The idea of investing in the stock market can seem like it must be both complicated and costly. The reality though, is that it is possible to start buying shares with a limited amount of money.
In fact, I think even with £100, it is possible to make a move to get into the stock market.
Setting up a way to invest
The first move could be to set up a practical way to invest. That might be a Stocks and Shares ISA or share-dealing account, for example.
Should you invest £1,000 in Ithaca Energy right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ithaca Energy made the list?
There are lots of choices here, and fortunately, not all are aimed at people investing large sums of money. So by doing some research and considering my own financial circumstances and objectives, I aim to get the one that is right for me.
Just because an investor starts with £100 does not mean that is all they end up investing. By putting aside £100 each month, for example, in any given year that would amount to having £1,200 to invest.
Getting to grips with how the stock market works
But before investing, it is necessary to understand at least some of the main points about how the stock market works.
A lot of people think that by investing in a brilliant company they could make money. Unfortunately, that is not necessarily true.
It is important to understand, for example, whether the brilliant company also has brilliant finances that are likely to stay that way. For example, is its business model sustainable in the context of competition and how much debt (or cash) does it have on its balance sheet?
Another important consideration is the valuation. Even if it is a great business, paying too much for its shares could end up being a bad move financially.
Putting the theory into practice
As an example, consider Computacenter (LSE: CCC). I think it is a well-run, proven business with an attractive commercial model.
But imagine an investor had piled into Computacenter a quarter of a century ago, just before the dotcom bubble burst. They would have had to wait 20 years for the share to get back to its 2000 price!
In the past several years, the business has benefitted from strong spending by clients. It now trades on a price-to-earnings ratio of 14, which strikes me as reasonable.
As in 2000, one risk is a slowdown in IT spending by large corporate clients. That alone puts me off buying Computacenter shares for my portfolio in the current climate of economic uncertainty. For now though, the business seems to be doing well. But hat was true back at the start of 2000 though.
That example illustrates why savvy investors always pay attention to valuation when investing. But it also points to some of the other factors beyond valuation that I weigh up when deciding whether to start buying shares in a company.
Those range from how large a customer market is to how sustainable a competitive advantage a company has.
I think there are great shares available at attractive prices in today’s market — but it can take effort and a lot of research to find them.
