How many people dream of getting into the stock market — and how many actually do? In my experience, a lot of people dream of using the stock market to their advantage as they aim to build wealth, but never actually start buying shares.
That might be because they feel they do not have the right knowledge and understanding In today’s world, though, I think it is easier than ever for a small private investor to get to grips with how the stock market works.
It might also be because they are scared of the risks involved. As an investor, I do think risk management is very important. Another common reason that would-be investors never start buying shares is because they think they need lots of money.
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That is simply not true. Here is how I would start buying shares for less than £500, even if I had no track record of investing.
Getting ready to invest
First, I would get ready.
I would do the research I mentioned above, learning how the stock market works and getting to grips with important concepts like valuation and how to keep diversified even when investing just a few hundred pounds. After all, I would want to start buying shares the way I meant to go on.
Next I would set up a share-dealing account or Stocks and Shares ISA.
Setting a strategy
I would also set an investment approach and objectives so I did not just put my money into the market at random.
That strategy could evolve as I learned more and gained more experience. To start, I would stick to business areas I understood and err on the side of being too risk averse rather than not risk averse enough. I would also consider how to spread my money over several shares to get diversification.
One approach could be buying into an investment trust that itself holds stakes in dozens of different companies.
Finding shares to buy
I might also start by buying shares in individual companies.
The sort of company I think investors might consider buying is J D Wetherspoon. Its latest results today (4 October) highlight a business that is running well.
Annual revenues grew 6% and pre-tax profit 74%. The company reinstated its dividend, so plans to pay shareholders 12p for each share they own.
It has a large potential market, although one risk I see is a declining number of pubs potentially hurting demand. Then again, maybe that will actually work to Spoons’ advantage as it has economies of scale, a cost-efficient business model and a unique reputation for cheap ale that helps set it apart from competitors.
Those are the sorts of things I look at now, just as I would if I was a stock market novice. How big is a customer market likely to be, does a business have a unique reason to do well in it, how much debt does it have, and how attractive is the valuation as implied by the share price? Cheers!
