Investing in the Stock Market


With very low rates of interest/profit paid by banks for holding funds in a savings/current account (currently less than 1%), more people are turning to buying stocks/shares/equities with the hope of earning an inflation busting income. The U.K inflation currently stands at 2.7% so unless your savings are earning that amount your holdings in real term is decreasing in value & that’s resulting in a loss of income of hundreds or even thousands of pounds (depending on how much money you have in the bank).

After years of considering investing in stocks but not having the guts because of the risk associated with this kind of investments, especially with the high possibility of the stock market suddenly crashing which happened historically once every 10 years & I believe we are overdue for a correction/crash across the pond (U.S) because share prices are trading at an all time high (almost hitting the 30 x price to earning mark which in my view is unsustainable in the long term but over here in the U.K share prices are not as over inflated & currently trading at a more reasonable 15 x price to earning ratio. The problem is if/when the markets crashes in the U.S it will cause a domino affect & undoubtedly result in the U.K markets temporarily crashing too.

With an understanding of all the potential risks, I finally decided to take the mighty plunge in February this year & started buying shares from several companies after doing a heck of a lot of research, since then I have never looked back – it has been the best financial decision I have made to date & my only regret is that I wish I started investing in the stock market several years earlier & by today I could have made over £20k….damn 🙁 but never mind I guess it’s better late than never.

I decided to open a Stocks and Shares ISA account which allows investors to invest up to £20k during this (2017/18) financial year and not pay any taxes on the income/profit one makes. The British government has been increasing the tax free allowance every year the pass 10 years so I’m sure next year it will increase even further. I opened an account with the online brokerage platform AJ Bell YouInvest which charges fairly low trading fee & custody charges for holding my shares are very cheap too but that being said AJ Bell is a renowned brokerage firm & their name kept popping up on several league tables as I was researching brokerage platforms, hence why I opted for this & after 4 months I have no regrets.

It’s vital to only invest money in the stock market that you will not need to access for some time (at least 6-12 months) & never invest blindly without doing some due diligence/research & ensuring the company is good quality which has the ability tackle sudden plunges commonly faced by the markets. Here’s a few sources I use to do my research before investing in a company…

MSN Money – User friendly UI with very clear easy to understand graphs & other useful information about listed companies. I particularly like the ‘Analysis’ page where you can quickly check whether analyst recommend you to buy or not to buy a company share & the consensus price target for the year. Another very useful page is ‘News’ where all the latest news about the company is available from multiple reliable sources in (almost) real-time.

Baseball News Source – This is actually an American baseball news websites but rather strangely it also seems to offer one of the best & most up-to-date information on publicly listed companies in particular the latest buy/sell/hold ratings from analyst & investment banks. Simply just type the company name in the search field & hit ‘Go’ and you’ll be amazed!

MarketBeat – Another brilliant website which I always visit especially before buying/selling any holdings. Simply enter the name of a company in the search bar & you’ll be presented with nicely laid out tabs (company profile, analyst ratings, dividends, earnings, reports, insider trades & more) along with very easy to understand data.

MoneyAM – Forward Diary – This site is an absolute must for all those who invest primarily in companies listed in the FTSE 100/250/AIM indexes (like I do). MoneyAM – Forward Diary page lists all economic & company events planned for any given day. I tend to add reminders in my Calendar for companies I’m interested in & wait for the release of quarterly trading statements, half/full years results, AGM etc. & buy/sell shares based on these results. This approach has led me to significant gains on several occasions so it’s one that I very highly recommend every serious investor follows.

There are many other great websites investors can get reliable & relevant information from but the 4 sites I listed above have worked wonders for me especially with my work commitments I can only invest so much time in researching companies so I feel these sites give a fairly detailed summary which is easy to digest and helps me make smart investment choices.

Before you start your investment journey I would highly recommend that you do not invest any less than £500 per company because of the average trading fee of £9.95 most brokerage firms charge each time you buy or sell shares & on top of that you also have to pay stamp duty of 0.5% if you invest in FTSE 100 or 250 companies, stamps duty is not payable when investing in FTSE Alternative Investment Market (AIM) firms but these securities tend to be more volatile & carry higher risk of depreciation.

Investors can also buy shares from companies listed on other foreign indexes such as Nasdaq, S&P 500, Dow Jones Industrial Average, amongst many others in order to buy shares from world renowned firms like Apple, Microsoft, Intel, Nike, Adidas, Coca Cola etc. but be aware that you will have to pay other taxes & most brokerage firms will charge a higher custody fee too.

I only invest in companies within the London Stock Exchange & with over 2,000 mostly high quality companies to choose from, I don’t see the need to cross the pond. But if you really want to buy into foreign listed firms or prefer for someone else to do the sock picking for you then you may be better off buying into funds or exchange traded funds but these do carry a fee of approx. 1% of your total investment per year.

The power of compounding – I always invest in dividend paying companies, this kind of investment is sometimes referred to as ‘income stocks’ because these firms give out a percentage of the profit they make as dividends once or twice a year to shareholders as a way of saying ‘thank you’. Most companies listed on the London’s FTSE 100 & 250 index pay between 3% to 7% dividends so a holding of £1,000 could earn shareholders up to £70 every 6 to 12 month & if Investors re-invest the dividends over time through compounding they can make significant amount of money even from relatively small initial investment.

The table below lists companies on my current portfolio & the latest % change per holding…

Company

Purchased (per share)*

Current (per share)*

Change

BP

£4.50

£4.74

+5.46%

BT

£3.06

£3.13

+2.55%

Card Factory

£2.69

£3.32

+23.47%

Centamin

£1.76

£1.67

-4.98%

Centrica

£2.26

£2.03

-10.09%

Connect Group

£1.34

£1.26

-6.32%

Dixons Carphone

£3.07

£3.31

+8.01%

Eland Oil & Gas

£0.58

£0.65

+12.07%

Epwin Group

£1.21

£1.19

-1.29%

Glencore

£3.33

£2.92

-12.16%

Go-Ahead Group

£17.11

£18.17

+6.20%

Gulf Marine Services

£0.64

£0.68

+6.59%

Rentokil Initial

£2.44

£2.64

+8.48%

Royal Mail

£4.11

£4.38

+6.58%

Topps Tiles

£0.88

£0.91

+3.67%

Trinity Mirror

£1.12

£1.08

-3.79%

*Rounded to the nearest penny

Here’s a list of companies on my watchlist & my consideration price points…

Company Current Price * Consider buying at
Air Partner

£1.23

£1.10

Belvoir Letting

£1.04

£0.95

Carpetright

£2.20

£2.00

Countryside Properties

£3.26

£3.10

Elementis

£3.04

£2.85

Gattaca

£3.14

£2.80

Goals Soccer Centre

£1.12

£1.07

Harvey Nash Group

£0.78

£0.70

McCarthy & Stone

£1.82

£1.67

National Express Group

£3.72

£3.55

Premier Oil

£0.60

£0.50

Taylor Wimpey

£2.00

£1.80

Telford Homes

£4.19

£3.79

U and I Group

£1.93

£1.50

Vodafone

£2.30

£1.75

*Rounded to the nearest penny

All the above are high quality companies that pay a decent percentage of their profits to shareholders as dividends.

Risk Warning:

The value of your investments can go down as well as up and you may get back less than you originally invested. I don’t offer advice, so it’s important you understand the risks, if you’re unsure please consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change. Past performance is not a guide to future performance and some investments need to be held for the long term.

 

Nazrul Hoque – 01 June 2017

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