Is the beginning of a new year a good time to start buying shares?
A lot of people’s attention turns to the idea of beginning to invest, as a new year dawns. But sometimes they fail to turn their idea into action.
Maybe they worry that the time is wrong, or investing takes a lot of money.
If I had a spare £800 and wanted to start buying shares for the first time, this is how I would go about it.
1. Set up a share dealing account
I would need to have some way to start buying shares in practice.
So I would set up a share dealing account or Stocks and Shares ISA. That way, when I was ready to invest, I would be able to do so immediately.
2. Learn about the stock market
Apple sells many millions of expensive phones every year. Does that make it a good business – or a good investment?
A common mistake people make when they start buying shares is thinking that a good business equals a good investment.
In reality, other factors can matter.
For example, what about the valuation and balance sheet?
Learning about how the stock market works, including what sorts of factors to consider when weighing a possible investment, is an important step even when starting to invest in shares on a modest scale.
An alternative to buying individual shares could simply be investing in an investment fund. For example, a typical investment trust owns a range of different shares. Simply buying into it would give me indirect exposure to those shares.
3. Make a wishlist
My next move would be to compile a list of shares to watch.
To do this, I would stick to companies I felt I understood and weigh their long-term prospects.
Basically I would be on the hunt for a company that I think has a sustainable competitive advantage in a market where I expect to see ongoing customer demand.
Think of a business like Unilever. It owns unique brands such as Marmite. That helps it generate profits as customers are willing to pay a premium price for the product as there is no direct alternative.
4. Moving to buy
But why do I make a wishlist rather than simply make a shopping list?
The answer, again, is valuation.
Even a great business can make a terrible investment if I overpay for its shares. For example, I would happily own Judges Scientific shares – but I have no intention of paying the current share price.
So I would weigh up the shares on my watchlist and keep an eye on the market to see if they became available at what I thought was a good price (some stockbroking platforms allow users to set up an automatic alert to do this).
5. Buy and hold
My fifth and final move would be to start buying shares.
I am an investor, not a trader. I see shares as stakes in a business, not just pieces of paper. If I want to invest in a business, I do it with the intention to hold the shares over the long term.
Circumstances can change. But my approach would be to try and get richer by building a portfolio of outstanding blue-chip shares I could hold for years to come.
