit nobody and the whole concept of stockpicking is for people who arent aware of or don't appreciate index tracker funds

Plenty of investors are fools to try to beat the market, greed is their undoing, but without the research they pay for we wouldn't have efficient markets

Unless the fundsmith model is a solid index beater? If so we can expect to see the active vs index situation change

Anthorn

tommysaver wrote: »

Hi all.

With the dwindling interest rates and my money pretty tied up in accounts getting me frankly pennies, I've a good chunk of it in premium bonds too as I quite enjoy the risk of being able to win big.


Anyway, I'm looking to start putting some money into shares / or penny shares.

I am not looking to get rich. More, to slowly get an understanding of the stockmarket and enjoy/learn what I'm doing.

I've bought a book and plan to read that.

But my first questions are, is anyone else new to this - what websites have you found good for shares etc?

I see interactive investor charges like £11.95 per trade. So only worth doing if you are putting 4 figures in. I'm a bit dubious to put larger chunks of money in being completely new.

What is a good amount to start with if I research and really like the look of a company? £500?

Are penny shares based on the same principle? I'd like to have a flutter on these as a learning curve more than anything... any good websites to do this on? With minimal charges?

Thanks guys!

:beer:

There is more to it than reading a book. I highly advise joining a share club to cut your teeth on. I've been a member of a share club for several years. We all meet monthly and each has the details of shares they find interesting, a discussion follows and a decision made over what to sell and what to buy if anything. You will probably find the assets of the club divided into shares in much the same way as a unit trust is calculated.

Be very careful that the share club uses the services of a bona fide stockbroker and approach that stockbroker for details. Find info on established and new share clubs in the financial press or sometimes stockbrokers have details of the club(s) they deal for.

Lastly only invest an amount which you can afford to lose.

steampowered

martinsurrey wrote: »

paid - £450.00 (£400 + 4 X £12.50)
Worth - £419.00
Cash from divis - £43.18
Cost to realise shares - £50.00

Net cash value of shares today = 419+43.18-50 = £412.18 against a cash input cost of £450.

Your numbers are extremely misleading because you are using a (relatively high) trading fee of £12.50 per trade and investments of only £100 each.

That means the trading fees by themselves take up 25% of the investment !!!!

As I think you are well aware, investing in shares at £100 a pop would be a very silly thing to do.

If you were to take a much more reasonable (but still quite low) investment figure of £1000 per share, the trading fees would take up 2.5% of the investment rather than 25%, giving you a much better return.

And I remind you that I only chose those shares because someone had referred to them as "losers", citing them as examples of disaster cases! I merely wanted to show how people tend not to lose money if they are diversified, even if they do select a disaster case.

Malthusian wrote: »

This is the "throw them in at the deep end" school of swimming tuition.

There is no need to lose money in order to learn about investing.

Learning to invest is no different from learning to do DIY; learning to cook; learning to read financial statements; learning to drive a car; learning to SCUBA dive; learning to read Shakespeare or any other skill you could care to name.

The best way to learn almost any skill is by doing it. You start off small with modest sums of money and get better over time.

Investing into a diversified portfolio of high quality shares is not like drowning in a pool. If people invest sensible amounts into a few different companies across different industry sectors, and holds those shares for a reasonable period, they are very unlikely to lose money. If they do lose money it is unlikely to be a lot.

People tend to start losing money when they start getting greedy or start putting put all of their eggs in one specific stock or industry sector. If people start doing that, I think they are intelligent enough to know that they are taking a much bigger risk.

I do think the suggestion of joining the share club could be a great idea for new investors keen on that sort of thing.

martinsurrey

steampowered wrote: »

Your numbers are extremely misleading because you are using a (relatively high) trading fee of £12.50 per trade and investments of only £100 each.

That means the trading fees by themselves take up 25% of the investment !!!!

As I think you are well aware, investing in shares at £100 a pop would be a very silly thing to do.

OP, who this thread is about was talking about £500 in a company he REALLY liked, so my example is very valid for this thread.

steampowered wrote: »

If you were to take a much more reasonable (but still quite low) investment figure of £1000 per share, the trading fees would take up 2.5% of the investment rather than 25%, giving you a much better return.

martinsurrey wrote: »

just to add to that, if you invest £4000 in shares at day 1 (dilutes the trade fees)

paid - £4050.00 (£4000 + 4 X £12.50)
Worth - £4190.00
Cash from divis - £430.18
Cost to realise shares - £50.00

Net cash value of shares today = 4190+430.18-50 = £4570.18
net value of Tracker £6,155, so a difference of £1,600

directly under that post I did just that.

Shares £4,050 invested for just under 4 years for a 12.8% net cash yield, about 3% per year.

Tracker £4000 invested for the same 4 years for a 53% net cash yield or about 11% per year.

If your suggestion of learning is to lose a fortune, crack on.

steampowered wrote: »

And I remind you that I only chose those shares because someone had referred to them as "losers", citing them as examples of disaster cases! I merely wanted to show how people tend not to lose money if they are diversified, even if they do select a disaster case.

The best way to learn about diversified is to learn about trackers.

steampowered wrote: »

Learning to invest is no different from learning to do DIY; learning to cook; learning to read financial statements; learning to drive a car; learning to SCUBA dive; learning to read Shakespeare or any other skill you could care to name.

The best way to learn almost any skill is by doing it. You start off small with modest sums of money and get better over time.

The difference is that you are suggesting they learn how to cook by growing their own wheat first, or SCUBA by building a respirator, NO ONE starts to learn how to do DIY by building a house (a diversified portfolio).

steampowered wrote: »

Investing into a diversified portfolio of high quality shares is not like drowning in a pool. If people invest sensible amounts into a few different companies across different industry sectors, and holds those shares for a reasonable period, they are very unlikely to lose money. If they do lose money it is unlikely to be a lot.

You talk about "lose money" and I think you actually mean a cash loss. You don't mention at all the opportunity cost of going with individual picks over a decent tracker.

In my example above, with £4000 invested, the shares GAINED cash, but at such a slower rate than the tracker that you would have lost £1,600 over the 4 years. That's a TERRIBLE lesson.

steampowered wrote: »

People tend to start losing money when they start getting greedy or start putting put all of their eggs in one specific stock or industry sector. If people start doing that, I think they are intelligent enough to know that they are taking a much bigger risk.

I do think the suggestion of joining the share club could be a great idea for new investors keen on that sort of thing.

I agree a share club is a good idea, but 100% believe the best way is a tracker while you learn and "play" the market offline.