Who do you believe

Celticheart Investor

A beginner's guide to trading and investing

So who do you listen to when making decisions about where to invest your money? Not an easy question to answer I'm afraid as there are so many sources for information out there but I will try and give you a few useful tips. I spent a lot of time listening and learning to more experienced investors before I even contemplated investing my hard earned money in shares.

Firstly, you should be aware that shares are held in various markets around the world but investing in other markets than the UK brings a whole other range of issues so for now I will restrict my postings to activities on UK markets. It is important to note that not all companies have a large enough market capital to list on the London Stock Exchange (LSE), many smaller companies are listed on what is known as the Alternative Investment Market
(AIM). There are however crossovers, companies with a comparatively small market capital that are listed on the LSE.

You don't have to make your own decisions as to which companies you invest in of course, there are many fund managers out there in the various market sectors that will invest for you with varying degrees of risk and return. For some this is the preferred choice as they do not have the time or inclination to research the companies they invest in thoroughly enough. You would be amazed how many small investors do little or no research into the companies they invest in but I will come back to that.

Assuming that, like me, you want to take control of your own destiny and pick those companies for yourself, where do you start to look? Well the obvious place to start is 
in the financial pages of the daily and weekly newspapers, it is where I looked at the beginning. There is a problem with this strategy though, any news or tips that appear in the papers is already public knowledge and as such has generally already been factored into the share price.

In reality what happens is this, a company will be tipped in one of the papers, let's say 
for example at the weekend. Monday morning a lot of people will rush to buy those shares, often at over inflated prices when the market first opens. Predictably, the smart money and the people in the know already bought those shares before the weekend.

My advice would be never to buy a share on the open market first thing unless you have instructed your broker to buy at a fixed price that you believe is reasonable. There are exceptions of course, you might pay a little too much for the share but still make a profit.
These kind of sharp rises in share price, referred to as spikes, are often short lived,
great for the short term trader who wants to make a quick profit and sell again before the inevitable retrace but not so good for the long term investor.

You have to decide on a stragy and stick to it, do you want to be a short to mid term trader or a mid to long term investor. For me the strategy that works best is to do both. Have some shares in your portfolio that you are happy to leave there for a couple of years in the knowledge that they have sound fundamentals and that they will make you a profit
in the long term but also have some smaller "plays" that you can trade on those spikes.

The latter is of course a much riskier prospect but the rewards can be spectacular, just how much of your portfolio you want to risk in this way is your decision but I would advise that you limit it to say 20% of your overall portfolio initially.

So where else can you get information on these companies if not from the press, well you are spoilt for choice with today's internet access. I will list a few options for you but the range of information out there is almost limitless. Now available on Kindle and Kindle Apps for PC.

• The company's official website
• Discussion or Bulletin Boards (just don't believe everything you read)
• On line newspapers from the locality of interest e.g. African local news
• Specialist trade publications dedicated to the industry in question
• Your broker will have research material available (possibly at a fee)
• Daily and weekly newspapers (as previously mentioned)
• TV financial channels

Next time:  How do I choose the market sector I want to invest in

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.