Does it take a lot of money and effort to start buying shares?
The answer is no — and no!
It is possible to start buying shares even on a modest budget – in this example, I use £300.
As for effort, smart investing certainly takes some effort. But, I do not see that as a necessary barrier to investing.
Step one: learning the basics and building a plan
What sort of effort might be involved, then?
It seems rash (and potentially costly) to start buying shares without even understanding the basics of how the stock market works.
So, I think an important first step on the investing journey is to get to grips with some key concepts, such as how to value shares and what common pitfalls to look for when choosing shares to buy.
It can also be helpful to set some objectives.
For example, some investors are focused on the potential passive income offered by dividend shares, while others are hoping to buy into promising businesses they think have strong growth prospects, even if dividends still seem a long way off.
Step two: finding shares to buy
Next comes what personally I find a fun part of the process: looking for what seem like brilliant investment ideas.
My starting point for this is to stick to what billionaire Warren Buffett calls my (well, his!) ‘circle of competence’. By focusing on businesses I feel I can understand, I am better placed to judge their commercial prospects and assess their valuation. Even then it can be hard.
For example, one of the shares I own is B&M European Value Retail (LSE: BME). The business model here is a relatively simple one, basically following the age-old ‘pile ‘em high and flog ‘em cheap’ strategy. I can go into a B&M shop and have a look for myself at how the business is doing.
Doing that recently, I have noticed that some products are not actually as cheap as I would expect for a discount retailer. That might explain why the retailer reported last month that fast-moving consumer goods in the most recent quarter had fallen on a like-for-like basis.
I see a risk that that could continue if B&M does not get its FMCG offering and prices right, something it is working on.
Assessing risks is always important – it can be tempting to start buying shares only looking at positives. But that can be a costly mistake.
But I do also see positives for B&M – a large shop estate, big customer base, and simple retail formula that has proven its effectiveness over the years.
Added to that, I think its current valuation looks attractive and I plan to hang onto my B&M shares.
Step three: build a portfolio
One share does not a portfolio make. A simple but important risk management technique is diversification, possible even with £300.
To put that £300 – or any amount – to work and start buying shares requires some way to do so.
That could be a share-dealing account, Stocks and Shares ISA, or dealing app.
It also requires some actual effort to stop just imagining investing and start doing it!
