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3 Things I’ve Learned About Investing

My fellow Fools — I’m about to hit a milestone.  Very soon, I’m going to reach a staggering 18 months since I bought my first share (Hargreaves Lansdown, if anyone is interested).  Yes, I know, I’m hardly Warren Buffett, but when it comes to looking after my financial future, I’ve not been the best at ‘seeing ideas through’.

Seemingly every ‘forward-thinking’ plan I’ve had with regards to savings and investments has always seemed to fizzle out when I start to lose interest. So, for me, a year and a half of building my own personal portfolio is actually quite a big deal (congratulatory cards and bottles of champagne can be sent to the usual Motley Fool address — thanks in advance). 

Although 18 months in an investing career that I hope will span another 35+ years (I need to supplement a very thin-looking pension pot!) is not really a significant amount of time, I believe what I have learned so far is indeed significant. And being the generous soul that I am, I thought I would share three key nuggets of information to anyone out there who is looking to take the plunge into the investing world for the first time…  

1. Do your research!

I was going to omit this from the list, as I thought it was too obvious.  Only a fool (lower-case ‘f’) would plough his money into a company that he/she didn’t know at least the very basic ins and outs of.  But, you’d be surprised at the amount of horror stories I’ve read about people pumping their hard-earned cash into companies that they know little or nothing about.

I’m not saying that you need to go through a firm’s annual reports for the last 10 years with a fine-tooth comb, but it’s important to know the basics. What I tend to check out first is cash flow, company debt and the price-to-earnings (P/E) ratio. Aside from the accounts, I think it’s also important that you buy what you know. Remember, you’re actually buying part of a company here. If you’re looking at buying into Apple, for example, yet you have no interest in how technology is moving forward, then how are you going to know it’s doing well in its sector? 

2. Keep an eye on fees

So. You’ve done your research. You can’t wait to buy a stake in a company you believe in and are excited about.  But just before you hit the ‘buy’ button, have another look at your fees.  Normally, in a typical transaction, you pay a broker fee for actually carrying out the transaction and, like anything good in life, you’ll pay little bit of tax as well, in the form of stamp duty. The way I look at it, the more you shell out in fees, the more your stock has to go up before you start turning profit.

Look at it this way. If you’re thinking of investing £100 in a stock, you’ll likely have to pay your execution-only broker a fee of around £10.  With stamp duty currently at 0.5%, you total fees will come to £10.50.  Not much in theory, but on a £100 investment, you’ll need to see the price of that company rise by over 10% before you start turning profit.  A wise old Fool once told me to try and keep fees around the 2% mark as a minimum, and this is something I’ve tried to keep to.    

3. Keep your cool

Congratulations Mr Shareholder. You’re in. So now you just need to sit back and watch the share price rise, and the profits roll in — right? Well, I wish it was that simple. Unfortunately, your share price will rise and fall over time, and when you’re checking it regularly (I’m pretty sure I checked my performance around 10 times a day at first), it’s very easy to get nervous when the price dips.

It’s important to remember that you’re in this for the long haul, and that you truly believe in this company (see how important that is now?). If the core reasons as to why you invested in this particular company haven’t changed, then why bow out?

I will admit that it’s tough to ignore all the news reports about big stock sell-offs, but every market dip is followed by a lift. I actually find it helps if you don’t look at your scorecard regularly. After all, what’s the point in knowing what your stock is doing every hour when you intend to hold it for 10 years?

Five shares that will complement everyone’s pension pot. 

If, like me, you’re planning on investing to hopefully augment your retirement plans, then I strongly urge you to read The Motley Fool’s investment guide Five Shares To Retire On. It’s proven to be our most requested report this year, so make sure you read it before you make your next stock market move.  And best of all, its 100% FREE.

> Chris does not own any share mentioned in this article. The Motley Fool owns shares of Apple.