So you have learned about stocks in my previous blog. But how do you choose them?! This part of the blog will look into a very basic of how to make your decision on shares.
I have to warn you, it takes years to master stock picking if you expect extraordinary returns. However, a basic understanding will let you create a portfolio with a reasonable return, and this part of the blog will be a starting point.
Everyone whats to find out whether the stock will go up or down. Guess what, there is no easy answer to this question because everyone would be rich then. Although it is prudent to start with fundamentals. The idea is to try to decide what is a good price to pay for a stock-based on underlining company and not just some speculation.
So let’s begin. There are thousands of stocks traded on international exchanges and around 3K in London. Most of them will not be a suitable investment for you due to various reasons. One could be due to significant transaction costs buying from international exchanges, or the company may have a lot of debt, and when times go bad, it will go broke. It could be simple as stocks became too popular and overvalued.
Based on your needs, risk and expectation you will need to choose between growth stocks or dull-but-worthy and often safer income shares. The difference between the two broadly are as follows:
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This is the first blog, that will start to look into a building block of Asset Allocation in more detail. This will be exciting series that will cover bonds, equity, alternatives, funds, etc.
Please keep in mind that blog is about investing and not trading. We aim to buy low (or when the price is going down) and sell high (or when the price is going up). Opposite to trading, where you buy when the price increase and sell when the price goes down.
From previous blogs, you may have decided, how much you would like to invest in stock, but before you start, we should understand these a little better.
You may have heard before that when you buy a share, you buy part of the company. Easy to remember, no? Of course, it is a quite small part in the beginning. But why do companies sell their shares? Well, it is all to do with the capital structure of the company, they do not want to take more debt and could raise funds by offering part of the company to the public. This is also what is called IPS (Initial public offering). Companies’ usually use funds for expansion or paying back some debt. In UK, companies are broadly classed as Limited (Ltd) or Public (PLC). Both can sell shares to investors, but as retail investors, we are interested in PLCs, these companies offer their share via the stock exchange, which is called London Stock Exchange. For the reader, who is not in UK structures are still very similar.
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