3 things I’d do now to start buying shares

Christopher Ruane explains three steps he’d take to start buying shares for the very first time, if he’d never invested before.

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The idea of investing in the stock market appeals to a lot of people. But actually making a move to start buying shares can be something that gets repeatedly put off.

That could be a missed opportunity.

If I wanted to start buying shares for the first time now, here are three steps I would take.

1. Learn about the stock market

It can be hard to spot a strong business. Sometimes a company looks like it is good but it runs into unforeseen difficulties that hurt its performance.

Even if we do spot a great business, that is not the same as spotting a great investment.

Take Judges Scientific (LSE: JDG) as an example. This company is not a household name, but I like the business model a lot. It buys up small and medium-sized manufacturers of specialist scientific equipment.

In that line of business, precision matters and so customers are willing to pay for quality.

By buying fairly small instrument makers at a reasonable price and providing centralised services like financing, Judges has been able to increase its profits – and dividends.

So far so good: I think Judges is an excellent business. So why, do I not own its shares?

In a word: valuation.

Put simply, I think the shares are too expensive for what they are. Clearly others disagree. The shares have increased 250% in five years. If the business keeps doing well I think they might rise further from here.

But what if performance weakens? For example, competitive pressure could eat into profit margins at Judges. My fear is that when a share valuation is elevated, I do not have a big enough margin of safety if things go poorly.

Before I made a move to start buying shares, I would want to learn more about things like valuation and how to understand company accounts.

2. Make a shopping list

With my new-found knowledge, I would make a list of shares I would like to buy, provided I could find them at a valuation I found attractive.

For me, for example, Judges is on my list: I would like to own it, but am not willing to pay the current share price. Having it on my watch list means that, if the price falls, I may snap it up in future.

To make this list, I would stick to businesses I felt I understood and could assess. My focus would be on companies I felt had a large market of potential customers and something that could help them appeal to those customers, compared to rivals.

3. Start buying shares!

I would set up a share-dealing account or Stocks and Shares ISA and put some money into it. That might be a lump sum, or setting up regular contributions.

With that, I would be ready to start buying shares from my shopping list as and when I could get them at what I saw as an attractive valuation.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Judges Scientific Plc. 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.

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