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I want to get into investing and pick my own shares, where do I start?

I'm looking to get into investing, and in particular I'd like to pick my own stocks. 

I'm not looking to invest a huge amount of money, but what should I be aware of and what would be the best investment platform be for a newcomer like me? - M.B., via Facebook

Following the crisis that has engulfed fund manager Neil Woodford, you might think that rather than pay fund manager fees you'll pick your own stocks instead

George Nixon, This is Money, replies: Perhaps you've watched the scandal surrounding Neil Woodford and thought, 'they're paying him how much in management fees, I can do better'.

Perhaps you feel like emulating the share trading stars seen on TV and in the movies, although maybe beware trying to be the next Gordon Gekko, Jordan Belfort or Bobby Axelrod, who've all flirted with the darker sides of the market. 

Or perhaps you just feel like ploughing your own furrow rather than letting a fund manager run your money.

Whichever way, there could be any number of reasons why you might want to go down the road of picking your own stocks, rather than the more common route of choosing funds or trusts.

However, there are reasons why despite the Woodford debacle fund managers are paid the big bucks and small-scale investors are generally dissuaded from choosing individual companies.

There are many successful personal investors out there who invest in individual shares, but it requires the time to research companies properly, the patience to wait for investments to come good, and the discipline to stick by your strategy and not panic when markets sink.

Adrian Lowcock, head of personal investing at DIY platform Willis Owen, cautions that 'investing in individual companies requires a huge amount of work and research, and with shares it's very unlikely you'll get lucky and you'll more likely buy a tip after the price has risen and miss out on further gains.'

Another thing to be aware of is that it is more difficult to diversify if you are a casual investor picking your own stocks. 

Diversification, the principle of not having all your eggs in one basket but spreading them across a wide number of investments, markets and economies, is key in investing.

The main reason for this is to avoid one egg becoming too large a proportion of your basket. 

As AJ Bell personal finance analyst Laura Suter puts it: 'Make sure that one holding doesn't end up being too large a proportion of your portfolio – this is particularly the case with shares as you don't want to become overly reliant on one company's fortunes'.

If your portfolio is dominated by one company and that company goes south, it stands to reason your portfolio will too.

Diversification is trickier to achieve as a casual stock picker, primarily as you have fewer resources. If you buy £500 worth of equity in a multi-million pound managed fund, that investment has likely already been divvied up into as many as 200 companies - although more likely 70 to 100.

It's far harder to recreate quite that same level of diversification if you yourself are trying to split that £500 investment.

Knowledge is power (and money)

However, it isn't impossible and if you put in a bit of work then there's no reason why picking your own stocks won't pay off. How then, to go about it?

Laura Suter recommends as your first port of call a company's financials. She says: 'In an ideal world you want to buy a company that sees its earnings and profits increase every year, which in turn fuels share price growth and dividend hikes.

'These companies are pretty rare, so you want to look at long-term data, over 10 years or more, to see how the company has performed. You should be able to find the figures in the latest report and accounts from the company.'

She has a couple of recommendations of what you should be looking at specifically.

'A good place to start is the 10-year earnings figures, which will show you how a company performs in different market environments.

'Another financial metric to look at is cashflow, which is the amount of cash generated from operations minus any money that is needed to be reinvested in the business. This should ideally be steadily increasing.

'You should also look at the level of debt in the company, and specifically what it is in relation to earnings.'

Then, after checking all that, finally look at the share price and determine whether or not it represents a good value to buy stock at. 

She adds: 'If a stock is very cheap, there's usually a reason, but sometimes investors will get unduly negative on a company, the share price will fall and it will represent a buying opportunity.'

That represents some starting advice, but Laura says that there are many online resources available to investors. This is Money of course is one with our company and market data, but she says investor forums are also worth checking out, while your chosen investment platform will have financial information, market reports and analyses available too.

Just watch out for the enthusiasm and ramping that goes on in some chat rooms. You don't know who that other, most likely anonymous, person on the chat board is and they could be acting for their own interest and not others. 

Make a plan Stan

Above is some advice about what you should look out for in specific companies, but there is more to an investing strategy than just reading a balance sheet. 

For example, are you investing to fund your retirement? In which case you'll probably want to focus on established companies that pay out good dividends like clockwork.

If instead you're young, perhaps wanting to take a few risks or after growth in your portfolio over a long period of time, then you might want to look at smaller companies or faster-growing ones.

Beyond this, diversification means spreading your portfolio across different sectors and types of companies – even if you are focused on a specific end product like growth.

 For example, don't be like that rubbish Bond villain in Quantum of Solace and own nothing but oil stocks, banking on the price of oil to keep rising, because you'll be in a sticky situation if the price falls.

The cast of James Bond film Quantum of Solace. Villain Dominic Greene (left) plots to control the world's supply of oil, but you shouldn't limit your portfolio to a few specific commodities

One slightly more accessible way in for first-timers, according to Laura, is to go start with an area you know well. 

She says: 'If you're a motorcycle enthusiast why not start with a parts maker or vehicle manufacturer, or if you're really into exercise and fitness invest in some of the brands you use.

'The more you know about a company's industry and its target market, the better you'll be able to understand the business.' 

Just make sure that you have a diversified portfolio, you will need at least 15 to 20 shares and not all in companies that do the same thing or are exposed to the same markets - a portfolio of ten retailers does not count as diversified. 

As times goes by

Of course, once you've hit the 'buy' button your work isn't done. Not only do you need to make sure that one stock isn't too high a proportion of your portfolio, but you need to make sure you keep monitoring your holdings.

This doesn't mean checking them every minute of every day, but Laura says there are some things you need to keep abreast of

'Company results, big personnel changes, announcements from the company and forecasts for future growth are all things you need to keep up to date with.

'By doing this you can make sure that the company is sticking to your expectations and assess whether there are reasons to sell, or even to buy more.'

Choosing a platform

If you're going to get involved in DIY investing then you're going to need a DIY investing platform.

While money isn't everything, how much your platform costs you is likely going to play a big role in which one you choose. 

Platforms usually involve several sets of charges; the charge on your holdings – either a percentage fee or a flat fee levied on the value of your portfolio – and the 'dealing' cost, incurred every time you buy or sell an investment.

It is worth noting at this point that the cost of share dealing is usually higher than the cost of fund dealing. 

In fact one of the reasons casual investors are often dissuaded from picking their own stocks is that the cost of buying and selling shares can eat into your margins.

This is Money has a full breakdown of DIY investing platforms, but for this we have also asked Boring Money founder Holly Mackay for some recommendations.

Holly shares the attitude that buying shares with a low amount of money isn't the best idea, but does say she gets that it might be more exciting.

She says: 'If this is about feeling that you are owning a slice of some brands you know and rate, and you're after a slick mobile experience, then have a look at Freetrade which is a new digital offering. 

'It's pretty bullish and goes hard on the high-fives and emojis and community which will put off the traditional but delight the more modern.'

We looked at Freetrade and fellow free share dealing offering Trading 212 here.

The top line with both is that in return for being able to pick from a lesser selection of companies than you'd get with platforms like AJ Bell or Hargreaves Lansdown, you will not pay a penny when you buy or sell shares.

Freetrade's stocks and shares Isa levies an admin charge of £3 a month on your portfolio after this month, and offers you around 335 investment options including 122 US stocks.

The thing to be aware of is that Freetrade deals all its trades around 4pm each day under its free basic service, if you want to take advantage of a spike or trough and deal at a specific time that will cost you £1 for that transaction.

Trading 212 on the other hand hosts more than 1,800 investment opportunities including companies listed on the London and New York stock exchanges, the NASDAQ, Deutsche Borse Xetra and Euronext Amsterdam.

However, if you're after a more established platform and one that allows you to invest in funds or investment trusts too, Holly recommends either AJ Bell Youinvest or Hargreaves Lansdown, while there is also the option of Barclays Smart Investor.

She says: 'These first two options also have very good share research and information available, and both have good apps. 

'If you bank with Barclays, their Smart Investor service will let you access a dealing service with the same log-in as online banking which is super convenient.

DIY investment platform charges
Platform name  Charge on share holdings Share dealing charge 
AJ Bell YouInvest 0.25% p.a. of the value of your shares - maximum of £7.50 per quarter £9.95 
Barclays Smart Investor 0.1% p.a. - minimum cost of £4 a month£6 
Hargreaves Lansdown 0.45% p.a. on the value of your shares - capped at £45 a year£11.95 if you make between 0 and 9 share deals a month
£8.95 if you make between 10 and 19

'If you invest £5,000 in five stocks in Year One in a stock and shares ISA you would pay £41 on Freetrade, £62 on AJ Bell Youinvest, £78 on Barclays and £82 on Hargreaves Lansdown. 

'Barclays has a minimum annual fee and so would be much more competitive for shares accounts of about £50,000 and higher.'  

Finally, if you fancy a dress rehearsal or some practice before you let your own money loose on the world of investing, 

This is Money has its own fantasy share picking game, which offers you the chance at winning a grand prize of £20,000.


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