After carrying out sufficient research on the benefits and disadvantages of investing in the stock market, I finally made the decision to open an online stock & shares ISA account with a reputable investment brokerage firm and jumped straight into investing in individual stocks. I considered buying Funds, ETF’s, Mutual Funds, Bonds and other paper assets but decided against these options because I felt they leave me with less control over which stocks are in my portfolio, however I do understand that it’s a good idea to invest in them as part of a diversified portfolio. Here’s my experience (good & bad) from my first year of investing in the stock market…
I have been following the stock market ever since the Brexit vote (June 2016) & I was surprised at how quickly the U.K indices (FTSE 100, 250 & AIM) recovered after share prices almost halved upon the U.K voting to leave the European Union, a high number of the leading U.K listed companies, such as the house builder, Taylor Wimpey, Oil major, BP and scores of other reputable businesses with long standing history took a pounding and share prices plunged to all time lows, only to rally again shortly afterwards to reach record highs & that really tempted me to start researching the markets with the hope of achieving financial freedom one day.
During September 2016, I decided to open a practice account with the mobile trading app ‘Trading212’ platform, where I had practice money to invest in stocks & other paper assets, this gave me the opportunity to find out whether I could make it as a DIY investor or not. I believe this has been an invaluable experience and has helped me to gain a better understanding of how the markets work, and I suggest everyone practices with fake money before parting with the real stuff.
It was early February 2017 when I finally decided that I had practiced enough and it was time to invest real money, so I went on a hunt to find a reputable U.K online brokerage firm & after spending almost a week looking at different providers websites for fees, quality of service, look & feel of platform & reading tons of feedback from users on independent sites such as ‘Trust Pilot’, I decided the best platform based on the lowest fees & great customer experience was YouInvest.co.uk by AJ Bell. It took less than 15 minutes to register, open an account & transfer funds into my electronic wallet, from that point onwards, I was ready to rock-n-roll.
My initial investments
Although I did a hefty amount of reading, watching youtube videos & generally researching on what to look out for & how to select good investments for long term growth, I decided to ignore most of that (which I somewhat regret) & this has cost me dearly on some of my holdings. In the first month of my investment journey I bought shares from several companies listed on the main indices of the London Stock Exchange (FTSE 100 & FTSE 250).
The companies I invested in are: BT, Dixons Carphone, BP, Centrica, Glencore, Go Ahead Group & Card Factory. My mentality was to try & time the market, which is virtually impossible, especially for a novice like me, but none the less I tried to do just that, so I was buying when share prices of companies were falling as a result of poor trading updates. I bought with the hope that the price can only go up after the dust settles but unfortunately this approach of “buy low & sell high” does’t always work as sometimes what seems like a discounted price may actually turn out not to be the case.
From my first months stock picks, I only experienced noteworthy appreciation form Glencore, BP & Card Factory the other 4 stocks continued to depreciate throughout the year and by the way things are looking, I don’t expect to see much of a reverse to these companies this year.
From my second month of investing in the markets, I formed a new strategy which was to buy shares from companies that were experiencing a sudden price appreciation after releasing positive trading figures, which in turn led to a buying frenzy & I joined the herd of sheeps with the intention to sell upon investor sentiment towards the company decreasing over the coming days/weeks. This strategy worked well for me on multiple occasions but at other occasions, I timed it wrong and as a result experienced significant depreciation on my holdings, which made me feel like a hog being slaughtered by the wolves.
Within 2-3 months of employing this strategy, I decided that it was too stressful & deemed it not sustainable in the long term, especially when I have a full time 9-5 office job & I felt I wasn’t really doing any good to my portfolio, when considering the transaction fee of £9.95 every time I buy/sell stocks & stamp duty for her majesties government.
I felt it was time to come up with new strategy which was to buy into companies that were issuing severe profit warnings & experiencing significant share price crashes (30-40% drop within a day) as a result of investor sentiment turning totally south. Well, this strategy worked on some of my picks, where the share prices rebounded & I sold realising a significant profit within weeks of investing in the stock, but I had a wake up call when I took up a position with Carillion, the construction & services firm which was the governments preferred outsourcing partner, you may have heard that Carillion recently entered into compulsory liquidation and that basically means I’m unlikely to get any of my investment back, this has had an huge impact on my portfolio (like a brick falling on my left foot) & this alone has led me to reconsider whether this strategy is viable for my long term wealth building.
My strategy going forward
I’m really glad that I decided on investing in the markets (with real money) as it has been an incredibly valuable learning experience, where I have been fortunate enough to try out many different strategies and learn from my mistakes (without incurring massive losses) as well as my many successes. The biggest lesson I learned so far is not to invest in high risk companies with small market capitalisation, huge debt pile, & to avoid those that issue severe profit warnings and fail to present a realistically achievable turnaround plan endorsed by respectable analysts. I learned that sometimes greed can help you attain huge sums of money within a short period of time but more often greed will destroy your wealth, I would rather play it safe & boring than ride on a stock roller coaster and be sorry afterwards.
So with that in mind, my strategy going forward is to invest only in companies that meet the following 5 criteria’s…
- A strong balance sheet & highly cash generative
- High number of positive analyst ratings
- Price to earnings ratio of less than 15
- A dividend yield of over 5% which has been maintained over the past 5 years
- A steady but gradual share price appreciation over the past 5 years.
Going forward I will only invest in companies that I can understand & confidently explain what the business does, where it operate & how it generates income, within 30 seconds (known as the elevator speech), I will form a longer term mindset when adding a new stock to my portfolio & only consider exiting a position if any of these points are met:
- When my desired 20% price appreciation is achieved
- Investor/analyst sentiment turns negative
- Significant price appreciation is achieved within a short period of time (15% within a week)
- The share price starts to depreciate
- A cut to dividend is applied.
There may be occasions where I don’t sell when any of the mentioned points are met if I feel the negative sentiment is short term or further appreciation is highly likely where my desired 20% gain has been achieved, but just to be safe, I will ensure to place a ‘stop loss’ so my stock is automatically sold should the price suddenly start to fall. I would probably modify my portfolio so at least 70% are high quality income stocks & the remaining 30% are dividend paying growth stocks that have a higher chance of superb growth if things work out or massive falls if it all goes pear shaped.
Although I ensured my portfolio of paper assets are well diversified by investing in different sectors (oil, retail, construction, technology, medicine etc.) I think it’s wise not to place all my investable money into just paper assets (stocks, shares, bonds, ETF’s & funds) because the impact of a stock market crash/correction can be devastating to my wealth, so for that reason I will attempt to learn to invest in other asset classes such as real estate/property, businesses & commodities. I also intend on researching other ways to create a sustainable passive income & if I’m successful I’d be sure to share it on my future blog.
Whether you are an active or non-active investor, I believe it is vital to keep an eye out for trading updates, especially if you, like me, are investing in individual stocks. I usually set a reminder on my Calendar each Sunday for all the companies (where I have an interest in) whom are releasing their quarterly trading figures/earning reports in the upcoming week. I use the site https://www.moneyam.com/forward-diary/ to get this data. If the earnings report is below market expectation than I’d consider selling my position & realise the capital gains before the share price plunges.
There are many websites I visit to carry out my due diligence before investing in any company, my main sources are:
- https://www.msn.com/en-gb/money (good for charts, latest news & analyst ratings)
- http://www.hl.co.uk (great for checking liquidity of stocks – the difference between buy & sell prices)
- https://www.fool.co.uk (great for analysis view on companies)
- https://www.moneyam.com/forward-diary/ (be aware of upcoming trading updates)
- https://www.teletrader.com (my main platform for creating watchlist to track the share price movement of companies I’m interested in)
- https://www.sharesmagazine.co.uk (great for getting investment ideas)
- https://shorttracker.co.uk/companies/?sort=2&d=desc (always good to know stocks to avoid)
- http://www.londonstockexchange.com/home/homepage.htm (not very user friendly but it’s where all other platforms pull their data from).
In addition to these, I also follow mainstream business news to keep myself aware of whats happening in the world of business, my main two sources for reliable breaking business news are https://news.sky.com/business & https://www.theguardian.com/uk/business.
Would I invest in cryptocurrency?
I have been a keen follower of Bitcoin (BTH) since it was trading for under a $1,000 (today it’s valued over $10,000), but I never had the courage to invest in it because I found that the movement was too erratic & increasingly volatile. Bitcoin reached over $20,000 during early December 2017 before falling back down to planet Earth at $10,000 by late December 2017, I still feel its way over valued & certainly cannot justify buying one Bitcoin for that price.
Right now I am on the sidelines watching Bitcoin and other cryptocurrencies but I doubt I’ll be opening a position anytime soon because these are all speculative and don’t really hold any intrinsic value, so to me it seems very bubbly & it’ll only keep on rising if one fool manages to sell to another fool for a higher price. The cryptocurrencies I currently have on my watchlist are: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) & Litecoin (LTC), but like I mentioned, it’s highly unlikely that I’d make an investment in any of these. Here’s a list of all genuine cryptocurrency in order of market capitalisation: https://coinmarketcap.com.
In my first year I sold the following stocks after it reached my desired profit level: BP, Glencore, Card Factory, Rentokill, Eland Oil & Gas & Taylor Wimpey & as I mentioned earlier I lost my total investment in Carillion after it entered into liquidation. Some of the stocks I sold, I ended up buying again after the price dropped to my desired buy level again.
My current portfolio
My portfolio as of 01/02/18 contains: BT (telecoms), Dixons Carphone (electrical goods retailer), Centrica (utilities firm), Go Ahead Group (transportation group), Topps Tiles (tiling and carpets specialist), Royal Mail (letters and parcels delivery firm), Centamin (gold miner), Trinity Mirror (newspaper group), Connect Group (newspaper & magazine distributer), Epwin Group (construction materials supplier), Gulf Marine Services (tool supplier to oil companies), Utilitywise (energy broker), Accrol Group (tissue manufacturer), Interserve (construction & support services), Card Factory (gifts & cards specialist with vast amount of retail stores) & Taylor Wimpey (house builder).
I hope you found reading my article helpful and hopefully it has inspired you to invest sensibly in the stock market. Why not read my other article on this subject matter by clicking here or watch my recorded presentation of this article by clicking here . I wish you all the best with your investment journey & I hope you achieve financial freedom.
Nazrul Hoque – 1 February 2018