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Investing for Dummies (Investment choices (Bonds (Get back what you put…

- - - - Grades
        
        Junk
        
        Investment
    - - Most don't take into account inflation
      - After a number of years
    - - Doesn't mean you pay £100
- - - - Pushes humanity forward
      - People "jump" in on a winner
      - Make us want more
    - - Fear is stronger than greed
      - Everyone rushes away from a "bad" deal, only some rush towards a "good" deal
      - How to overcome?
        
        Sit tight - a lose is only a lose when you cash out
        
        Are your investments actually affected?
        
        Is this actually a good time to buy?
  - - - Multiple ways to "win"
      - New money is entering all the time
  - - - The past is no guide to the future
      - The universe owes you nothing
      - No investments needs to start increasing
    - - Disasters can happen to everyone
      - Don't invest anything you
        can't afford to lose
- - - - Shares
        
        Rewards
        
        Capital gain
        
        Gains need to outpace inflation
        
        Taxed only when you sell
        
        Dividends
        
        Regular payments
        
        Reinvest to maximise
        growth
        
        3% annual dividend reinvested
        would add ~40% to shareholding after 10 years
        
        Like compound interest
        
        Kinda free money
        
        % of profit shared
        with shareholders
        
        Average annual gains 12% (before tax)
        
        In a panic the shares in good
        companies are sold first
        
        Risks tend to only
        be detailed in IPOs
        
        Research
        
        Avoid forums
        
        LSE
        
        Stay skeptical
        
        Credible sources
        
        FT
        
        Telegraph
        
        Morningstar
    - - Bonds
        
        Fixed interest
        
        4 or 5% return on investment grade
        
        Indicator of risk involved
        
        Typically low risk
        
        Depends on grade
        
        Investment
        
        Government
        
        UK bonds are called gilts
        
        Coroparation
        
        Junk
        
        Questionable
        
        Default
        
        3rd world
        
        Years to mature
        
        Get original sum back
        
        Beware inflation
        
        Defaulting
        
        Regular payments throughout
      - Property
        
        Typically lower risk
        
        Don't pay capital gains on primary home
      - Cash
        
        Lowest risk
        
        Poor returns
  - - - High rates means high
        repayment costs on borrowings
      - Good for savers
    - - Depends on the sector
      - Always a factor
      - Eats away at your
        actual gain
  - - - Levels
        
        Different companies
        
        Different sectors
        
        Different markets
        
        Different countries
    - - Smooths out ups and downs
      - Markets have tended
        towards growth long term
- - - - Earn dividends
      - Attend AGMs
      - Vote
    - - Liquid
        
        Large companies
        
        Easy to buy and sell
        
        Buy/Selling has little impact on price
      - Illiquid
        
        Typically smaller companies
        
        Harder to buy and sell
        
        Buy/Selling has large impact on price
    - - Supply-demand economics
      - Tend to overshoot on raise and fall
      - Risks
        
        Specific
        
        Apply to the company
        
        Examples
        
        New regulations
        
        More speciality stores opening
        
        Hot summer
        
        Systemic
        
        Apply to the stock market
        
        Examples
        
        Inflation
        
        Brexit
        
        War
        
        Remember risk can be good or bad
      - Factors
        
        Positive
        
        Takeover bid
        
        New contract
        
        New product
        
        Record profits
        
        Negative
        
        New regulations
        
        Diluting shares
        
        Product range criticism
        
        Profit warning
      - Surprises
        
        Quickly factored into the price
        
        Cause jumps in price
      - Reacting
        
        Hard to be quick enough
        
        Just wait it out
        
        You set your own timescales
      - How it it set?
        
        Difference between buying
        and selling price
        
        Spread
        
        Set by Market maker
        
        Spread is the fee from
        buy and sell actions
        
        Fees are in pence
        
        2 more items...
        
        Adjusts the share price to respond to market demand
        
        Vital to account for spread
        when thinking about profit
        
        With a1p spread if a share brought at 5.5p would then you need it to increase by 20% to break even
        
        With a 2p spread if a share was brought at 502p then you need it to increase by 0.4% to break even
        
        Price shown is halfway between these values
  - - - Regular payments
        based on a %
      - Repayment of
        original amount
      - Paid before shareholders
  - - - Biggest UK-quoted companies
      - Inclusion based on market cap
      - Companies can be promoted and relegation
      - Prestige
      - Companies don't need to have
        anything to do with the UK
      - Big differences between top and bottom
      - Don't put too much weight into it's overall value
        as an indicator of UK's economy
    - - An index is the companies
        that make up a market
      - Can be artificial as well as based on an actual stock market
      - FTSE 100, NYSE, etc
    - - Mid-cap companies
      - Better representation of how the
        UK economy is doing than FTSE 100
      - Under FTSE 100
    - - ~2000 Companies
      - Can take days or weeks to buy/sell shares
      - Volatile
      - Under FTSE 250
    - - Under tiddlers
      - Companies valued between £2,000,000 and £500,000
      - Careful
      - Lower entry requirements
        than FTSE proper
      - Exempt from stamp duty
      - Remember impact spread on low value shares
- - - - Medium to long term
      - Invest in companies that
        have been overlooked
        
        Disappointed in the past
        
        Small
        
        Unfashionable
        
        Low p/e ratio
    - - Followers
      - Short term
      - Look already improving shares
      - Look to sell when it peaks
    - - Long term
      - Shares that pay the
        highest dividends
      - Don't expect capital growth
      - Based on the same idea
        as compound interest
    - - Mixture of growth, value
        and income approaches
      - p/e ratio
        divided by
        annual percentage growth
        
        Higher the better
    - - Medium to long term
      - Look for the past to
        continue into the future
      - High price/earnings ratio (p/e)
      - Invest
        in companies
        that are already winning
        
        Established companies
        
        Expensive
  - - - Look at the wider context
        
        Changes affect
        companies in different ways
        
        VAT raise
        
        Bad for most companies
        
        Good for supermarkets (exempt from VAT)
        
        Currency fail
        
        Good for exporters
        
        Bad for importers
      - Focus on:
        Countries --> Industries --> Companies
    - - Ignore wider context
      - Find strong companies regardless of economy
  - - - Short term
        
        Days
        
        Weeks
      - Volatile
    - - Long term
      - Years
  - - - Collective Funds
        
        Types
        
        Investment trust
        
        Unit trust (OEIC)
        
        Charges management fee
        
        Investments are made by a manager
        
        Active
      - Buy/Sell
        Individual Shares
        
        Assume all research needs
        
        Actually own the shares
        
        Cheaper than a fund
      - Pros
        
        Avoid "dud" stocks
        
        Choose when to buy and sell
        
        You are fully in control
    - - Tracker
        
        What is it?
        
        Match
        distribution in Index
        
        Actual Index
        
        Buy shares in the percentage they make up index
        
        FTSE
        
        Tracking
        error
        
        Difference between
        index and your holdings
        
        Smaller better
        
        Why?
        
        Simple
        
        No research
        
        Buy shares in percentage of index
        
        Easy to track
        
        No research required
        
        Cheaper than active
        
        Safer than active
        
        Over a long enough period the index always increases
      - ETF (Exchange-Traded Fund)
        
        What is it?
        
        Sort of artificial
        stock market
        
        Derivative trading
        
        Can track an
        actual index or a custom index
        
        "Owned" by a company
        
        Why?
        
        Matches perfectly Index
        
        No stamp duty
        
        Danger
        
        If "owning" company
        goes burst you lose everything
  - - - Compound "interest"
      - 14 years to be a millionaire
- - - - Profit before tax
        
        Widely reported
        
        How well the company is doing
      - Earnings per share (EPS)
        
        Key figure for how
        well your investment is doing
        
        Your profit
        
        Easy to compare with previous years
  - - - Excellent
      - Stay skeptical
        
        Ignoring research?
        
        No products being released?
        
        As good as rivals?
    - - Normal
      - Stay skeptical
        
        Look at rivals
        
        What caused the downs?
        
        Was the down forecast?
    - - Not so good
      - Stay skeptical
        
        Look at rivals
        
        Management failing?
    - - Where is the
        company in its lifecycle?
        
        Startups expected to make a loss
      - Stay skeptical
        
        Spending on research
        
        General economic slump?
        
        Look at rivals
  - - - Annual divided/Share price
      - Higher is better
        
        But be careful is it higher
        because the share price is falling?