Stock Investing - Basics
- Ogechi Aguma
- May 11, 2020
- 5 min read
Updated: Sep 15, 2020
In the world of stock investing or in other words, owning a portion or portions of businesses in form of shares, is centred around your ’motive‘ and ‘goal’. Every business undertaken is driven by these two key words. One expresses your reason for investing and the other what you plan to accomplish, your end game. Your motive will sustain your goal.
Financial independance, being debt free, future college or university tuition fees for your children, have a steady stream of income via dividend payouts - now or at retirement, quick return on investment during ones working life, an alternative source of income, supporting a companies vision with future profitability in view, raining day funds, optimising your savings with yields beating inflation are all stimulus to invest.
Building your Portfolio - It starts here
Shares, remember, are only small portions of business sold by investment institutions to individuals or cooperate bodies, giving ownership rights according to the proportion of shares held. So having a number of shares from different business builds a portfolio.
These businesses are grouped into sectors:
Sectors
Finance, Technology, Commodities, Food, Health, Transport etc. At any point in time each sector performs better or poorly based on the economic outlook of a region, country or global community. Hence you want to have a balanced portfolio with the right investments/businesses in play. The number of stocks you can hold in your portfolio depends on your financial strength. Better to have a few carefully selected stocks to ease the management of your portfolio or more to spread the risks.This is all entirely your decision.
The decision on which stocks to build a portfolio is driven by your motive for owing portions of those businesses and what you hope to accomplish as your end goal. Engulfed with these decisions are your short-term and long-term prospects and your risk appetite - high, medium or low. As you can appreciate, some business are seasonal and some are here to stay, ultimately changing our way of living.
Your ability to spot the right businesses and add them to your portfolio is the golden skill.
Properties
Stocks in my opinion have properties but not limited to the list below;
Value
Very solid Fundamentals. Excellent financial strength and business model to weather any economic storm, present or future.
Read on my forum page Value Investing by Nick Kraakman. Really great podcast session. Short 10mins each of 20 valuable sessions.
Growth
Potential to upscale with a very high Rate of Return on investment i.e could triple its trading share price in the short to medium term.
High Dividend yield
Stocks offering high yield most times are value stocks that are mature and profitable. Share prices though have a slow growth potential. Sometimes high dividend yield don't translate into growth in stock price. Know more about Dividend yield.
Note, a particular stock may have a combination of two or more properties. Read up more info on Cyclical and Defensive Stocks.
Mutual Funds
Sometimes it may seem difficult picking the right stocks, selecting the right sectors, or even building the right mix for your portfolio. To resolve this dilemma, already-made portfolios have been created for investors called Mutual Funds.
In simple terms, they are portfolios made up of stocks grouped into various categories based on risk, motive and a goal.
These funds have varying areas of focus; covering few or many sectors, various countries and regions, varying properties with high, medium or low dividend yield and risks.
The selection of stocks within the funds, its sectors, risk levels are all preselected by the financial institution selling it and can’t be modified by you. As you can imagine, the growth potential would vary wildly based on the mix.
Mutual funds can be part of your own purposed built portfolio. An example of a mutual fund is one provided by Hargreaves & Lansdown.VUSA - Vanguard Fund Plc S&P 500 UCITS ETF USD (GBP) (VUSA)
Points of Focus
Generally speaking, all investors want a balanced Portfolio. So where do you start?
A key place to start is query your knowledge base. Simple questions you want to ask yourself and get answers;
Which household company or companies do you know and are familiar with? Any at all.
Examples to get you thinking; Starbucks, Microsoft, Apple, McDonald’s, the financial institution you bank with, your daily online shopping store, gaming company, think of the daily food you consume or regularly consumed by other‘s; example Coca cola drinks, canned foods like Baked beans, sweets like Snickers chocolate bars etc.
Think of devices and appliances you use daily and what makes up its parts. Which companies own them and manufacture their parts - the supply chain.
Which sector can you class these companies under?
Technology, finance, food, transport etc.
What are the Fundamentals of the individual companies?
Carry out some research; the reach of their user base, revenue they generate, Cash flow, Balance sheet, etc. What value do they provide to users.
Websites you can go to and check for some info. Links below;
IG.com (only when you open a Share dealing account, you gain access Market data of companies of interest- registration is free).
Hargreaves and lansdown. (only when you open an account with them to access specific market data of stocks)
NYSE - New York Stock Exchange.
Insert the stock's name of interest in the site's search bar and you are good to go.
Ultimate Question- What's your motive and goal for owning the stocks?
Categorise your answer into two classes as a guide;
Short-Medium term: example, hold for a short period - defined by you (generally < 5years), then sell at a set profit, say 30%.
Long-term: example, keep for the longterm > 5years to 20years and more. Turn into a stream of income, sell to pay off a mortgage, keep as asset, inheritance to pass on to your children, back up retirement funds etc.
If the economic outlook is favourable, generally most value stocks double after 5years or hit >70% profit.
Which online broker can i use to buy these stocks?
Various online brokers exist now with low commission when your buy stocks. Most brokers charge a fixed amount irrespective of the number of shares you purchase. Example, a broker can charge £3 when you buy UK stocks irrespective of the number of units purchased - example; 1000 shares of X company or 4000 shares, £3 is charged. The same amount of £3 is charged when you sell.
Do some research and pick the best that suits you.
Make your purchase?
Invest in your first stock and that's you on your pathway to building your stocks portfolio.
Over time, you will gain more knowledge and experience of the stock market.The more you know the greater the strength of your portfolio. With time, you are likely carry out a rebalancing exercise of your investment choices. Not to worry, its perfectly normal.
"It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for".
--Robert Kiyosaki
Subscribe to our YouTube channel
Watch Part 1 below...Remember to watch Part 2 for more on in-depth knowledge on this blog.
Subscribe to our website for updates.
Click on Log in (Top right).
Recommended online Brokers
Hargreaves and Lansdown. Take a look at their fees.
Degiro - Especially for those living in Europe for examples Portugal. Take a look at their fees.
Bamboo App - Especially for those in Africa.
Do your research.
Counsel
Always try to buy stocks when they are on SALES! (basically when there is a dip in the share price).
Drip feed your investments. Share prices vary day to day especially in times economic crisis, high volatility becomes a common theme. In the same vain, be watchful of purchasing fees.
Investopedia is a great website to help you with understanding almost any financial terms and definitions.
Disclaimer
Note: Shares and Investment Lifestyle website is only for information purposes. Please do your detailed research. Any investment decision taken will solely be your responsibility. You can get back more or less capital than you invest.
Comentários