Looking to invest but don't know where to start? Then check out David Holding's DIY investing guide.
I'm getting quite a number of friends saying words to the effect of "now must surely be a good time to buy shares. I'd rather do it myself -- how do I go about it and which ones are good to buy? I was thinking about BT or the banks."
Overall, I agree wholeheartedly with them. But, as Michael Corleone says in the Godfather III – "Friendship and money...Oil and water." Telling someone you know well what shares to buy is a dangerous thing to do, particularly if they're new to the game.
So what's the best advice to give?
A recommendation to have a look the Fool's own Champion Shares stock-picking service may well prove to be excellent advice as fledgling investors can weigh up the pros and cons for themselves before deciding where to follow the objectively presented advice. This is a kind of halfway house option between a broker's advisory service and complete DIY -- lead analyst Maynard Paton provides plenty of detail on why he selects each pick.
But, if someone is very keen to DIY, then learning how to research listed companies is the best way to go about things.
Anyone just starting out can be forgiven for being completely confused. There are countless web sites and books on the subject. So what do you read and who can you trust?
Hit the books
Before doing anything, why not read a book or two on investing? Some of the best books on investing are eminently suitable for beginners and entertaining to read.
Then go straight to the horse's mouth. The Fool's UK Wire web site lists all the announcements made to the London stock market. Simply type in the name or epic code -- or "ticker" -- of the company concerned, take a deep breath, and start reading.
The Fool also has a wealth of information to help you get to grips with company data. The Fool School covers a lot of the basic financial ratios, such as price-to-earnings & PEG, price-to-sales, gearing, yield and price-to-book. The Analysing Reports and Accounts bulletin board is also very helpful in addressing specific questions you may have, whilst individual posts are often wonderfully detailed.
The company's latest annual report is also a must, and is usually available as a download from the company web site or from the Fool's free annual reports service. Subscription-based web sites such as hemscott, sharelockholmes, and companyrefs do some of the initial screening work for you and include information on things like brokers' forecasts, shareholders, historical data for profit and loss, and cash-flow. Here's an excellent example of screening stocks to beat the recession.
Would you buy it if you could?
A company's basic valuation of market capitalisation is the number of shares multiplied by the share price. When you have done all the research you can, ask yourself whether what you have gleaned justifies such a valuation. A useful trick is to weigh up everything you can and put your own valuation on a company, before looking at or calculating the market cap.
When assessing the valuation, do a Warren Buffett and ask yourself if you would want to buy the business in its entirety if you could afford it. Think like One Up On Wall Street author Peter Lynch and ask yourself if you truly understand the business and have confidence in it.
And finally, don't forget to post your thoughts on the most appropriate Fool discussion board. You may get sometimes get some criticism, but it's almost always constructive and polite -- and there are some very knowledgeable posters who are willing to share their experience and knowledge in different specialist areas.
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