Markets and Indices

Celticheart Investor

A beginner's guide to trading and investing

When it comes to investing one of the most important considerations is which markets do you invest in. By that I mean do you invest in the main stock markets such as the Footsie which tend to be better regulated and more stable or do you invest in one of the smaller markets such as AIM http://www.londonstockexchange.com/companies-and-advisors/aim/aim/aim.htm which is made up of smaller cap companies and is without doubt a more volatile market? Ultimately it comes down to your approach to investment and risk.  

AIM is, at least according to their website, the most successful growth market 
in the world. Since its launch in 1995, over 3,000 companies from around the world have chosen to join AIM. 

There are of course many indices in the UK stock markets: 

• FTSE 100
• FTSE 250
• FTSE 350
• FTSE All-Share
• FTSE AIM All-Share
• FTSE techMARK All-Share
• FTSE SmallCap
• FTSE Eurotop 300
• Ethical Indices

The main markets are more stable with generally a far higher share price, particularly in the Footsie 100, the growth rate might not be spectacular but the risk is generally far less (although nothing is certain in today's market) and you are far more likely to get a dividend paid on your investment.

The added advantage of investing in the main markets is that they are ISA allowable, whereas previously AIM stocks have not been although looks like it is about to change as is explained below: 

During the recent budget announcement, George Osborne announced that from April 14th next year no stamp duty will be payable for shares that are listed on AIM and other so called "growth" markets (currently 0.5% duty on all markets). He also said that he was in consultation over the allowance of AIM shares into stocks and shares ISA, this has now been approved and will become allowable from 5th August this year.

Until now the only AIM stocks that were allowable were those that were dual listed e.g. listed on both AIM and ASX http://www.asx.com.au/ or AIM and ISE http://www.ise.ie/

It is also worth bearing in mind that these share are not subject to inheritance tax, provided they have been held for at least two years.

I am restricting my market listing to those in the UK as, for most small investors in this country that is where they choose to invest, even though the companies they invest in can also be listed on other global markets.

One thing I have noticed is that investors who frequently monitor their holdings rarely seem to look at the overall performance of their Indices. This year I think it is fair to say that the smaller markets have taken a real hammering and have been seen as very Bearish but recently all of the UK Indices Ichimoku Trader on http://www.ichimokutrader.com/ seem to be indicating a Bullish trend or Bull run is imminent. I sincerely hope that they are right.

Footsie 100 (Chart courtesy of amCharts.com)

AIM (Chart courtesy of amCharts.com) 

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.

Communication

Celticheart Investor

A beginner's guide to trading and investing

One thing we all rely on in making our investment choices is receiving information both from the companies we are interested in and about those companies. You would imagine that keeping private and institutional shareholders well informed would be a pre-requisit of any sound business but in truth, the quality of that information varies from company to company. Some do it extremely well and others fail miserably.

So what are the sources of this communication and where can we look for it?

That largely depends on the kind of information you are looking for, any company who understands the value of effective communication will have either its own shareholder information department or, will employ the services of a financial PR company. This is fine if you are looking for an overview of the company's management structure, its operations and its philosophies.

If however you are looking for price sensitive information, the kind of data that will have a real impact on the shareprice, good and bad, then you will have to look to the Stock Exchange's official news service, the RNS or Regulatory News Service. By law, any information that could have a direct impact on the company's value has to be released through this service. The theory being that by informing all of the market at the same time it gives everyone the same chance to make their value judgements.

Occasionally of course sensitive news is leaked in advance, it should not but the reality is it happens. This might be someone genuinely in the know or simply an observant member of staff lower down the ranks. Either way it can be classed as insider dealing and can often be the source of ill founded and damaging rumour. My advice would be, if it is not in an RNS take it with a pinch of salt.

So how do you find these RNS messages? Well the easiest way is to go directly to source and sign up for the LSE website, from there you can simply log in, click on the NEWS tag and enter the epic code of the company concerned

http://www.londonstockexchange.com/products-and-services/rns/rns.htm

There are of course many other ways of acquiring information such as the many bulletin and discussion boards that are a daily part of communication for many investors. The problem with these boards is they vary immensely in both the quality and reliability of the information on offer. Some of these boards have knowledgable, experienced posters from whom you can learn a great deal but sadly and far too frequently for my liking there are many posters that have little to offer except cluttering up these boards with nonsense.

Some of these posters have their own agenda of course either talking down a company (de-ramping) or talking up a company (ramping) to try and influence weaker shareholders into either buying or selling their holding. You might think that this would have little effect on the shareprice but when you consider the hundreds of thousands of people who read these boards every day (far more that  post on them), you can see the influence that it can have.

Social media has become a powerful tool with applications such as "Twitter" and "Facebook" being very effective at reaching large numbers of people in a short space of time. Recently I notice that even CEOs of companies are not exempt from posting "Tweets" about seemingly innocuous events in an attempt to score points over their competitors. Whether this is a professional way to behave is questionable in my opinion but for some it is a way of life.

There are of course other means of acquiring information such as the press, many newspapers run financial columns with both free and subscribed share tips available. Whether or not you trust their judgement there is little doubt that they have a following and can often influence shareprice simply by weight of numbers. Before you invest your hard earned money on the back of these tips I would strongly recommend that you do your own research too as, all too frequently, prices spike on the back of these tips and you can easily get caught out by buying in at too high a price only to see the price retrace rapidly a short time later.

There are of course the paid investment advisors who run subscription only services with varying degrees of success, this could be provided by your stockbroker or by an independent advisor. Whichever catches your attention you would do well to look at their past record before paying them for their services.
Some of these, even high profile ones do not always get it right, sometimes spectacularly so.

There has recently been a growth in the number of professionally run seminars and forums where companies get to present their case to private shareholders. This for me is an invaluable source of information as the presentations are often made by senior management, even by the CEO and COO of the company. Podcasts have been used effectively too with online interviews with CEOs presenting their case.

For links to these events simply look on line for investor forums such as http://www.proactiveinvestors.co.uk/ or http://oilbarrel.com/pub/conference

Next time:  Locking in profits

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.