Investing in stocks can be very rewarding. But in my decade-long experience it’s harder than some ‘gurus’ on social media claim and it pays to focus, keep calm and consistently try and do the right things. If I was starting with a sum of money (let’s say £1k) today, here’s what I’d do.
Laying the foundations for future success
What I’d do at the very beginning is focus on learning. Knowledge is the foundation on which everything else rests. Any investor needs to understand what shares are, how the market works and the basics of investing before putting the chips down (metaphorically speaking). I learnt by reading, but there are many good resources online that are free or represent good value for money. Not having the foundations laid, in my opinion, means relying on beginner’s luck and I wouldn’t ever want to do that.
Decide my stock investing strategy
Moving onto real money is when things get exciting. But I feel it’s worthwhile deciding on a strategy, otherwise it’s possible to buy and sell too often. That racks up costs, is stressful and is reliant on consistently being able to make the right calls, at the right time. That’s something which is very difficult to achieve.
My own strategy has changed from being very income and yield-focused and often trying to buy out-of-favour or very cheap shares, to something more like growth at a reasonable price (GARP) investing.
Different strategies suit different temperaments and ages and will depend on many circumstances, including risk tolerance, time to research, how long one is investing for. There are so many factors that come into play.
Practically speaking, it’s possible to set up watchlists on websites like Hargreaves Lansdown, which could be a good way to test what style works best.
Build a portfolio for the long term
My strong personal preference is to create a coherent mix of stocks, including UK shares, trusts and funds that invest overseas. I think it’s also worth investing across different sectors. That’s because at any time a whole sector can be out of favour, much like car dealers and housebuilders have been for a long time, despite strong financial performance in many cases.
I’d start investing in stocks like these
Personally I like to invest in dividend-paying stocks that are undervalued. Think of the kind of stocks Warren Buffett might invest in. He looks for companies with an enduring competitive advantage that can be bought at a fair price. One UK example I like at the moment is insurer and asset manager Legal & General. Another might be SSE. If I wanted to invest in smaller-cap shares (those with a lower market capitalisation), I like the look of Somero Enterprises and Sureserve.
Investing, in my experience, is all about research, focus, consistency and patience. Learn about the markets and then keep a cool head and I think the chances of success are massively increased.
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Andy Ross owns shares in Somero Enterprises, Inc, Sureserve and Legal & General. The Motley Fool UK has recommended Hargreaves Lansdown and Somero Enterprises, Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.