Stocks and shares: 10 tips for first-time investors

The stock market isn’t just for the rich, argues author Rodney Hobson. He wants to show how anyone can make money trading shares

Between the hedge funds, computer trading and 24-hour news cycle, it’s no wonder people feel too intimidated to invest in the stock market.

Yet the interest earnt by your savings accounts and your pension funds is likely to partly or entirely derived from stocks and shares; so why not cut out the middlemen and buy them yourself?

That’s the message of author and financial journalist Rodney Hobson in his book Shares Made Simple: a beginner’s guide to stock market, now on its third edition.

He sat down to give us his top tips for beginners and discuss how the stock market had changed since he published the first edition of his book in 2007.

This article is part of a wider series on investing, covering all areas from stocks and shares to buy-to-let, peer-to-peer and alternative investments. Click here to view the full guide.

1. Trade online

When Hobson first wrote about the world of finance, readers held paper share certificates (some still do). Now, he says “computers have completely transformed the way we do business”.

Online stockbrokers are cheaper and provide far more transparency as you can see how much everything is costing you, says Hobson, making trading easier in the process. Just make sure you use one that’s registered.

If you are going to use a traditional stockbroker, Hobson advises that you get a personal recommendation from a friend.

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2. Use the London Stock Exchange website

For all the newspaper columns and analyst reports out there, one of the greatest sources of information on the stock market is completely free.

The LSE’s website allows you to get a huge amount of information on any listed company, screen stocks, get email alerts on companies you’re interested in and more: you just need to register.

Hobson believes the LSE’s website has the edge over the newspapers in that it provides information about any stock, not just what’s in the news on the day.

Read loveMONEY’s expert share tips for this week

3. Don’t over-research

Just because you can find almost any information you want on the internet doesn’t mean you should.

Hobson recalls the story of an acquaintance who spent so long researching that when he finally decided to buy the market had changed and he had to start again.

Avoid overdoing it by spending no more than 30 minutes a day reading the financial news. Unsurprisingly, the less you trade, the less need to keep up with what’s changed in the market.

4. What analysts say vs. what they mean

In many share tip columns, including loveMONEY’s weekly share picks, you’ll find advice to BUY, HOLD, ADD or SELL.

Sadly, as Shares Made Simple explains, what analysts mean (the headers on the table) can be blurred by the terms they use:

5. Trade in a boring fashion

“I look for boring companies that are making money in a boring way” quips Hobson.

That’s quite a different approach to trying to predict which way the market will move, which Hobson ARGUES is more gambling than investing.

A ‘boring company’, in case you ask, is one whose profits and dividends are steadily increasing year-on-year.

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6. Start with bigger companies

One of Shares Made Simple’s pronouncements seems like common sense: “do not invest in companies you don’t understand”.

Therefore you may wish to start investing with bigger companies whose business model you understand, rather than the next start up success.

Big companies are less likely to go bust, so your mistakes are less likely to end with you losing your entire investment.

Brands that went from boom to bust and back again

7. Invest for the long-term

According to Hobson, many investors make a simple mistake.

When prices go up, they’re too quick to sell and take the profits, ignoring the possibility that the good work or market conditions that got the company to that point might continue.

As a long-term investor, explains Hobson, you should have a good reason to sell.

8. Don’t forget about dividends

Everyone understands the idea of making money from the changing stock prices but owning stocks yourself has another benefit.

You should factor in dividends to your decisions, Hobson argues: “over a long time the dividends are as important as the stock price movement.”

That’s because dividends can help offset a fall in the stock price, give you a source of income when it remains stable or provide the “icing on the cake” when the price is rising.

Why you should sink your dividends back into your portfolio

9. Take responsibility

“You must make your own decisions and learn from your mistakes”, urges Hobson.

Share tips can be useful but ultimately you need to make the decision whether to invest: you’re the best judge of your appetite for risk.

Not a beginner? Read this piece by veteran trader Robbie Burns, aka ‘The Naked Trader’, explaining his 12 top tips for trading.

10. Don’t panic!

Thanks to technology, the modern stock market moves quickly, with prices bouncing around within a day.

Investors shouldn’t be put off, says Hobson; nor should they fear the predatory hedge funds, computerised high-frequency trading or the other financial bogeymen they read about in the press.

All these participants are ploughing money into the market, making it easier to buy and sell what you want, when you want.

The third edition of Shares Made Simple: a beginner’s guide to stock market is out now