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Transcript: How To Buy Your First Share

The Motley Fool crew go back to basics this week to explain how to buy your first share. Where do you do it? How do you do it? What does it cost? And do you need to wear special red braces and shout “Buy, Buy, Buy!” down a telephone to make the trade? (Sneak preview: No!) Owain Bennallack gets the answers to these questions and more from podcast veteran Stuart Watson and — making her debut appearance in the podcast studio — Jill Ralph, the boss of the Motley Fool UK.

The following is an unedited transcript of this Fool podcast:

Owain:

Hello, and welcome to Money Talk, the regular investing podcast from The Motley Fool.  I’m Owain Bennallack, and with me in the studio today we have battle-hardened Motley Fool veteran, Stuart Watson, and making her debut in the podcast studio today, Jill Ralph, the Managing Director of The Motley Fool here in the UK. Welcome to the studio, guys, especially you, Jill.

Jill:

Thank you.  It’s a pleasure to make my debut.

Stuart:

It’s too good to be here again.

Owain:

You’re a battle-hardened veteran.

Stuart:

Apparently, yeah.

Owain:

So Jill, is this what you expected the podcast room to look like, because I know you’ve been over there being an MD, and you’ve seen us come in and out, and occasionally sending you cheques for equipment.  Did you think we’d have a jacuzzi in the corner?

Jill:

I was as surprised to see the jacuzzi as most people coming in here.

Owain:

Well, after the podcast, if it goes well, we will be taking a dip. That’s how we traditionally, we use the mini-fridge, and the butler, he only comes in on podcast days, so it’s quite parsimonious.

Jill:

I’m not sure what I’ve signed up for here, Owain.

Owain:

Well, we are going to do something a bit different today.  We are going to answer a genuine question from a Motley Fool service member, so often, we set sail to the wider frontiers; the wilder frontiers even, of the investing world here in the podcast room, but today we’re not even going to leave the port.  We’re going to stay in the training pool.  We’ve got our water-wings on – am I going too far with this metaphor?

Jill:

I think you’re now in the deep end of the metaphor there.

Owain:

Nice.  Well, we have to row back to the shallow end, because what I’m trying to get to is that Graham, a member of our Share Advisor service, Graham has asked some back-to-basics questions about buying your first shares.  Graham has sensibly decided to find out how to buy shares, before setting forth and actually buying some, and he’s asking, how do you do it? – and what does it cost? What’s the actual process of buying a share, and do you need to know a secret handshake? (He didn’t actually ask about the secret handshake, but I’ve often wondered about it myself.) So that’s what we’re going to do – it sounds good?

Stuart:

Sounds good.

Owain:

Obviously Stuart, as a battle-hardened veteran, this is going to be very familiar territory for him, but I think it is worth, we all have to start somewhere, so it’s great that Graham asked this question.  Hopefully, this will be very useful for a lot of people. But before we even get into the secrets, perhaps the secret handshake, we’ll go even further back-to-basics, and Jill, I’m wondering, who should actually be thinking about buying shares? – I mean, someone who perhaps is in debt, who hasn’t got a job, who hasn’t done any research whatsoever, possibly they’re not ideal candidates for share buying?

Jill:

Well, I’d say that my Motley Fool answer, with my jester cap on, is that everyone should really be thinking about investing in shares, and Graham, if you’re listening, and for everyone out there, if you are indeed thinking about it, great – that’s a great first step, but the other Motley Fool answer, or response, would be, to be Foolish, you don’t want to be investing in shares until you’ve paid down those high-interest debts – I’m talking about credit cards.  I don’t carry a credit card, so I don’t actually know what the going rate is right now, but I imagine it’s astronomical.

Owain:

Yeah, I think, if you actually don’t pay it off every month, which I do, gold star me, then it’s like 18%.  If the stock market’s annual return is about 10% on average, then clearly it doesn’t make any sense to be paying 18% in the expectation of 10%.

Jill:

Absolutely.  So if you’ve paid down your credit cards, or you’re like me, you don’t carry them, the next thing you want to tick off your list is, you don’t want to have no cash. You want to be saving.  You want to be contributing either to your pension, or into your savings account, and earning not 2% a month, or whatever the interest rate is right now.  After you’ve ticked through those, if you feel like you’ve got some savings under your belt, you’re contributing to that regularly, you’ve paid off your debts, then I think at that point you can start looking at maybe buying your first share.

Owain:

And just on the cash points, I think the reason that we have to emphasise that is because, even though cash returns are terrible at the moment, Stuart, you don’t want to be forced to go to the market and sell your share, because your kitchen boiler has blown.

Stuart:

No, absolutely.  Most people will say, you probably want about six months or so, in terms of your salary.  So if you earn say £2,000 per month after tax, then £10 – £12,000, and that’s to guide you.  If you were in a slightly riskier job, if you’re freelancing, for example, you might want a bit more, but that’s generally a good guide to start with.

Owain:

OK.  So let’s say that I’ve got a decent income, I’m contributing to a company pension, and I’ve even [?? 4.20] away some cash for a rainy day, when the roof leaks, I’m now ready and very excited about investing in individual shares.  Stuart, how do I even get started? What are the ways that I could consider going about this?

Stuart:

Well, there’s two main ways, I suppose.  The old traditional view is, you have your own City broker, so the guy in the bowler hat and the pinstripes, and certainly, in the days before I became battle-hardened, when I started dealing in shares, you had to phone the broker up, and they would charge you, I think it was a minimum of £25, and it was sort of one-and-a-half percent of everything that you bought.

Owain:

And that’s the cliché of Gordon Gekko on the phone, screaming, “Buy Consolidated Oil!”?

Stuart:

Yeah, very much so.  Sometimes you even get these brokers will tell you what to buy and what to sell as well. But these days, where we recommend most people start is sort of much more simple, online dealing accounts.  So here the charges are a lot less, and then you can log on, you can make your own decisions. You can see all the information about the shares, and buy shares that way.

Owain:

And the key advantage is also that they’re much cheaper?

Stuart:

They are, yes. 

Owain:

Before we go into the costs, and those sorts of elements, I think one thing that we need to distinguish, which seems quite strange for us, because we deal in this sort of lingo every day, is the difference between a broker, an online broker, as you’re suggesting, someone who buys shares, and an ISA and a SIPP, because people think that these things are, they don’t understand the relationship, I think, between those different vehicles, terms, the structures in the market.  A simple answer sounds complicated here, Stuart, so bail me out, and explain the difference between those different things.

Stuart:

Yeah, sure. Basically, they’re all sort of broking accounts, if you like, but an ordinary dealing account is where you simply put the money in, and there’s no special tax advantages there. But then you can also look at ISAs, individual savings accounts, and as well as the cash ISAs that a lot of people have got, you can also get a share ISA as well.  So that will generally protect you from capital gains tax, and if you’re a higher-rate tax payer, it could help protect you from some income tax on the dividends as well. Something like a SIPP takes that a step further, so self-invested personal pension, so obviously, with any pension, the government seems to be changing the rules virtually every year.  You can’t take your money out until you’re at least 55, so it’s more restrictive there. 

Owain:

And the key thing is is that these are different flavours of, they call them wrappers sometimes, don’t they? – the lingo?

Stuart:

Yes, sort of almost a tax protection wrapper, so the basic account you’ve got within them is the same, but it’s just the tax wrapper on the outside, if you like.

Owain:

And you could easily go to the same provider, for instance, I’ve got a particular provider, and I have a certain amount of money there which is in my online share dealing account, and then I have my ISA with them, which is a shares ISA, as you say.  It sits on the same front screen.  It’s just a different button I press, so a different link, and then I go within to my share ISA.  The money sits in there until I take it out, in which case I can’t put it back in, but otherwise it operates in exactly the same way.

Stuart:

Yeah, sure, you could do that, or some people will look at the different charges on these accounts, so you might find one provider, one broker, who’s cheaper for ISAs than it is for dealing accounts, so you might split your money that way.  It’s totally up t you, which route you decide to go down.

Owain:

OK, well again we will get to that in a moment, so keep listening, listeners, Graham – keep online.  Let’s assume, then, that you’re ready to invest, and you’ve done your research. You’ve looked at some of those different aspects of the accounts what you plan to open.  What are the main steps to getting to the point where you can own shares in a company that you like? What do you need to do, Jill?

Jill:

So I think we’ve boiled it down to about five steps, five key steps. First and foremost, once you’ve chosen your broker, there are lots of places you can go online, and you can research the costs of brokers, the offers.  For me, a lot of it is choosing a platform online that’s friendly, and easy to understand and use.  So once you’ve opened your account, you’ve chosen it, and you’ve opened it, you then have to connect it to your bank account, so that you can fund your account.  You can go lump sum, you can go with regular contributions into your account – it’s really whatever is comfortable for you, the user.  You will have already done this, because you’ve done your research on what brokerage you’ve chosen, but keep an eye on the cost of dealing, because you’re going to pay to buy your share, you’re going to pay to sell your share, so you want to keep that in mind, when you think about the whole cost of becoming a share investor.  Then you’re actually going to look online in your brokerage, and see, how do I actually execute the trade? – is it a couple of clicks of the mouse? – is it twenty?  I know Stuart’s going to go into a little more detail on how to do that in just a few moments.  Then, once you’ve done all that, you’ve bought your first share, I think you will quickly see how fun it is to actually be invested in shares.  You will probably soon own more than one share. Then comes that fifth and final challenge, or to me it’s a fun one, which is really managing all of the different shares in your brokerage account.

Owain:

Cool, well, that sounds my idea of fun. 

Jill:

We’re nerds!

Owain:

It really is.  Stage five is the stage to aspire to, because that’s when you log in. You see your various shares have gone up and down, and you feel much more confident, I think, about your financial future. But we have to get there, so let’s start at the top. We can’t give any definitive answers in this podcast.  It’s a short podcast, and there are a lot of wrinkles in terms of which account is best for what. But Stuart, what are the main things to look for, when you’re deciding where to open your account?  Jill’s mentioned friendliness, which is kind of hard to quantify, but is, I think, very important.

Stuart:

Yeah, customer service is obviously, it’s tough to know from the outside until you actually start dealing with these companies, how good the customer service is.  I suppose I would take out five things to look at in particular.  If you go to each company’s website, you’ll see a long list of charges in terms of additions and offers, but there’s five things that I’d probably concentrate on.  So first up, you’ve got your basic trading fees, so typically this will be between £10 – £12 for buying and selling a share. Some brokers will offer a discount if you trade quite frequently, but we’re probably talking about a hundred trades a year, or something like that, which is not something you’re probably going to be doing as a beginner, or hopefully not. Then next, I would look at what happens when you re-invest dividends, so a few brokers offer cheap schemes, which might only charge you, say, £1.50, £2, when you get a small dividend, and you just want to re-invest that small sum, which might only be, say, £20 – £30.  So if that’s something you think you might be doing, you might need a bit of thought beforehand to decide that, then that’s worth looking at.  Next up, I’d look at ISA fees, so some companies charge quarterly or a half-yearly charge for running an ISA.  Typically, it doesn’t matter how many years of ISAs you’ve got, so if you’ve got ten years of ISAs, you’ll still only pay the one ISA fee, so that’s quite a good thing.  We’re also seeing more and more in the way of inactivity fees these days, so if you don’t trade for a quarter, you might have to pay an ongoing fee there.  So if you don’t think you’re going to be a frequent trader, watch out for that one. Then last of all, I’d look at the exit fees, so if you do decide this broker’s not right for you, most of them will charge you maybe a one-off fee, plus a fee per individual share you own.  So if you own, say, ten different shares, you might pay £20 times ten, so if you’ve got quite a small portfolio, that can be quite substantial. 

Owain:

Yeah, I guess it’s quite tricky, because even if you think that you could sell your shares, take the cash, and move to another broker, in the future you might have capital gains taxes you’d have to think about, or maybe you would have to take money out. If you’re moving an ISA, you’d transfer it, in fact, wouldn’t you?

Stuart:

Yeah, you’d transfer it.  You wouldn’t actually sell the shares, or anything like that – you’d just transfer the managing of it to a new provider.

Owain:

We’re probably getting beyond the basics, but you can also risk being out of the market, as well, can’t you, if you move?

Stuart:

Yeah, that’s true. There can be delays, like when you move an ordinary cash ISA, that can take a long time to do as well.  But yes, that could be a problem.

Owain:

So basically, do your research, so hopefully you don’t have to move.  You don’t want to suddenly discover that you’ve signed up to a dud.  I would personally say, look at some of the more trusted and bigger financial names. I know that we’re The Motley Fool, and we think you should do your own research, and not just go with the big boys, who don’t always have your best interests at heart, in terms of, they’re definitely trying to earn their shilling. But with the big, big names, you might not be getting the very best deal, but you’re not going to get a strange deal. There are some funny little brokers around that charge £6.  Some of them even aren’t around two years later, so I would personally be a bit wary of them. 

Jill:

I would absolutely choose to pay £10 per trade, versus £6 or £7, where that broker’s going to be out of business in a year or two, absolutely.

Owain:

OK, so I’ve got my account, and I’ve put some money in from my bank account.  I’m ready to invest.  How much should I be investing, Jill, in my first share?

Jill:

Just as Stuart said, there’s no real magic answer or number here.  It’s really about what you’re comfortable with, and whether, as we talked about before, whether you’re going to be adding money to your account regularly; whether you’re starting with a couple of thousand pounds, or a nice gift from a family member or a loved one.  Again, each situation is unique.  There are costs to keep in mind, and to pay attention to. We’re Foolish investors, we don’t recommend trading in and out, but as Stuart mentioned, the going rate is somewhere between £10 to £12 per buying or selling a share.  There is also, here in the UK, there’s stamp duty, which is 0.5%. 

Owain:

It’s the hated 0.5%.

Jill:

The hated 0.5%, and so you just want to keep that in mind.  Doing the very quick maths, we tend to, with a £10 to £12 trading fee, and the stamp duty, you’re probably looking at wanting to buy, or to invest, about a £1,000 per share per time.

Owain:

Minimum.

Jill:

Minimum, in order to keep your costs.  We Foolishly tend to recommend, I think, around 1.5 or 2%.

Owain:

Yeah, I think that, if you’re very committed to what you’re doing, and you’re absolutely adamant that it’s the start of your journey, and you’re going to hold your shares for a long time, one can start and save £500, but you are immediately 2, 3% in the hole – that’s the problem with it.

Jill:

Yes, and I would say, one of the founders here at The Motley Fool, David Gardner, when I first started investing (this is back in the US, not here in the UK, so it was in dollars), but he recommended for me that I take my lump sum that I was starting with, and divide it in four.  It was still Foolish for me, in terms of it wasn’t too expensive, and then I essentially set a reminder on my calendar for once a quarter, and that’s when I would do my research, find my shares, and invest 25% of the money that I had saved.  That has changed for me over time, as I’ve become a slightly more sophisticated investor, but it was a really great way to start.  You take the emotion out of it that way, too.

Owain:

OK, that’s good stuff. So Stuart, we’ve got our account. We have got at least £1,000, let’s say, sitting in there, perhaps £4,000.  We’re going to actually buy our first four shares by the Jill Ralph rule. We’re interested to hear, in the very first share, the very first £1,000 – now, this is where the secret handshake comes in, isn’t it?

Stuart:

I can confirm, there is no secret handshake.

Owain:

Darn!  What can I blame my lack of success in investing on, then?

Stuart:

I can think of many reasons, but we won’t go into that here. 

Owain:

You’ve got your £1,000 – how do you buy a share?

Stuart:

So you log onto the online dealing account, if that what’s you’ve set up. Say you want to buy shares in Vodafone, it’s a big UK company.  You go to the dealing screen, and you could either enter the name, Vodafone, or the ticker code, so each company’s got normally a three or four-letter code, so Vodafone’s name, that’s VOD. Normally, you can enter the company name – that’s no problem, it’ll come up.  Usually, it’ll just come up with, you mean to buy Vodafone? – and a little description of the stock.  You’ve got to a little bit careful here sometimes, because you might have, say, a foreign listing, or different classes of shares, so make sure you’re buying the right one. So if you’re not sure, go away and maybe go back and speak to the broker, and make sure you are buying the right one, if there’s any doubt there. So also, before you start as well, say you’ve got a £1,000, you decide, look at the price, Vodafone – say it’s about £2 per share, so you’re probably looking at buying 500 shares there, if my maths is correct – I think that’s right.

Owain:

I think it is.

Stuart:

So when you actually put in, you would say, right – I want to buy 500 shares, or you can sometimes put in, I want to buy £1,000-worth. Most brokers will give the option.  Then this is when you’ll be offered the price, so it will come up, and it’ll say, we can offer you buying 500 shares at say £2.00.

Owain:

And effectively, at that point, this is where your heart starts to race, when you do it for the first time, and I do remember, because they’ve gone to the market, and that’s effectively a quote, isn’t it? – and there’s a little time thing that ticks down, because obviously your broker can’t say, we will sell you 500 shares for £2, and then Vodafone shares go up 50p in the next two hours, and they’ll just still sit around on that screen for two hours.  So you’ve got a small window, haven’t you?

Stuart:

Yeah, and the clock counts down as well – it’s all very Robocop, you’ve got fifteen seconds to comply, sort of thing.  So yes, you need to do your homework before you go in there, and make a decision, so make sure you’re happy with the price.  I wouldn’t panic and feel rushed there, because if the fifteen seconds expires, then the offer, you just go away, and you come back again.

Owain:

You don’t spend any money to get that offer, do you?

Stuart:

No, that’s right.  Another thing I’d probably mention here, there’s probably two ways you can buy the shares there. So you can either go at best, so you ask the broker to get the best price on offer, or you can set what’s called a limit order.  So you could say, I want to buy Vodafone shares, but I only want to pay, say, £1.98, rather than £2.  So your broker will go away, and if he can’t actually get that price, then you won’t complete the deal.

Owain:

That’s usually, you said, for the day, or something, or thirty days.

Stuart:

Yeah, often it will expire at the end of that trading day.

Owain:

I think one of the reasons it’s good to figure out how many shares you’re likely to get for your £1,000 is, in that fifteen-second period, you get a sort of a sanity check, because you mentioned earlier buying the wrong shares, and I think everyone who has bought a few shares in their life has done this.  You’re both looking at me like you’ve never done it before!  I’ve absolutely put in a ticker, which was very similar to the company that I wanted to buy, and I think I ended up buying the preference shares in the same company, or some different class of shares, which I absolutely didn’t want. So if you know that you’re going to be, say you were going for the £1,000 route, and you say, I want to invest £1,000, it will come back on that screen and say, right, well, that’s going to cost you £12, say, for the dealing fee; half a percent for stamp duty. That means, we subtract those off your £1,000, you’re going to get, say, 496 Vodafone shares, so you can compare those two numbers.  Similarly, if you’ve said, I want 400 shares, say, you’re going to know, in our hypothetical case, it will cost about £800, plus the dealing fees. So again, you’re going to see in that fifteen seconds, a summary of your trade, and that is a good – read the small print, I would say; read through, and just make sure you’re buying the right thing.

Stuart:

A lot of these brokers now, they also have dummy trading, where you can actually go online, and you can put in a virtual trade, if you like, and you can see how the process goes, and you can get comfortable with it before you actually go in, and risk your money for the first time.

Owain:

Really?

Jill:

Owain, just so you’re not hanging out there by yourself, I have indeed bought the wrong shares before, in my SIPP.  It was one slight discrepancy between where the dot was, before or after the x, and there it was – I bought the wrong share.  I still hold them – I just decided I’d leave them in there, and see what happens.

Owain:

That would be great, if those were the shares that made your fortune, from serendipity. OK, so I’ve gone through that stage.  I have bought my shares.  I’m now a shareholder.  I’m now invested.

Jill:

I know, we need a soundmaker to whizz around.

Owain:

We do, because, just as a slight aside, I think people feel sometimes that there’s a big economy going on out there. They’ve got nothing to do with it, apart from their job. The fat cats are getting rich, or whatever.  If you buy some shares, you’re part of the elite. You own a stake in the economy.  If the economy goes up, if companies do well, you’re invested in that.  You’re part of the capitalist merry-go-round.  I’m not using words that make capitalism sound great, but I’m trying to say this in praise of capitalism. It’s not a system which is inaccessible to you.  If you come to it with some money, you can be part of the growth of the economy.

Jill:

Absolutely, and it’s incredibly exciting, once you are a shareholder, to experience those companies in your day-to-day life.  You see Tesco differently, when you’re going into the shop, or Greggs. There’s so many different shares out there – it’s really exciting.

Owain:

A great way to get that is to come on holiday with me, maybe if you were my girlfriend.  I don’t mean you, Jill! – I mean, my actual girlfriend once just screamed at me to shut up, because I have this thing where I always say, I own that company.  I don’t say, I own shares in that company.  If you go through Heathrow Terminal 5, then from getting off the tube to getting on your easyJet flight (that’s another stock market-listed company), you will pass about maybe ten companies which you can actually go and invest in. So your real life starts to animate the stock market, and vice-versa.  OK, so I have my shares; I’m a shareholder, I’m excited. Now I guess, Stuart, I go to meet Warren Buffett.  We hang out at the share investors’ club, eat a couple of hamburgers – is that what happens next?

Stuart:

You could do that, but generally, the next step will be, you’ll get some sort of confirmation of what you’ve actually done.  You generally won’t get a share certificate, we’ll come onto that in a moment, but you’ll get a contract note, which will tell you exactly what you’ve done, how much money you’ve paid, and it’s pretty important to keep this, because you might need this for tax purposes later on, so always print off a hard copy of that, and file it away.  You’re making faces there, Owain – it’s something you’ve forgotten to do, then?

Owain:

I rely probably erroneously on my broker keeping the records, but yeah, they effectively email you within their existing message system. Some of them email you externally.

Stuart:

It’s probably quite a good point to talk about nominee and share certificates here, so the reason all these online brokers are so cheap compared to the normal brokers is what they call, they hold your shares in a nominee account, so effectively all your shares are mingled in with everyone else’s, all their other customers, so your Vodafone shares will be with someone else’s.  Now, some people feel a little bit uncomfortable about this, that they don’t actually have the paper certificate in their hand, and they don’t own it directly, and it’s pretty tricky.  If you’re a small shareholder, and you’re just getting started, I think this is a reasonable way to go. You’ve got things like the Financial Services Compensation Scheme, and in the same way it protects bank and building society accounts, it protects investments, although the limit is a bit lower – it’s only £50,000. I’m just trying to think of a broker, a sizeable broker, that has actually gone under, and investors lost money.

Owain:

Yeah, and theoretically the nominee account is ringfenced away from the company’s finances, so there should be no way that they can … short of complete fraud.

Stuart:

Yeah, it’s very unusual. I can’t think of one, where it’s been individual shareholders.  The only one I can think is, MF Global in the US, but that was more sort of spread betting and futures. It was a more advanced sort of trading.  It’s something to bear in mind, if this is something that really worries you.  Maybe speak to a few other people, and get comfortable with it.

Owain:

And just while we’re on the subject, if I wanted a share certificate, am I out of luck?

Stuart:

I think you can actually request that – probably it depends on your broker.  This is probably something you need to think about, when you’re choosing the broker in the first place, I think, if this extra security is important to you.

Owain:

I think it would cost you money, as well.

Stuart:

It probably would cost you more money, and in dealing costs as well.

Owain:

And then you have to find somewhere safe to put your share certificate, because …

Stuart:

You frame it on the wall.

Owain:

There’s an existential problem perhaps with nominee accounts, but a share certificate can get accidentally thrown out in the recycling.

Stuart:

You can get a replacement, but then again that will cost you more money.

Owain:

So basically, you’ve got your first share, then you’re going to, as Jill said, add some other shares.  OK, Jill – it’s time to talk shares.  It’s time to suggest the sort of share, not a specific share, the short of share that would be ideal for a new investor’s first purchase.

Jill:

OK, so I will say, I personally, sitting opposite you two, who are definitely far more advanced investors than I am, I like to keep things incredibly simple, and I like to recommend that new investors also try to keep things incredibly simple.  I like to understand, and I recommend that you invest in a company where you understand how it makes money.  I’ve brought in a sample ticker for you – you will find this in your house, in your cupboards, in your refrigerator.  It is a big company, it’s a huge company; it’s doing a ton of business here in the UK and the world. That means it’s slightly more stable.  You’re not going to see it going out of business tomorrow, after you’ve invested in it today. 

Owain:

Also, it means the shares are likely to be easier to trade, because it’s not going to be some obscure company where only two shares get sold a week, or something ridiculous like that.

Jill:

Absolutely. You’ll hear investors talk about liquidity – the bigger the company, usually the more liquid it is, which means that more shares are available for buying and selling on any given day.  So a company I think, that I’ve looked at here in the UK, I am a shareholder – full disclosure; it is Unilever, and that’s ticker ULVR.  Again, look in your cupboard – you will see so many things that bear the Unilever brand.  There are soaps and margarines, and this and that.  It’s everywhere, and like I said, it does a lot of business here in the UK, a lot of business around the world. It pays a dividend, which is a really great thing for all investors, but I think new investors like to see that particularly as well.  I would say it’s a great starter share.  It’s easy to understand how that company makes its money.

Owain:

I agree; I own the shares. Do you own the shares, Stuart?

Stuart:

I don’t, no.

Jill:

Stuart, come on – jump in!

Stuart:

Not yet, no. I’m thinking about it, though.

Jill:

To bring Owain’s pun back, the water is just fine.

Owain:

I think it’s going to be Unilever shareholders only for the post-podcast drinks with the butler, and [?? 24.11].

Stuart:

Fair enough; OK.

Owain:

Stuart, we’ve bought our first share.  It was a great pick.  We’re not necessarily saying right now it’s a great pick, or that it isn’t, but it’s definitely the sort of company that investors should look at first. What would be a good second share? Would you go and buy Unilever’s main rival?

Stuart:

Well, you’d probably want to look at a different industry, because you want to have diversification there, so if there was a reason why Unilever might be struggling, you’d want your other share to be holding up. So maybe you could look at, say, the oil industry, so one pick there might be Shell, so one of the biggest oil companies in the world. It pays a nice dividend, which I think is probably substantially higher than Unilever’s dividend, I think?

Owain:

I think it’s probably twice, if we’re comparing.

Jill:

Indeed, indeed.

Stuart:

But Shell, it covers the whole oil business, right down from the very basic exploration through to, piping that through to refineries, and even sells petrol to you in the forecourts.  I know a lot of new investors, it’s probably a good point to go into this – they actually look at smaller companies, and particular sort of smaller resource stocks like oil and gas, and miners.  I think that’s probably something you don’t want to look at for your first few years of investing. These companies, there are some great gains on offer, but they’re very risky as well.  A lot of them, you could lose 100% of your money, especially in times like this, where funding is a bit tricky, and these companies basically live hand-to-mouth, and they rely on getting fresh funds almost sort of quarterly.

Owain:

I totally agree. It probably sounds like we’re being patronising, but when I think of my own share investing career, it’s a good few years since I lost 100%, and I did lose a couple of 100%s early on. Something has changed – I’m not saying I’m God’s gift to investing now, but clearly I’m avoiding the biggest risk, because I do still buy small companies, but you become more able to understand what your risks and rewards are; maybe disentangle some of the hype.

Stuart:

Yeah, I think you need to get used to the stock market before you start getting a bit more adventurous, and just how share prices naturally move up and down. If you look at any share price chart, you’ll see there’s quite a lot of variation over a year, even though the business itself, something like Shell or Unilever, it’s pretty much the same.  It’s not unusual to see a share price go down 20, 30% in a year, when there’s been no change at all in the business.

Owain:

Yeah, even with those big companies. I think they’re good choices actually, Shell and Unilever, because Jill, going back to what we were saying about being invested in the economy, you kind of see potentially economic factors at work, because if oil prices go up, or there’s a demand for energy, that will probably hurt Unilever, because it has to ship its food around more, the raw material prices might go up; but it might benefit Shell, and again if energy becomes cheaper, that could benefit you.  So you’re starting to see the diversification in action, and an interaction with the economic news.

Jill:

Absolutely. I think investing in shares just gives you a new perspective on your money, but also on how the world’s economies work.

Owain:

OK, so we’ve started at the basics, but now we’re ending with the big picture, and I think that’s a good place to leave it.  Graham, I hope we’ve answered your questions.  If you have any other questions, like how to buy your third share (we haven’t got onto that), it’s pretty much the same as buying your first, but look out for the diversification. But if you do have any other questions, email them along to us, and other than that, thank you, Stuart.

Stuart:

Thanks, Owain.

Owain:

Thank you, Jill.

Jill:

Thanks, Owain.

Owain:

And thanks everyone, for listening.

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