Individual Shares Legal & General etc

MonroeM wrote: »

I want to have a dabble in individual company shares. At the moment I am currently swaying towards buying into Legal & General. It is a well established company and has a good yield but before I take the plunge does anybody else have any views of other companies they would favour so I could do some further research?

With respect, you need to have a much better reason to invest in an indvidual company than it is well established and has a good yield.

For example, on the London stock exchange, there are over two thousand listed companies. You might only want companies that are 'well established', so you could filter it down to the ones which have been listed on the exchange at least ten years (and in most cases a company listed for ten years will of course have been in existence well before they listed).

By filtering for some arbitrary date you will miss out businesses which have been going a long time (e.g. Royal Mail has quite a history, but less than 4.5 years of being available to buy on the stock exchange). But when casting your net you have to start somewhere and at least if a company has been listed for a decade there will be a decade's worth of share price and dividend info, publicly issued financial statements compliant with the listing rules, regulatory news announcements made by the company, analyst comments etc.

So, the 'over two thousand listed companies' becomes 1203 companies to choose from if you only want the ones which are 'well established' using that arbitrary measure of 10 years of public information which, let's face it, is more information than you are going to read anyway.

You might think that being even more 'well established than that' (e.g. L&G being established in the 1800s) is important... but as an investor in their current business, it is not. For example there was an HMV store on Oxford Street in 1921. Over 80 years later in 2002, the company was taken public. But if you had been invested in HMV Group in the period 2002 to 2012 and failed to sell by January 2013 - you would have lost all your money when it entered administration with nothing left over for shareholders. Being a 'well established' business, didn't save an owner of that business from loss.

So anyway, to keep things simple and just using the measure of 10 years of continuous public listing on the London Stock Exchange as a mark of being well established and having lots of available data, we have just over 1200 well-established companies to choose from (700 main market, 500 AIM).

The UK is probably under 6% of the world's stock market capitalisation; there are a lot of other companies out there which you could invest in. If we scaled up the 1200 well-established companies here by 100/6, you'd find 20,000 well-established companies around the world. Obviously some countries' stock exchanges are less well established than the UK and some markets are harder to research or invest in as an individual sitting in a chair in the UK who doesn't speak all the languages in the world or have a broker that offers more than about 20 markets. So 20,000 companies to choose from is maybe optimistic.

So OK, let's say there are 1,000-10,000 candidates for investment by reason of being 'well established companies'. Your only other criteria for selecting Legal & General was that they paid a good dividend last year. Well, there will certainly be plenty of other candidates in the 1,000-10,000 well-established companies out there which can pay dividends; and there are plenty of other companies which don't pay high dividends but have good businesses and a lot of assets or revenue supporting their share price.

So if your criteria for picking that company is that it should be well established and pay a good dividend, the choice is vast. With some research you or we could name tens or hundreds of companies meeting that easy criteria but it is not going to help you narrow down what you want to invest in unless you have some particular things you want to look out for, more than the basics of the company existing and you having heard of it.

Personally if you already have your fill of funds investing and want to up the risk by picking something more specialist, I would just look at specialist funds or investment trusts. By picking a boring large old home-grown dividend-payer like L&G ; rather than a racy new foreign non-dividend payer like Netflix, you have shown that you probably don't want too much excitement or risk, even though you want to get into individual shares.

If you don't really want volatility and the chance of going bust, it doesn't make a lot of sense to buy your own researched portfolio of individual stocks because you don't have hundreds of hours per week available to put into stock reasearch and selection, like the companies that run investment funds do. Don't feel insulted by the people telling you to stick to collective investment schemes.

Have you researched all the collective investment schemes out there to know that none of them are any good at adding 'a little something different' to your portfolio and your next purchase must be an individual company?

If you have £5k here are a few names of investment companies / investment trusts with scope for capital growth or income or both, which can be used as part of a diversified portfolio - are you fully satisfied that you have adequate exposure to the types of holdings or strategies they offer?
Harbourvest Global Private Equity
Pantheon International plc
International Public Partnerships
Tritax Big Box
Target Healthcare REIT

Recommending individual companies is much harder than that and a call for 'tips' on companies which might be a good investment, is often damaging to ones wealth.