startinvestinguk

Start Investing Stock Portfolio: 2020 Review

Sun, 03 Jan 2021 21:06:19 GMT

And just like that, 2020 has come and gone

It will be the year that no one will ever forget, and the volatile nature of the COVID-19 pandemic took its toll on the UK stock market.

Investors began to see the start of what was to come in late February, which culminated in the FTSE 100 suffering the second worst crash in a single day on 12th March 2020.

After ‘bottoming out’ a couple of weeks later, the FTSE 100 had lost around a third of its value. It was clear that a significant change of fortune was required to breakeven for the year.

The race was on to recover the losses to the Start Investing Stock Portfolio (SISP)

2020 – A Rollercoaster of a Year

Total Number of Companies in Portfolio by 31st December 2020:

Best Performing Portfolio Stock of 2020:

Ferrexpo PLC +70.0%

The recovery began at the end of March, but it was by no means rapid. Over the following nine months, we carefully tracked the performance of the SISP against the FTSE 100 and 250 indices. As ever, our aim was simple: beat the market .

From our biennial review published in January 2020, we had observed the ups and downs of the market over the first 2 years of investing. This year was no exception:

Note that we base the performance of the SISP against the FTSE 100 and 250 indices as around 80% of our portfolio is made up of companies represented in either the FTSE 100 or 250.

Over the past 36 months of investing, our portfolio has become reasonably diverse, with 19 companies being spread across 13 industry sectors:

Between the end of 2017 and the end of 2020, the SISP had outperformed both of the major UK market indices on growth alone (i.e. excluding dividends).

Dividends – the gift that keeps on giving

One of the cornerstones of our investing strategy is that we firmly believe in only investing in dividend-paying companies. When we invest, we aim for a return on our investment through both stock value growth and regular dividend payments.

By the end of December 2020, the additional income received from dividend payments significantly helped our portfolio returns.

Remember our mantra: "No dividend? No deal!"

What’s in store for 2021?

Now that we’ve been in the market for 3 years, we have some really nice data to back up our stock screening process and be confident that our method will consistently beat the market , in both up swings and down swings.

We have listened to some feedback from the Start Investing Community , and it seems that one thing we can improve upon is portfolio management. How many stocks to own at one time, appropriate diversification, choosing the right time to sell - these concepts have not been as straightforward.

We have been thinking about a solution to this problem, and have an exciting new offering to our Start Investing community in 2021.

We are in the process of creating

T he C ompounding C lub

Inspired by Joel Greenblatt’s “ The Little Book that Beats the Market ”, we aim to help investors build a manageable portfolio made up of 12 positions , each held for exactly 1 year . The positions are therefore continually updated with the most undervalued stocks in the UK market .

This strategy will take the hassle out of portfolio management and the ' when to sell ' dilemma.

To find our more, have a look at the explainer page on our website.

This offering will be made available through Patreon and is the first offering from Start Investing that will not be free to all our users, as it will take some considerable time on our part to create and maintain, we hope you understand.

We would love to take as many of our subscribers as possible along with us for the next part of our investing journey!

If you haven't already, you can join the Start Investing Community for free - here .

Until next time,

Happy New Year and Happy Investing!

Matt and Joe

Stock Review of VLX: Up 35% in Just Three Weeks

Sun, 25 Oct 2020 20:31:57 GMT

Volex PLC, a manufacturer of electrical cables and power supplies, looked undervalued at the beginning of October

We know that the stock market hasn’t been too kind to long-term value investors since March 2020 as a result of the COVID-19 pandemic. Plenty of portfolio positions around the world quickly when from being ‘ in the black ’ (profitable) to being ‘ in the red ’ (unprofitable).

Throughout this time, we have continued to screen the UK stock market monthly in order to seek out those strong businesses which have been unfairly punished in the recent climate.

At the beginning of October , we highlighted 10 companies that we considered would recover well over the coming months and might have experienced large declines in share price.

The company that we championed as our number one pick was Volex PLC (VLX).

The company, which manufactures and supplies power products and cable assemblies, was growing steadily between March 2017 and the beginning of 2020. At the end of January 2020, the share price took a dive , dropping -47% by the end of March 2020.

However, the company soon started to recover. The combination of low share price and sturdy underlying financials resulted in Volex appearing on our monthly stock screen .

It was time to invest.

Between publishing our top 10 stock picks and close of trading on Friday 23rd October, the VLX share price had increased by an incredible 34.9% , comfortably outperforming both the FTSE 100 and 250 indices.

Furthermore, when taken as an average , our top 10 picks of the month for October also outperformed the FTSE 100 and 250 .

Now, we know that short-term wins are flattering, but long-term winners are what we’re after.

From our recent analysis, we believe that VLX is still under-valued and has more to give. We don’t intend on selling until our sell criteria are met.

Our next round of stock screening will take place next weekend, and we will announce our 11th monthly stock pick of 2020 on Monday 2nd November.

To ensure that you know which company we are backing in November before anyone else, subscribe now for FREE .

Happy investing!

Matt

Stock Review of AGK: 23% gains in Three Weeks

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 26 Aug 2020 20:30:28 GMT

On this rainy August Wednesday afternoon in Manchester, I thought I would put together a short blog post outlining the performance of our recent monthly stock pick from August 2020.

As described in our Stock Pick of the Month post, Aggreko (AGK), which operates heavily in the energy sector, was hit hard at the start of March 2020 due to the COVID-19 pandemic.

This global shutdown saw the AGK share price drop from £7.09 on 2nd March to £3.14 on 18th March, a decrease by nearly -56% .

This decrease in share price combined with strong underlying financials meant that Aggreko soon found its way onto our monthly stock screen, which indicates when a stock's price is trading below the its intrinsic value.

At the end of July 2020, the share price had slumped to £3.85 . We knew it was time to invest .

Between declaring our pick on Monday 1st of August and close of trading today on Wednesday 26th August, the share price had increased by a healthy 23.5% .

To put that into perspective, the FTSE 100 and the FTSE 250 increased by only 1.8% and 3.8% respectively over the same 3-week period.

But what now?

Well, if you know anything about our investing strategy, you’ll know that short-term wins are great, but long-term winners are what we’re after.

From our recent analysis, we believe that this company is still under-valued and has more to give so we will be holding until our sell criteria are met.

Our next round of stock screening will take place over the August Bank Holiday weekend. From this analysis, we will select and announce our monthly stock pick on Tuesday 1st September .

To ensure that you know which company we are backing in September before anyone else, subscribe now for FREE.

Happy investing!

Matt

Stock Review - Nine Months to DOUBLE Your Money

startinvestinguk@gmail.com (Joe Hodgson) — Sun, 21 Jun 2020 09:29:06 GMT

How to pick a stock that gives you over 100% gains in less than a year

Hi investors,

As many of our regular readers know, we follow the same routine at the end of each month in order to select our monthly stock pick. This routine can be broken down into 4 simple steps:

Step 1 - High-Level Screening (Stocks analysed - 2750 )

We run a high-level screen for all companies available on the London Stock Exchange (LSE) using our list of key parameters ( you can read about these in our ebook ).
Only around 3% of all stocks in the UK meet our strict criteria.

Step 2 - IVI Evaluation (Stocks analysed - 50-80 )

We then assess each company using our Inherent Value Index (or IVI) evaluation method.
This method takes into account key financial data, past and projected, and often removes a further 35-70 companies from the list.

Step 3 - Stock Pick Selection (Stocks analysed - 10-15 )

At this point, we are left with fewer than 20 under-valued, dividend-paying companies (approximately 0.5% of the companies available on the LSE).
From this list, we evaluate annual reports and company announcements to ensure that we have left no stone unturned before making our selection and circulating to our stock pick subscribers

Step 4 - Investing (Stock selected - 1 )

Once the data analysis is complete, we wait for the first weekday of the month before investing our hard-earned cash into a company which we believe will stand us in good stead over the coming months and years.

Simple but effective.

Plus500 Ltd

In the summer of 2019, after going through this rigorous analysis, we landed on a company called Plus500 Ltd (PLUS) as our July monthly stock pick. From our analysis, this international financial firm appeared to be trading at a heavily reduced share price of only £5.24 , having had a tough year in the market.

Tighter regulations had meant a crack down in their industry, and many investors pulled out of the company believing it would not survi ve. However, our IVI method revealed a VERY strong set of financials and believed the market was wrong.

Within 3 weeks, the stock price had risen by a whopping 25% which prompted Joe’s blog post in late July. Despite this short-term win , our analysis indicated that the company was still very much under-valued .

As a consequence, at end of July 2019 we followed the numbers again and made a second investment into PLUS at a share price of £6.11 .

For the rest of 2019, the share price continued to climb through £7.00 and £8.00, paying (literal) dividends along the way, until on the 4th March 2020, it had hit £9.57 per share.

Then came Monday 9th March 2020: ‘ Black Monday ’. Global markets were turned on their heads as investors came to the realisation that the COVID-19 pandemic would disrupt life as we know it.

As the share price fell to £7.31 on 16th March, we wondered whether we’d missed the boat to sell. Should we sell and take the profit now? Or should we hold and hope for a recovery?

As ever, we looked at the numbers. After conducting further IVI analysis, we opted for the latter; at the current share price, the IVI method indicated that the company was still under-valued by the market.

The share price duly bounced back towards the end of March and continued to rise throughout April.

By 24th April 2020, the company was trading at over £12.50 per share. At this valuation, according to our calculations the company was moving from under-valued to a fair valuation status.

This led us to asking 2 questions:

1. Do we trust in our IVI evaluation method and think that this company is no longer under-valued?

2. Would we be happy to take the profits gained so far to re-invest into other under-valued companies?

It was time to sell . We sold our stake in PLUS at a share price of £12.51 .

Overall, the numbers really speak for themselves when you work out the overall % profit over the 9-month period.

Note that this profit is through growth alone, and does not include the 2.7% profit which we received through the company’s dividend payments.

As our long-term subscribers will know, we advocate long-term investing ; holding positions for many years, and selling as infrequently as possible.

However, when one of our stock picks realises its fair value in such a short space of time, we have the opportunity to sell and take the profit .

Am I sad that we didn’t hold until 20th May when the share price hit £13.75?

- A little. But when you go with the numbers rather than with your feelings, you have some reasoning to fall back on.

We sold at the right time based on the financials - holding after that would have been gambling and greedy .

And what did we do with the money made from the sale of our PLUS position in April?

We invested it of course!

We've found opportunities in the form of our May and June monthly stock picks, and got our cash straight back into the market.

If you want to find out which company we're backing this month, subscribe for FREE now.

Happy investing!

Matt

Complete Analysis: June 2020

startinvestinguk@gmail.com (Joe Hodgson) — Tue, 02 Jun 2020 18:16:39 GMT

Full Analysis from June 2020

Missing data will result in a VALUE! or N/A error

Top 10 Stocks: April 2020

startinvestinguk@gmail.com (Joe Hodgson) — Tue, 02 Jun 2020 15:47:03 GMT

The Breakdown:
Financials of Our Top 10 Stocks From April 2020

1. Bellway PLC

2. Carnival PLC

3. Redrow PLC

4. Royal Dutch Shell B

5. Barratt Developments PLC

6. Countryside Properties PLC

7. Vesuvius PLC

8. Mondi PLC

9. Hilka Pharmaceuticals PLC

10. Persimmon PLC

A Novel Idea for Comparing Stocks Using Data Visualisation

startinvestinguk@gmail.com (Joe Hodgson) — Sun, 10 May 2020 11:34:56 GMT

We see a lot of numbers, but can we use data visualisation to create an instant snapshot of a stock's value?

I took some inspiration from an unlikely source: basketball

I am not a basketball buff by an means, but these charts let me visualise and understand the complexity of players' stats in a very short space of time .

This got me thinking: can we do the same for stocks ?

People are busy, many do not have time to go wading though heaps of data.

How can we take all of the great stock data we collect and display it in a single image ?

Using a similar chart to the one above, we might be able to digest complex datasets in a few seconds .

We proposed to include 8 data points :

Price/earnings
Price/book
Price/cash
Price/sales
Debt/equity
Dividend yield
Dividend payout ratio
Forecast growth

Using a radar plot like the one displayed above, we could display them all in a single chart.

We I did a quick sketch .

These metrics were chosen as they make up the backbone of our Inherent Value Index , and we use these to rank stocks to give us our stock picks every month .

The hard part was choosing the scales for each of these. We decided to use the upper limit as the starting point for our screens in most cases, i.e. the upper limit for our p/e ratio is 25, as we do not analyse stocks with a higher p/e than 25. For others we chose what we felt would provide the most valuable information for our image.

Next we made a rough chart using excel and powerpoint:

Some room for improvement there...

Then we made a few adjustments to make it a little more aesthetically pleasing (/badass).

ooooo neon

Now we are ready to see how it looks when we input some data !

We decided to compare 2 housing stocks: Barratt Developments and a recent Start Investing stock pick - Redrow

So we input the data from our most recent screen in May for the 2 companies:

Now we have a pretty simple image from which we can get a very good overview of a companies financials.

We can even overlay them to give the full comparison in a single image :

Now we can appreciate in a matter of seconds the difference between these two stocks, which on the face of it appear very similar.

We will definitely be using this tool for our upcoming stock picks and hopefully explaining the rational behind this chart and where the tool has come from will help subscribers to understand it and use it effectively .

If you haven't already subscribed and would like to see our monthly picks (now with data viz!) please join us here for free.

Our next pick will be announced on the 1st of June .

Until then, many thanks for reading and have a great Sunday!

Joe

Investing in the Time of Coronavirus

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 11 Mar 2020 22:07:26 GMT

Plus an analysis of the Top 10 shares for your ISA

Hi investors,

So, this Monday (9th March 2020, or ‘Black Monday’) investors across the world witnessed one of those sobering feelings as global stock markets turned uniformly red .

Billions of dollar s were wiped off the face of the Earth by a swirling vortex of terror - one part unchecked spread of coronavirus , one part oil price war .

Before 9am UK time on Monday, over £120bn was lost from the FTSE 100 alone , which closed down 7.2% . A drop like that in a single day hasn’t been recorded since the financial crash in 2008 .

Interesting times lie ahead…

However, do not lose hope ! People react irrationally during market downturns, and it is at times like these that investors need their decisions to be directed by their heads more than by their hearts .

For example, we know that the companies which we invest in are good companies . Some are even g reat companies that have been around for decades, through several market crashes (and oil price wars )! And because of this, we will continue to invest regularly into the UK stock market as we strive towards financial freedom.

Anecdotally, the stock market takes a downturn every 10 years . The last ‘crash' was in 2008, and we could be on the verge of the next blip.

But as Warren Buffet would say:

“Be fearful when others are greedy. Be greedy when others are fearful .”

With this in mind, we spied an interesting exerpt from an Investors Chronicle (IC) supplement this week, which recommended ’10 Shares for Your ISA’ .

Obviously, we couldn’t resist putting each company through our Inherent Value Index (IVI) evaluation to see whether any of these companies were good value investments .

As outlined in our free ebook “The Start Investing Guide to Stock Screening” (which you can get for free by subscribing here ), we have certain metrics that we live by when it comes to picking stocks :

The Top 10 shares (below) were highlighted by the ‘IC Companies Team’ which they consider will “deliver solid returns over time” and are “worth their prices”.

Here is how they stack up against some of our key fundamental ratios :

When we feed these numbers into the IVI machine , the outputs make for interesting reading :

As you can see, the analysis indicates that we have a bit of a mixed bag ; some good and some not so good from a value-investing point of view.

Of the 10 companies, only one makes it to the finish line unscathed. Despite the downturn in oil price and environmental concerns in the media, Royal Dutch Shell (RDSB) passes with flying colours.

Obviously, we weren't expecting all 10 companies to be good value stock picks (or else we'd have seen them on our screens! ), but it’s good to see that at least one of their picks is in line with our strategy.

We believe in regular and long-term investing , regardless of the status of the stock market.

Our next Monthly Stock Pick will be announced on Wednesday 1st April 2020.

If you want to know which dividend-paying company we'll be backing, subscribe here for free.

Happy investing!

Matt

50% Returns Show We Were Right About Housing: Have We Just Found The Next Big Thing?

startinvestinguk@gmail.com (Joe Hodgson) — Sat, 22 Feb 2020 14:38:20 GMT

Since 2018, our 5 housing stock picks have returned about 50%.

Now, our Inherent Value Index now points to a new investing opportunity.

When we first started screening for stocks back in January 2018, the first few months produced surprising results: housing companies , seemingly making money hand over fist, were trading at a huge discount .

At Start Investing we follow the numbers, and the numbers told us to cash in on these strong companies that had been beaten down by Brexit uncertainty.

We continued to buy until early 2019, by that time housing stocks made up a large portion of our portfolio and even though we hadn't seen much of a return by then we trusted the strong financials these companies were reporting.

Below is the result of our February 2019 screen, as you can see, 7 of the top 11 are housing companies : Bellway, Redrow, Bovis Homes, Countryside Properties, CRH, Taylor Wimpey and Persommon.

The 5 stocks we bought into between Jan '18 and Feb '19 were also handsome dividend payers , demonstrating that these companies still had the resources to return cash to their shareholders.

These dividends were re-invested and the number of shares we owned in these companies increased throughout 2018 and 2019.

Now we are starting to see these undervalued stocks achieve big gains as the market catches up with how well these businesses have been performing.

The table below summarises our returns to date from the 5 housing stocks we purchased :

Our Inherent Value Index has now identified a new sector emerging with the same signals , making plenty of profit but being ignored or even punished by the market.

Take our first screen from 2020 as an example:

Five of the top 20 are oil or mining companies , and Vesuvius PLC is directly linked to this industry being involved in the manufacture of steel.

Could the increasing focus of climate change in the media be driving the share price of these companies down? Whatever the reason, some of these companies look extremely undervalued based on their financials; an opportunity that looks too good to miss out on .

If you want to receive our stock picks in real time , please subscribe here for free and we will email you on the first day of each month with our chosen stock .

Many thanks for your time and attention, best of luck out there.

Joe

The Start Investing Stock Portfolio Biennial Review

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 15 Jan 2020 07:38:37 GMT

"And just like that, it's been two years since the birth of the
Start Investing Stock Portfolio (SISP) "

Hi investors,

And just like that, it's been two years since the birth of the Start Investing Stock Portfolio (SISP).

After buying into our first company on 19th December 2017, we've been regularly adding to the SISP on a monthly basis, and tracking the growth performance and incoming dividends.

In this biennial review, we thought we'd share with you exactly how it has performed throughout 2018 and 2019.

TL;DR Summary

Over the last 2 years, our Monthly Stock Picks have outperformed the FTSE 100 by 13.2% and the FTSE 250 by 5.6%
Dividend payments increased the growth of our portfolio by an additional 5.7%

(not too long to read now, ey?!)

As you will see, it really has been a journey of two halves...

2018 - Into the Deep End

Total Number of Companies in Portfolio by 31st December 2018: 14
Best Performing Portfolio Stock of 2018: Rio Tinto PLC (RIO) +4.8%

2018 was a tough year for investors in the UK stock market, and the SISP was no exception. The poor performance over the 12-month period was ascribed to a combination of global volatility for equities and the uncertainty surrounding Brexit.

Following a very positive start in January 2018, the SISP went on to perform similarly to the FTSE 100 Index over 12 months, both of which beat the FTSE 250 Index.

2019 - Moving in the Right Direction

Total Number of Companies in Portfolio by 31st December 2019: 17
Best Performing Portfolio Stock of 2019: Barratt Developments PLC (BDEV) +61.5%

Following the poor market performance in our first 12 months, 2019 saw a healthy return to the norm for UK investors. Again, our portfolio got off to a flying start, outperforming both the FTSE 100 and 250 indices in the first quarter of 2019. After a slump in the markets at the start of August, the SISP went on to beat the FTSE 100 by a whopping 10.5%.

Between the end of 2017 and the end of 2019, the SISP had outperformed both of the major UK market indices on growth alone (i.e. excluding dividends).

Dividends - the Cherry on the Cake

As you know by now, we firmly believe in only investing in companies which pay a dividend. Therefore, whenever we invest, our aim is to see a return on our investment through stock value growth and regular dividend payments.

By the end of December 2019, the additional income received from dividend payments significantly increased our portfolio returns.

Remember: "No dividend? No deal!"

Month Stock Pick Review

Since we started sharing our Monthly Stock Picks at the end of December 2017, we have highlighted companies which we considered to be undervalued in the market. To date, all of the companies we have selected as our

Monthly Stock Pick feature in either the FTSE 100 or FTSE 250.

As we have added to our stock portfolio over the past 2 years, the majority of investments have been significantly guided by our Monthly Stock Picks. However, on the odd occasion, we have decided to reinvest into stocks which we already own, as opposed to buying into a new stock.

Naturally, this creates larger positions with less diversification. If an investor had followed our Monthly Stock Picks religiously from the end of December 2017, their portfolio would have beaten the market by the end of 2019 (again, excluding dividend payments).

The Last Word

As you know, we advocate long-term investing; holding positions for years and years, and selling as infrequently as possible. However, as you can imagine, we were pretty pleased with our first 2 years in the UK stock market!

Now that we have 24-months of data behind us, we are confident that our screening and selection method for stocks is robust. The numbers above speak for themselves.

Our next Monthly Stock Pick will be announced on Monday 3rd February 2020.

To find out which dividend-paying company we'll be investing in, and to ensure you don't miss out on any updates to our portfolio in the future, subscribe now for free

Happy investing!

Matt

The Portfolio That Funds Itself

startinvestinguk@gmail.com (Joe Hodgson) — Sun, 08 Sep 2019 09:36:40 GMT

Something Very Exciting is Happening To Our Portfolio...

Something pretty exciting is happening to the Start Investing Stock Portfolio .

September will be our 20th month of investing £300 per month into our stock picks, meaning we will have invested about £6,000 into the portfolio.

Our average dividend yield (remember, this is the % of how much money we put into a stock that is paid back to us in the form of dividends) is about 5%.

This means that next year we will get a whole month’s stock pick paid for by dividends!

5% of £6,000 is £300!

WE LOVE DIVIDENDS.

This is also a very good way to see compounding interest at work. Here's a question for you:

How long will it take for all 12 months’ picks to be paid for by dividends?

The first one took 20 months right?

So is it 12 x 20? 240 months or 20 years ?

Nope.

If we think we need £3,600 in the form of dividends to pay for 12 months of picks, we need a total portfolio worth £72,000 (5% of £72,000 = £3,600).

Here is a breakdown of how the next 20 years will go if we keep adding £3,600 and reinvesting our dividends.

Our first completely paid for stock pick year is actually occurs during 12th year , due to the magic of compounding.

As you can see, the numbers start to get pretty exciting after that!

And remember, all of this is WITHOUT the rise in share price experienced by our stock picks, this is only dividend payments.

Tl;dr. Dividends are very cool , and form an essential part of our stock picking process.

Check A Stock

startinvestinguk@gmail.com (Joe Hodgson) — Thu, 25 Jul 2019 20:37:42 GMT

The Peace of Mind Investing Service

Hi investors,

Are you thinking about investing in a company, but aren't sure whether you'd be getting a good deal ?

Will you be paying over the odds if you buy at the current share price?

Does the company look to be in financial trouble ?

If you're currently asking these sorts of questions, then this blog post is for YOU.

Here at Start Investing, we firmly believe that research will always trump a hunch. The problem is that, at the end of the day, we're all human and we will all respond emotionally when it comes to investing in the stock market.

However, if you're able to use reliable financial data to evaluate a company rather than being seduced by media hype, you can begin to reduce your dependence on your (typically) unreliable gut.

As most of you know by now, Joe and I screen all companies on the London Stock Exchange at the end of each month using our list of key parameters. Then, using our unique Inherent Value Index (IVI) evaluation method, we assess those companies that have strong key financial data (past and projected). Finally, after extensively reviewing recent annual reports and company announcements of around 20 companies, we select one company as our monthly stock pick and share it with our subscribers .

We use this process each and every month, and we aim to select the best company for the Start Investing Stock Portfolio based on numbers alone.

So, what does this all have to do with our ' Check A Stock' service?

Over the last few months, we have had quite a few enquires through from the Start Investing community asking whether we can help to remove some of worry behind potential stock purchases.

Now, before I go any further, I need to remind you that we do not offer independent financial advice and investors should seek appropriate professional advice from their stockbroker or other adviser before making investment decisions. Start Investing gives general advice only, and the investments mentioned may not necessarily be suitable for any individual.

Then it clicked. In order to reduce your uncertainty, we could evaluate your stock picks by taking the financial figures and other key information from recent annual reports and announcement postings, and evaluate the specific company of interest using our tried and tested IVI method (in exchange for a small fee).

The 'Check A Stock' process is simple.

All you need to provide is:

The Name of the Company ('Stock Name')
The Ticker Symbol of the Company
The Country in which the Company is trading
Your email address (so we can email our report back to you)

That's it!

Over the past few weeks, we have evaluated a number of companies for members of our Start Investing community, and the feedback has been fantastic.

Some of the companies we've looked into have been (and still are) grossly over-valued based on their intrinsic value, whereas some have been hidden gems that have previously appeared during our recent monthly stock screening process.

And the cost of this valuable insight? £1.99 .

That's right, the total cost of this service which can better your financial future is less than one average medium latte at your local coffee shop. And to add to that, we aim to turn around our findings in 24-48 hours .

So if you've been contemplating making an investment into a company, but haven't yet taken the plunge because you are worried about its financial health, get in touch and we will tell use our IVI evaluation method to give you a deeper understanding of the company you want to invest in (good or bad).

As always, if you want to find out which company we're backing this month (and for all future months), subscribe for FREE now.

Happy investing!

Matt

Our July Stock Pick is Up 25% in 3 weeks, Here’s What We’re Going To Do Next

startinvestinguk@gmail.com (Joe Hodgson) — Sun, 21 Jul 2019 07:36:23 GMT

For long term investors, quick wins can pose a tough question: do we take a quick profit or stick with our strategy?

Hands up who got in on our PLUS500 stock pick last month and is finding themselves with a VERY healthy profit this week ?

Good work, you trusted the numbers like a value-investing aficionado and, like us, are probably thinking about what to do next.

Well we wrote a blog all about when to sell a stock earlier this year and as always, we will stand by our value-investing principals.

Remember, as legendary value investor Peter Lynch says:

“As it turns out, if you know why you bought a stock in the first place, you’ll automatically have a better idea of when to say good-bye to it.”

Luckily at Start Investing, we know exactly why we buy all of our stocks: because they are an undervalued, dividend paying company with strong financials . So when it comes to selling, we always ask ourselves:

Have the fundamentals of the business changed? – Not in this case
Has the company stopped paying a dividend? – Nope
Is the stock in financial trouble? – Not at the moment

So they are the non-negotiables sorted, now for a couple more subjective questions:

Has the stock become overvalued?

In my opinion PLUS500 is still looking undervalued; the share price increase over the last month has meant that it is no longer on the very top of our value screen, but with an IVI score of 120 , it still makes the top 10 (we consider anything less than 800 to be undervalued). It certainly does not meet our sell criteria of being overvalued and we are of course still expecting a dividend later this year.

Has a better opportunity arisen?

To this question, I would say: maybe, but not in this sector. So I am happy to remain diversified here and when another value opportunity arises we will take advantage of it without selling our share in PLUS500.

In conclusion, it is always fantastic to see the market react quickly and re-evaluate one of our picks for the better, and it can be tempting to take the fast profits and move on. However, as long as the fundamentals of the business are strong, stay in for the long haul, take the dividends and sell because of changes in the business , not in the share price .

If you missed out on our skyrocketing July pick , worry not!

We release a stock pick on the 1st of each and every month, meaning the next one will be released in under 2 weeks’ time.

Sign up here to see our picks; it’s free, easy and friendly and we even give you our legendary ‘ Start Investing Guide to Stock Screening’ ebook to say thanks.

Thanks for reading and best of luck out there!

Joe

Stock Review: Micro Focus International, the 4 month wonder stock

startinvestinguk@gmail.com (Joe Hodgson) — Sat, 18 May 2019 08:02:53 GMT

Hi investors,

If you're familiar with our stock picking process, you'll know that we follow the same routine at the end of each month in order to select our monthly stock pick. If you're not, here are the key notes broken down into 4 steps:

Step 1 - High-Level Screening ( Number of Stocks- 2750 )

· Run a high-level screen for all companies available on the London Stock Exchange (LSE) using our list of key parameters. Amazingly, this process usually removes around 97% of the stocks available to investors.

Step 2 - IVI Evaluation ( Number of Stocks - anywhere between 50-80 )

· For the remaining ~3% of stocks which meet our criteria from the high-level screening, each one is assessed using our Inherent Value Index (or IVI) evaluation method. This method takes into account key financial data, past and projected, and tends to remove around another 35-70 companies from the list.

Step 3 - Stock Pick Selection ( Number of Stocks - typically between 10-15)

· At this point, we are left with less than 20 under-valued, dividend-paying companies (about 0.5% of the companies available on the LSE). From this list, we read through recent annual reports and company announcements to ensure that we have left no stone unturned before making our selection and circulating to our stock pick subscribers .

Step 4 - Investing ( Number of Stocks - 1 )

· Once the hard work is complete, we wait for the first day of the month before investing our cash into a company which we believe will stand us in good stead over the coming months and years.

Simple but effective .

Back in December, we selected Micro Focus International plc ( MCRO ) as our final monthly stock pick on 2018. Based on the company's financials, this multinational software and IT business appeared to be trading at a bargain at £15.76 per share.

Over the following months, the stock price rose and rose, and by the end of March, the stock had hit £19.00 per share.

Now, if you read Joe's blog post in February 2019 about When to Sell a Stock , you'll recall that there are two main reasons to sell a stock:

1. A better opportunity has arisen:

I.e. taking your money out of one company and investing into a more company with more potential.

2. The fundamentals of the business have changed:

Either the stock has become over-valued, it has stopped paying a dividend or the company is in financial trouble.

Now, in addition to running our monthly stock screen at the end of each month, we also review the companies which make up our Start Investing Stock Portfolio (which currently consists of 15 strong companies). This enables us to evaluate the recent performance of the companies in our portfolio and importantly, highlight whether we should consider selling any of our positions.

When we reviewed MCRO at the end of March 2019, it was clear that we had made the right choice in December.

However, due to the significant rise in the stock price, the company appeared to be trading at a fair valuation (no longer under-valued). In addition, one of our key metrics indicated a significant decrease in the 'Margin of Safety'.

We decided to sell at the start of April 2019 at £20.09 per share, a return of 27.5% in four months, or 30.3% including dividends.

As you know, we advocate long-term investing; holding positions for years and years, and selling as infrequently as possible. However, we were pretty pleased with this short-term return on our investment and sold out of the position for the right reasons.

What did we do with the money made from the sale of our MCRO position?

You've guessed it...WE INVESTED IT! We've found a great opportunity in the form of our May monthly stock pick, and got our cash straight back into the market, working for us.

If you want to find out which company we're backing this month (and for all future months), subscribe for FREE now.

Happy investing!

Matt

Investing 101

startinvestinguk@gmail.com (Joe Hodgson) — Sat, 30 Mar 2019 08:53:00 GMT

We have had a lot of new subscribers over the last month, so this week we thought we would do a recap of the need to knows of investing for those just starting on their journey.

The Good

The stock market is a wonderful, fascinating arena, moved in equal weight by economic fact and human emotion. It is subject to the whims, insecurities and hopefulness of millions of individuals and corporations across the world.

The bottom line is this: the total stock market return over the last 200 years (the change in value of the stocks themselves and any dividends paid) on average is 8.1% per year . When adjusted for inflation it’s about 6.6% per year . With the help of the graph below from Jeremy Siegel’s brilliant ‘Stocks For The Long Run’, you can see that the stock market far surpasses any other asset class.

This means that, on average, a diversified portfolio of stocks (i.e. a group of stocks that covers many industries and sectors) has doubled in value every 10 years.

Lets say you invested £10 in a company’s stock. The first year the stock increases in value by 8% (10 x 1.08 = 10.8 ), the value of that stock is £10.80 at the end of the first year.

The second year it increases another 8% (10.8 x 1.08 = 11.66 ), now it is worth £11.66 – here you are also making 8% of the 1st year’s profits as well, this is compound interest , and this is what has made Warren Buffett one of the richest people on the planet. By the end of the 10th year you have almost exactly £20 , i.e. the value of your investment has doubled over 10 years.

Another bit of good news is that if you take any 20-year period throughout that 200-year history, a diversified portfolio of stocks has never lost investors money. It hasn’t even fallen below inflation; in fact the worst 30-year return for stocks remained comfortably ahead of inflation by 2.6% per year.

REMEMBER, these are average returns. We will discuss investing strategies in other posts, but know that there are many investors that consistently beat the market – meaning they achieve above average returns year after year.

For those who tell you that the stock market is akin to gambling or that it is a zero-sum game, in truth the risk of losing value in is not with the investors in the market, but with those who choose to keep their savings in cash - which loses value over time through inflation.

However, there is a caveat: the market is only reliable in the very long term.

The Bad

The bad news is that on a day-to-day, week-to-week, even month-to-month basis, the stock market is a casino. If your investment horizon is less than one year, you are just as well buying a stock as you are going and putting your money on black (for those who haven’t played roulette, that’s about a 50/50 chance of winning or losing.)

Constant news updates, economic fluctuations, Donald Trump tweets, Brexit anxiety and a million other factors keep the stock market in a constant state of flux. Individual companies can change in value by several percent in an hour for seemingly no reason at all. Many investors attempt to make money from these fluctuations: good luck to them; that is gambling and not what we do here.

Even more crucially, economic crashes can wipe out huge amounts of value from the market. The 2008 financial crash saw the FTSE 100 (the 100 largest companies on the UK stock exchange) lose 48% over an 18-month period. This is why a short term investing outlook can be very dangerous.

‘The only people who get hurt on a rollercoaster are the ones who jump off.’ - Dave Ramsey

You have to understand that crashes can happen at any time.
Don’t invest money you cannot afford to lose.
When crashes happen, you will not sell your shares !
You will wait.
The market ALWAYS comes back up and surpasses its previous value (take another look at Siegel’s graph if you don’t believe me).

Read our blog here for more on this.

The Beautiful

As of August 2018, 57% of US citizens have less than $1,000 saved, and a quarter of UK citizens have no savings at all. - CNBC , Independent

If you’re reading this blog, you are already thinking about your future and you are taking your retirement into your own hands. Hopefully you understand the power of paying yourself first – by that I mean spending what is left after you save, rather than saving what is left after you spend. By putting those savings into the stock market, you send those pennies and pounds out to work for you to make more pennies and pounds and so on.

“Compound interest is the eighth wonder of the world. He who understands it; earns it, he who doesn't; pays it.” – Albert Einstein

The end goal for the Start Investing Stock Portfolio is to reach 1 million pounds.

When (not if!) that figure is reached it will create a sustainable, self-refuelling salary of £60,000 per year in dividends . That is our financial freedom; the amount that would allow us to do whatever we want.

We know that this is going to take a long time (maybe 20 years, maybe 30), but we will continually learn and improve our strategy as we go to make sure we are as efficient as possible. We already utilise methods such as value investing , pound cost averaging and dividend reinvestment , strategies that have been shown to outperform the market.

What does financial freedom look like to you?

What steps can you take to make it happen?

The Start Investing Monthly Stock Pick is announced on the first trading day of every month (i.e. not weekends or bank holidays). So sign up free if you haven't already done so - here , check your inbox on the morning of the 1st of April to find out which company we’re backing this month!

Thanks for reading and please reach out with any questions, either by commenting below or via email.

Best Wishes,

Joe

Understanding Compound Interest

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 13 Mar 2019 21:14:40 GMT

Hi investors,

Towards the end of last week, we received a great email from one of our Monthly Stock Pick subscribers, Sarah, asking us to explain how Compound Interest really works, and why we believe it is so important to appreciate when to comes to investing.

First, the definition. As always, we turn to our trusty copy of ' The Financial Times Guide to Investing; the definitive companion to investing and the financial markets ' for the technical description:

"Interest is paid on the sum which accumulates, whether or not that sum comes from principal or from interest received at intermediate dates."

In simple terms, compound interest relates to the reinvestment and growth of interest gained on the original investment i.e. 'interest on interest' .

As outlined in our very first blog post in August 2018, there are many ways of trying to describe this phenomenon, but we think that the easiest way is to show you.

How Compounding Works

Here we go. The only example you need to fully understand the wonders of compounding...

Say we have two individuals: 'Greedy Greg' and 'Smart Sarah' . Both have £1,000 that they would like to invest in the stock market in order to make some additional money.

Greedy Greg has a short-term investing mindset, and withdraws any profit he makes on his original £1,000 investment. The interest he ends up building is referred to as 'Simple Interest' .

Smart Sarah has a long-term investing mindset, and leaves all the money earned on the original £1,000 investment locked away for the future. The interest she ends up building is referred to as 'Compound Interest' .

Both investors invest their money on the same day into the same company/fund, which has an annual interest rate of 10% (i.e. the company or fund will pay them 10% each year on their investment).

After the first year, both Greedy Greg and Smart Sarah have made £100 each (10% of £1,000). At this point,

Greedy Greg withdraws the £100 interest he's made and puts it towards some new trainers.
Smart Sarah , on the other hand, leaves all her money in the market.

At the end of the second year, Greedy Greg has again made another £100. However, Smart Sarah has made £110 (10% of £1,100). I know what you're thinking: "Only an extra £10 doesn't sound like all that much". But this is where patience pays off for Smart Sarah.

Over the following 20 years, the difference between the two investors becomes ever greater, as you'll see from the table below:

Year	Greedy Greg's Investment	Smart Sarah's Investment	Difference Between the Two	% Difference
1	£1,100	£1,100	£0	0.0%
2	£1,200	£1,210	£10	0.8%
5	£1,500	£1,611	£111	7.4%
10	£2,000	£2,594	£594	29.7%
20	£3,000	£6,727	£3,727	124.2%

Incredibly, Smart Sarah's investment is now worth more than double (2.2x in fact) that of Greedy Greg's!

If you want to test these numbers for yourself, there are plenty of free Compound Interest Calculators available online which will help solidify the importance of this phenomenon:

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

https://financialmentor.com/calculator/compound-interest-calculator

http://www.online-calculators.co.uk/interest/compoundinterest.php

Our Start Investing Stock Portfolio and Compound Interest

As Albert Einstein once said:

" Compound interest is the eighth wonder of the world. He who understands it, earns it... He who doesn't,

pays it."

When we invest our hard-earned cash into our Start Investing Stock Portfolio , we leave our money to compound.

To find out when we do end up selling our positions in companies, check out Joe's blog post from February 2019, ' When to Sell a Stock '.

We're due to announce our April monthly stock pick on Monday 1st April 2019. To find out which dividend-paying company we'll be investing in, subscribe now for free.

Happy investing!

Matt

When To Sell a Stock

startinvestinguk@gmail.com (Joe Hodgson) — Mon, 25 Feb 2019 21:13:02 GMT

Buying the right stock means nothing if you sell it at the wrong time

For those of you who have been following the Start Investing stock picks, you will no doubt be looking at your portfolio with excitement this month. I can even imagine a few of you with your finger held above the keyboard, poised, ready to push the button and lock in the gains. If you have followed all of our picks you will now own a number stocks with double digit percentage gains, and a couple approaching 30%.

So now you've done the hard part, beating the market at a time when the FTSE has underperformed is no mean feat. Now you have an important decision to make: to sell or not to sell?

This bit is actually quite tricky. It is so easy to succumb to natural human greed, to hold on too long and then lose out if the price decreases. At times like these it is always best to look at the methods of the successful, the experienced, and lets face it, the incredibly wealthy.

Warren Buffett has famously stated that his ideal investing horizon is forever, but the big man does sell stocks pretty regularly. He advocates selling stocks for two reasons:

1. A better opportunity has arisen

2. The fundamentals of the business have changed

The first point is called ‘opportunity cost’ - losing out by holding on to an investment when a more profitable one is available, which is something we are starting to see in the Start Investing Stock Portfolio. Some of our stocks are approaching their accurate values, by selling them and putting that money into new opportunities, we can build a very powerful compounding system.

The second point is something that we have covered on our website before. Here are our non-negotiable selling criteria when it comes to the fundamentals of the businesses:

• The stock becomes very overvalued

• The stock stops paying a dividend completely

• The stock is in financial trouble

THE SHARE PRICE GOING DOWN IS NOT A GOOD REASON TO SELL -

THAT IS THE OPPOSITE OF WHAT WE ARE GOING FOR!

Peter Lynch, who managed the Fidelity Magellan Fund for 13 years and averaged annual returns of 29.2%, has a a similar set of selling rules of his own from his book One Up On Wall Street . Lynch advocates selling when the price has gone up by 30-50%, when the fundamentals become less attractive or when the price to earnings goes above its normal range – i.e. the stock becomes overvalued. Great minds think alike!

This golden advice nugget also comes from Lynch:

“As it turns out, if you know why you bought a stock in the first place, you’ll automatically have a better idea of when to say good-bye to it.”

As value investors, our strategy is finding businesses that are undervalued, ignored or unjustly hated on by the market. When the market comes to its senses and values the stock accurately we can choose to sell and put that capital into a better opportunity.

If the business is strong and growing, the share price increasing alone may not be a good reason to sell. In that case the better option may be to keep the stock for the long term, collect the yearly dividends and add to the position if and when the stock looks undervalued again. A potential pitfall of this tactic is becoming over-diversified. By never selling stocks and collecting new stocks every month, you might eventually make a portfolio with too many stocks in it. At this point you will be getting close to average market returns and may as well be investing in a fund that tracks the entire stock market.

At Start Investing we developed the IVI Meter, which lets us know whether stocks are undervalued, accurately valued or overvalued. So when the price goes up, we can check IVI Meter and get a very good idea about whether to sell or not.

Our strategy is to hold our stocks until we believe they have reached a fair value according to the IVI Meter, then we place a 5% ‘trailing stop’ on these positions. That means that when these stocks reduce by 5% from any high they reach, we will get a notification and sell. For example, if a stock makes a 35% gain and we feel that its now priced accurately, we will place a trailing stop. The stock can continue to rise without us getting a notification to sell, but as soon as it has decreased by 5% from any high, we will get an email and sell. In this system, once a stock has reached 35%, the lowest return we will get from that position is 30%, however we will still benefit from any gains above the 35%.

We set up these trailing stops using advfn.com. If you like the sound of that strategy we have made a tutorial on Youtube that shows you how to set up a trailing stop for yourself, here . You can even check a stock yourself using our IVI Meter on our site here.

If you’re not currently a Start Investing subscriber and would like to be, you can sign up here and receive our monthly stock picks free of charge. Please do so before the 1st of March to receive next month’s pick!

Best of luck in the market this month and please feel free to reach out or comment below if you have any questions.

Joe

A Short But Powerful Blog About DRIP

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 23 Jan 2019 21:31:21 GMT

"I am like a drop of water on a rock. After drip, drip, dripping in the same place, I begin to leave a mark, and I leave my mark in many people's hearts." - Rigoberta Menchu

We write quite a lot about the ideologies and theory behind value investing, but we also want to talk about the nuts and bolts of the investing world. These are the issues that are rarely discussed in investing books but can be just as important to your gains as getting the strategy right. We are constantly ironing out the creases in our own investing strategies and we will give you a head’s up as much as possible so that you can do the same.

DRIP, for those of you who haven’t read every single blog and line of our website (shame on you), stands for dividend reinvestment plan. This means that when you are paid a dividend, it is automatically used to buy more shares of the company that paid them to you, usually at a reduced cost to your normal trade fee. It is an option available with most trading accounts but you often have to opt in to it. If you do not have a DRIP activated, the dividends instead pile up in the cash section of your account and you don’t the benefit of the ‘double compounding’ magic of reinvesting dividends.

What I do want to talk about today is the minimum dividend value for reinvestment: this means that if you are paid a dividend that does not meet the minimum cash requirement by your trading platform, it will not be reinvested. For example: the minimum dividend value for reinvestments with Hargreaves Lansdown and Interactive Investor is £10; that means if you are paid a dividend of £9.99 or less, it will not be reinvested.

For my investing strategy, automatically reinvesting my dividends is very important (and satisfying) and there are a few things you can do to make sure that it will happen:

Firstly, you can work out how much of a dividend you are going to be paid and make sure it is over the minimum amount. You can work this out by:

· Number of Shares Bought x Dividend Amount

I bought 20 shares of BP, they pay a £2 dividend therefore I will be paid £80 over the next year. (20 x £2 = £40)

· Dividend Yield (expressed as a decimal) x Cash Amount Paid For Shares

I bought £400 worth of BP shares and they have a dividend yield of 10%, therefore I will be paid £40 over the next year. (£400 x 0.1 = £40)

Then you need to check the number of times per year that dividend is paid. This is important because if you’re expecting a £18 dividend but its paid biannually, you will get two payments of £9, and if the minimum is £10 then neither of them will be reinvested.

You can check the number of payments per year (as well as the dividend yield and cash amount) using https://www.dividenddata.co.uk/ by checking the number of ex-dividend dates per year. For example, Redrow has two ex-dividend dates and is therefore paid twice per year; BP has four and is therefore paid four times per year.

Finally, divide your dividend payment by the number of times it is paid per year.

£40 dividend / 4 times per year = £10 per quarter

If that is more than your minimum reinvestment amount all is well. If not, you can choose to invest more money to increase the dividend payments, either up front, next month or at some later date. Or you can choose to invest in a different stock depending on how important DRIP is to you.

THE GOOD NEWS is that once you have met the minimum requirement for dividend reinvestment, all you have to do is make sure the company doesn’t cut or lower its dividend and it will always be reinvested!

That’s it for this week!

TL;DR - Make sure your dividend payment is high enough that it is automatically re-invested by your trading platform. Most platforms have a minimum value they will re-invest and if it does not meet the minimum, the payment will gather dust in your account rather than contribute to compounding your wealth.

If you have any questions about DRIP or anything else, comment below or send us an email at startinvestinguk@gmail.com .

If you want to follow our real money stock portfolio, we will let you know which shares we are buying every month, absolutely free. All you have to do is enter your email here and we will send you our stock pick on the 1st of every month.

We will always pick stocks that we feel are quality, dividend paying companies that are currently undervalued by the market.

This is not intended to be a substitute for independent financial advice and any query you have should always be checked by a Financial Advisor.

Have a great Thursday investors,

Joe

Understanding Dividends Part II: Dates and Payments

startinvestinguk@gmail.com (Joe Hodgson) — Sun, 13 Jan 2019 21:16:21 GMT

Hi investors / soon-to-be investors,

Since our first dividend-focussed blog post back in November 2018, our Inherent Value Index (IVI) Portfolio has received a couple of dividend payments - always well-received by the Start Investing Community!

To recap: the definition of a dividend -

"That part of profit paid to ordinary shareholders, usually on a regular basis."

From - 'The Financial Times Guide to Investing; the definitive companion to investing and the financial markets '

Dividends form one of the cornerstones of our value investing strategy, and because of this, we will only invest in companies who choose to share their profit with hard-working investors.

Don't forget: "No dividend? No deal!" (Yes, we've stuck with the slogan!)

Now, when it comes to dividends, there are 3 key dates you need to look out for, they are:

1. The Declaration Date

It is on this date that the company paying the dividend will announce the two other important dates for investors: the first being when investors have to have invested in order to be eligible for the next dividend, and the second being when the next dividend payment will be made to the shareholders.

2. The Ex-Dividend Date

In order to receive the next dividend payment from the company, you must have invested before the ex-dividend date stated. Generally speaking, you need to have invested at least one day before the ex-dividend date, which is often referred to as the 'record date'.

Put simply, if you purchase shares before the ex-dividend date, you are eligible for the next dividend payment. If you purchase on or after the ex-dividend date, you will not receive the dividend payment.

3. Payment Date

This is the date on which the company will pay all eligible shareholders the dividend as outlined on the Declaration Date.

It can take a little while to get your head around the terminology, but stick with it, it'll soon become second nature.

Our favourite website, which is solely dedicated to the wonders of dividends, can help you track historic and up-coming dividend dates for the companies you are invested in.

https://www.dividenddata.co.uk/

Here's an example of how to use this extremely helpful tool...

Take our August 2018 Stock Pick, Pets at Home Group PLC (ticker symbol PETS ).

On the main Dividend Data homepage, type the ticker symbol into the search bar:

When you hit 'Search', all of the up-coming dividends will be displayed first, followed by the historic information:

As you can see, as of today - 14th January 2019, there are no upcoming dividends for Pets at Home. However, it is easy to see the breakdown of those 3 important dividend dates underneath.

Our Monthly Stock Picks and Dividends

Every one of our 2018 monthly stock picks were dividend-paying companies. This is a 'deal breaker' for us when we screen for stocks each month.

We're due to announce our February stock pick during the last week of January. To find out which dividend-paying company we'll be investing in, subscribe now.

Come and join the Start Investing Community!

Happy investing!

Matt

When The Market Is Crashing Around You: Keep Calm - Keep Investing

startinvestinguk@gmail.com (Joe Hodgson) — Sun, 30 Dec 2018 13:25:42 GMT

There are a lot of panicking investors out there; the stock market is crashing and people are selling large parts of their portfolio because they are scared they will lose everything.

At Start Investing we are not panicking; we know we have invested in strong companies, companies that are equipped to survive recessions and come back stronger, not because they are in-vogue or exciting, but because they are good businesses.

Crucially we have invested in companies that pay a healthy dividend, which is beneficial in this climate. We re-invest those dividends, which means that they are automatically used to buy more shares of the company as soon as they are paid. When the share price of the company drops, more shares are purchased. For example, if you are paid a £10 dividend and the company's share price is £2, directly reinvesting your dividends will mean that you buy 5 more shares of the company (5 shares at £2 each = £10). However, if the company's share price drops to £1, because the dividend payment will remain £10, by reinvesting you will acquire 10 shares (10 shares each at £1 = £10).

Now when the price increases we will own more shares and our gains will be greater. Even better than that, the next time we are payed a dividend we will own 10 more shares, the payment will be bigger and we will reinvest again! This is how compounding turns a little into a lot. Using dividend re-investment is a great way to profit from market downturns.

THE LAST THING WE WOULD WANT TO DO NOW IS SELL OUR DIVIDEND PAYING SHARES!

If we think about the market in terms of Ben Graham’s Mr Market (a metaphor for the market represented by a temperamental, erratic salesman whose mood swings can offer great bargains or jumped up prices) the current climate shows him to be in a totally unreasonable mood.

In some cases he is offering to buy shares for less than they were bought for, even though nothing has changed in terms of the company’s strength; not a good deal. However he is also offering to sell some great companies at a discount, companies that have been around for decades with strong financials, wide moats and that pay a healthy dividend.

This is a man you want to be buying from, not selling to.

“You make all your money in a recession; you just don’t know it.”

Short term trends in the market are impossible to predict, but they always increase in the long term.
FTSE 100 1984-2018. Source: Yahoo Finance

"How do we know the market won’t keep falling?"

Well, the truth is that no one knows when the market will pick up again. It could easily drop another 20% in the next few months, it could take another few years before we see the FTSE back up to the levels we saw at the beginning of 2018. It could also be a temporary set back which could see a rebound in the next few weeks.

Two things are certain: firstly, anyone who says they know which way the market is going to go in the short-term is either mistaken or dishonest; and secondly, the market will return to its previous levels eventually. We have seen time and time again, through great depressions, housing crises, bubbles and two world wars; the market always recovers.

A market crash is the time to buy shares. There is a sale on and now is the time that smart investors will take advantage.

What this market downturn should underline to you is the importance of a long-term investing horizon; if you are depending on money that you have invested to pay your bills or for a house deposit; you are going to have a bad time.

In the short-term the stock market is a gamble; you are just as well head to the roulette table and put it all on black, or bet on Manchester United to win the league. Even with the best company in the world or the safest strategy you cannot predict Mr Market’s short-term moods.

What you can rely on is that the stock market as a whole will increase ON AVERAGE by 6-9% per year. So if you’re in the game for long enough, you will see gains - as long as the stocks you are picking are of high quality, of course.

At Start Investing we use a strategy called pound cost averaging where we invest the same amount of money into the market every month; this means we keep adding money when the market prices decrease; we do not try and predict what the market will do and we benefit when it recovers.

We always select high quality, dividend paying stocks with a good potential for growth. We then invest in these companies on the same day every month in our real money portfolio.

To receive our stock picks sign up to our mailing list here! We send out our picks on the first day of every month, so our next pick will arrive in your inbox on the 1st of the next month.

Merry Christmas and a very happy New Year to all of our current subscribers and a very warm welcome to our new ones!

Joe

The Top Five Audiobooks That Teach You How To Grow Wealth In 2019

startinvestinguk@gmail.com (Joe Hodgson) — Tue, 18 Dec 2018 17:29:30 GMT

By listening to a little over 33 hours of pure, distilled knowledge, you could save yourself 15 years of work. Bring your retirement forward by following the advice of the best in the business.

If you don't already have a way to listen to audiobooks, you can't go wrong with A udible - get a free audiobook using this link !

1. The Little Book That (Still) Beats The Market (2005)

Written by Joel Greenblatt
Narrated by Adam Grupper
Running time 3h51m

This is the audiobook that made me believe that beating the market is achievable for the average investor. You don’t need a team of analysts or a degree in economics to generate above-average returns. In this book the highly successful fund manager and professor at Colombia Business School outlines a ludicrously simple strategy that even his young children can follow, in fact, his children were the inspiration for writing this book.

He says that by investing in good businesses while they are trading at discount prices, you can beat the market and most hedge fund managers out there. He uses only two metrics to determine which companies to buy and advocates holding them for one year, he calls this ‘The Magic Formula.’ He has put the formula online for free here: https://www.magicformulainvesting.com so you can use it yourself once you’ve listened to the book.

The Little Book That Beats The Market is a New York Times best seller and is already a classic with over 300,000 copies in print. There is a more up to date version (The Little Book That STILL Beats The Market) published in 2010 that also has incites into the 2008 financial crash. Unlike The Intelligent Investor, it is very easy listening, funny and the concepts are simple. We use several facets of The Magic Formula in our own investing strategy, such as dollar cost averaging and focussing on buying good business at a discount.

If you are looking for an easy introduction into investing strategy with little or no prior knowledge, this is my number one choice.

2 . Charlie Munger: The Complete Investor (2015)

Written by Tren Griffin
Narrated by Fred Stella
Running time 6h 21m

Charlie Munger is the Yang to Warren Buffett’s Yin and vice chairman of their wildly successful investing firm Berkshire Hathaway. He is investing royalty and notoriously secretive, Warren calls him ‘the abominable no man’ due to his stringent criteria for allowing the purchase of shares.

This audiobook focuses on Munger’s interviews, speeches, letters and investing strategy. It provides much more than investment advice; it is a book about how to think about the world and how to acquire elementary, worldly wisdom.

You get to know the man and his philosophy well through the dulcet tones of Fred Stella’s narration. I gobbled this up in one week and it left me feeling in awe of this Zen-investing master, and craving more.

3 . Rich Dad Poor Dad (1997)

Written by Robert T. Kiyosaki
Narrated by Tim Wheeler
Running time 6h9m

Your wealth is not dependant on your salary; you can earn a great deal and still be poor, you can earn a modest amount and end up rich. This book may not provide much in the way of stocks and shares advice, but it is the book that lead me to seek out ways of making passive income, of making my little piles of money go out into the world and make more money for me. I can honestly say that it changed my life.

Through a story about a child with one rich Dad and one poor Dad, Robert Kiyosaki shows the reader how they can end up successful even without a six-figure salary. This is done by resisting the ‘keeping up with the Jones’’ mentality and instead striving to acquire assets rather than liabilities. As with all of these recommendations, there is no simple trick here, it is about investing in yourself, in your own knowledge and making sure that you are looking after your future first.

4. The Richest Man in Babylon (1927)

Written by George S. Clason
Narrated by Mike Vendetti
Running time 4h4m

Without doubt one of the best books on personal finance ever written. It was originally a series of informational pamphlets handed out by banks as a way for the clients to become wealthy and stay wealthy. The lessons are taught through Babylonian parables and are just as useful today as they were in the 1920s and presumably would have been in ancient Babylon.

In particular, ‘the nine cures for a lean purse’ are all wonderfully helpful and each comes with its own fable. I have all nine written on my noticeboard, I recommend you do the same!

The ten hours it would take to listen to The Richest Man In Babylon and Rich Dad Poor Dad could easily save you ten years of work in the future.

5. The 4-Hour Work Week (2007)

Written by Timothy Ferriss
Narrated by Ray Porter
Running Time 13h1m

If you want to feel inspired, if you want the feeling that you can achieve anything, if you want to speak mandarin to your personal assistant in New Delhi during a bare-knuckle boxing session in Taipei while earning thousands of dollars a month, this might be one for you.

What this book will do for you: give you a kick up the rear, put big ideas in your head and maybe give you the impetus you’ve been waiting for to make changes in your life. Tim Ferriss is an amazing guy; he advocates a life free from your inbox, from meetings and wasting time. Batch, outsource, go and live more life.

Dreams are important, and with The 4-Hour Work Week Tim gives us the ideas and the practicalities to go out there and make ourselves successful. If you take nothing else from this book, it will make you understand that you don’t have to spend your life doing a job you hate, there are innumerable options if you open your mind to them.

Go forth, young Ferrissians, and find out for yourself.

The Five Books That Will Make You An Investing Leviathan In 2019

startinvestinguk@gmail.com (Joe Hodgson) — Thu, 13 Dec 2018 21:02:11 GMT

You will find a consistent characteristic among the world’s most successful investors: they all read, a lot. This list contains a plethora of knowledge from the best minds in investing and personal finance. My advice to you is to start at one end, absorb the wisdom in every page and demolish this list in its entirety. I can promise that in these pages are crucial pieces of the roadmap to financial freedom, and if you live by them, you will be successful.

1. The Intelligent Investor (1949) by Benjamin Graham

Ben Graham has been heralded as ‘The Father of Value Investing’ and in this book he details his investing strategy, which has been utilised by many investing heavyweights (and most of the other authors on this list.) Warren Buffett called this book “by far the best investing book ever written” - and if that doesn't convince you to read it, nothing will.

This was the first book I read on investing and it has shaped my strategy more than any other. The principals this book teaches are akin to the experience of reading it; you must have patience, attention to detail, perseverance and the ability to stay in for the long haul!

The lessons, though hard fought to obtain are all the more precious for the effort and not so easily forgotten. The latest edition has a section written to modernise and summarise each preceding chapter, which is enormously helpful even if it does feel somewhat like cheating!

You cannot be a true value investor without these pages in your brain; they are vital and will serve you well for years to come. If you have come here for knowledge then look no further! You may return to the rest of this list once this book has been defeated (and if you're really struggling then just read chapters 3, 8 and 20; these are gold dust).

2. The Snowball: Warren Buffett and The Business of Life (2008) by Alice Schroeder

It seems only fair that number two on our list should come from The Oracle of Omaha, Ben Graham’s apprentice and the greatest investor in modern memory: Warren Buffett. If you want to learn about the man himself and how he became the wealth building juggernaut he is today, The Snowball is a balanced, thorough and enjoyable biography written by Alice Schroeder who was given rare permission to speak to Warren, his family and closest friends.

I am a huge fan of Buffett as a person and of his story, and I found a great deal of wisdom in this book. This account is less biased and better written than a few of the other Buffett books (e.g. Tap Dancing To Work and Buffett: The Making of an American Capitalist .) However, if you want to learn about his investing strategies only, you can find more incite by reading his annual letters to the Berkshire Hathaway shareholders here:

http://berkshirehathaway.com/letters/letters.html

They really are a goldmine but they are quite heavy and exclusively business focussed. My advice would be to save these for a little further down the road if you are just starting out.

The Snowball will give you a dream and a real life example of what can be achieved in the world of investing. Better yet, it is a story of thinking yourself rich. No lucky lottery ticket, no inheritance, just a brilliant person following his strategy with discipline. It lit a flame in my belly and trust me, once that flame is lit it is impossible to extinguish!

3. The Dhandho Investor: The Low-Risk Value Method to High Returns (2007) by Mohnish Pabrai

I loved this book and would recommend it to novices and experts alike. Dhandho means business, in more ways than one. His stories of a Gujarati family trying to achieve the American Dream are inspiring and I was hooked from the first chapter.

Pabrai’s investment strategy is based upon risk and avoiding it at all costs. He bets infrequently, but when he does he makes sure it’s the right investment and then bets big. This strategy has served him very well while managing The Pabrai Investment fund, which has delivered 28% annualised returns to investors since 1999.

This book helped me to spot companies that are worth betting big on, he lays the foundations for investors to seek out good, reliable companies in stable markets with very little risk attached. Pabrai has a similar strategy to Buffett and in The Dhandho Investor we get real life examples of how value investing has been utilised over the last 20 years.

Unlike the first two, this book is an easy read and can be completed in a couple of sittings. I firmly believe it will be looked on as a classic in years to come.

4. The Financial Times Guide to Investing: The Definitive Companion to Investment and the Financial Markets (2014) by Glen Arnold

“Read this book carefully and the financial services industry will have one fewer easy victim, but you will have a sound base for a lifetime of successful investment.” - Chair of the UK Shareholder's Association, Martin White.

This is a slightly different recommendation; one that might not light the flame inside you but that means you won’t immediately set yourself on fire. This book teaches you to walk so that you can run later on.

The FT Guides are consistently excellent, reliable sources of material and advice for investors. This book gives an extensive introduction into the stock market in an easily digestible manner. It will provide answers to questions that you will need to understand before taking the leap into the stock market. For example, if you don’t know what dividends are, how to decipher a P/E ratio or where to find a company’s annual reports, this book should be your first port of call.

I bought this book as a birthday present for co-Start Investing investor Matt a few years ago. It has been very well thumbed since then and we have found having all the information in the same place and in the same format has made understanding the concepts much easier than say, using Google for every little query we come across. Furthermore, it gives a completely unbiased, unromantic view of the stock market so you can decide freely how you want to approach your investments.

5. Common Stocks and Uncommon Profits (1958) by Philip A. Fisher

Philip A. Fisher’s philosophies on investing are so widely praised that today his works are almost biblical. Buffett, Munger, Lynch are all advocates of Fisher’s and countless millions have been made through his techniques.

Personally I found this easier to understand than the equally highly praised Securities Analysis by Graham. Both investors have similar techniques when it comes to strategy but Fisher looks at companies from a different angle in Common Stocks and Uncommon Profits . After reading The Intelligent Investor your mind will be full of ratios and numbers, Fisher adds the creamy qualitative filling to Graham's toasted numbers bagel. He discusses the characteristics that make good business in terms of product, management, strategic marketing, financial skill and, most importantly, the people .

He has a brilliant 15-point checklist for stock selection that can be utilised today, although if you find one that fits all 15 in today’s market please let me know!

Probably not the book I would start with as a brand new investor, but for people who have read a few others on this list and enjoyed them, Fisher provides very valuable incite into a more personnel and management focussed investment strategy.

Thank you so much for reading!

Please feel free to comment below with your favourite investing books.

Joe

British American Tobacco: The bargain giant that poses a moral dilemma for investors.

startinvestinguk@gmail.com (Joe Hodgson) — Thu, 29 Nov 2018 16:00:34 GMT

This historically low-risk FTSE 100 stock has lost almost 50% of its share price in 2018. It is currently trading at 2.15 times earnings with a mouth-watering 7.16% dividend yield. The downturn started after news that e-cigarette sales are on the decline in the Asian market, and was compounded by the American Food & Drug Administration's plans to ban the sale of menthol cigarettes in the US. Menthol cigarettes make up a quarter of British American Tobacco’s (ticker: BATS) profits so this would be a major blow if a ban were to materialise.

Despite the bad news, the company is in much stronger shape financially than its share price reflects; it has global market diversification with several income streams, strong branding and adaptable management. With the company’s price to book ratio hovering around 1, this appears to be a stock Ben Graham himself would have piled into.

*A company trading a price to earnings ratio of 2 and a price to book ratio of 1 can be compared to a vending machine: this vending machine's individual parts are worth £20, in addition, it spits out a £10 note every year. Would you buy that machine for £20 ?

The trouble for a moral investor is that BATS is plagued with a history of questionable practices; blatant advertising of cigarettes to children in Africa, illegal lobbying in the EU, bribery of African officials to delay anti-smoking research, purposeful targeting of unstable and impoverished nations, and a class action lawsuit to the tune of a few billion dollars in Canada.

This poses two problems in the mind of the investor: firstly, do we really want to be putting money towards advertising campaigns aimed at increasing the numbers of children smoking in impoverished or war-torn countries? Secondly, as a long-term investor in this age of information and openness, can a company that relies on an unhealthy product really expect to perform well over the next 20-30 years?

If we look at another company, Diageo - the world’s largest distiller of premium alcoholic beverages - we see the market has a much more optimistic outlook. The manufacturer of Smirnoff, Guiness, Bailey’s and Johnny Walker to name a few, is currently trading at over 26 times earnings. The market sentiment for Diageo is that it will be a successful business for years to come; it is a similarly international company with a very wide economic moat and clever management that has tailored its products to consumer demand. There is no doubting that Diageo is a good business, but the point is that they too rely on a product that is inherently bad for you and it does not seem to be having an impact on their share price. So maybe it is not the carcinogenic properties of the product, but the demand that is depressing BATS's share price?

''The demand for cigarettes is surely decreasing!'' I hear you say. The world has known about the link between cigarettes and lung cancer for 70 years and has certainly reduced smoking levels in the UK and US, which now stand at about 17%. However studies show that the demand in Asia and Africa is still increasing year on year, and BATS has a very ‘healthy’ market share in both.

Source: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0202467

Honestly, the notion that large company’s share prices will be affected by their ethics is probably naïve. Despite some of BATS’s more nefarious tactics, its plunge in share price is all about business and its subsequent increase will also be dependant on profits, not principals. I do believe any investor morally and financially willing to take a bet on BATS will profit from it in the long term.

Fortunately for my moral compass, BATS missed out on making it into our Inherent Value Index this month due to a high Price/Cash ratio, currently standing at around 70. Also, unforgivably, their dividend was cut in December 2017 from £1.74 to £1.01. When times are tough and they certainly could be if the FDA's ban on menthol cigarettes goes through, you want to know your precious dividend payments aren’t going to be sacrificed. We always look for a rock steady history of consistent or increasing dividend payments for our stock picks.

Make no mistake though, BATS is a bonafide blue chip stock; a company that has been around for over 100 years, survived recession, lawsuits, several market crashes and the revelation that their product kills people. If it had made it onto our screen this month, would we be able to resist choosing this giant as our monthly pick? Lets just say that the high P/C ratio has saved us some controversy in the Start Investing house this month.

There are plenty of great companies out there trading at a discount to their intrinsic values and with most of them we don't have to consider whether investing in them makes us bad people. We have been screening and researching this week to find the best value company for our real money portfolio in December, and we have found a few excellent companies. If you would like to receive our monthly stock pick please subscribe to our mailing list here . We send out our pick via email on the first day of every month, remember you must subscribe before the 1st December to receive this month’s pick!

Thanks for reading, I would love to know if morality enters into your investing strategy, please leave a comment below if you have had a similar dilemma!

Joe

Understanding Dividends

startinvestinguk@gmail.com (Joe Hodgson) — Thu, 15 Nov 2018 10:28:07 GMT

Hi investors / soon-to-be investors,

For this month's blog post, I thought that I would cover a topic that relates to one of our favourite aspects of investing in the stock market and owning stocks and shares. We love it so much in fact that it's one of the cornerstones of our value investing strategy.

This month's topic:

Dividends ; what are they and why are they so important?

I used the book: 'The Financial Times Guide to Investing: The Definitive Companion to Investment and the Financial Markets' as a resource for this post. If you want to read more, you can purchase it here .

First, let's cast our minds back to our first blog post in August 2018. There, we learned that when you buy shares in a company, you can profit in one of two ways:

1. The share price of the company increases.

2. The company shares some of the profit it has generated to the shareholders on a regular basis. These payments are referred to as 'dividends'.

Dividends are effectively a type of profit share, and many companies (though not all) offer these to their shareholders. These dividend payments are usually made every 3, 6 or 12 months.

Importantly, these dividend payments are not directly dictated by the 'ups and downs' of the stock market. In other words, companies that pay a dividend will do so even if the price of the company stock decreases .

For this very reason, all of our monthly stock picks pay a dividend .

Why do dividends exist?

Historically, dividends were paid by companies who were able to pay off their debt by being profitable year-on-year.

Now, the companies could use their profits in one of four ways:

1. Keep the cash in the bank to build up their 'liquid asset' reserve (not a very profitable solution at all)

2. Reinvest the profits back into the company to further grow and expand the global reach / service offerings (this can require a great deal of strategic planning)

3. Buy back shares in the company (purchasing shares from shareholders, and re-acquiring ownership of a portion of the company that was previously publicly-owned)

4. Paying dividends to investors (making regular payments to their loyal shareholders)

As value investors, we seek out companies who choose to use part of their profit to reward those willing to invest their hard-earned cash.

In the past, dividend-paying companies have been referred to as 'stable', 'non-volatile', and 'will not be subject to huge swings in share price', making them 'ideal for mature people approaching retirement'.

We are here to quash this myth, for two very good reasons:

a. Just because a company pays a dividend, does not mean that it is a sound investment.

b. Strong and stable dividend-paying companies are perfect for young people to invest in due to the wonders of DRIP and compound interest.

Dividend ReInvestment Plans (or DRIPs) are simple but very effective. Upon payment of a cash dividend by a company, investors can automatically reinvest this payment into the corporation by purchasing additional, commission-free shares.

The wonders of compound interest will be laid bare in next month's blog post. Watch this space...

Our Monthly Stock Picks and Dividends

All of our eleven monthly stock picks selected so far in 2018 are dividend-paying companies. This is effectively a 'deal breaker' for us when we screen for stocks each month.

"No dividend? No deal!"

(Not the catchiest slogan but we're working on it!)

We believe that a good balance of share price growth and dividend payments are the key to successful investing. This is why buying undervalued stocks which pay a dividend is at the heart of our Inherent Value Index (IVI) calculations.

We're due to announce our December stock pick over the first weekend of December (Saturday 1st / Sunday 2nd). To find out which company we'll be investing in, subscribe here for free.

In summary, dividends are great for all investors, but for value investors, they are essential.

Happy investing!

Matt

'Selecting Shares that Perform' - Three Lessons Learnt from the Financial Times Guide

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 07 Nov 2018 20:13:22 GMT

The Financial Times Guide by Leo Gough and Richard Koch.

These two seasoned investors brought us The 80/20 Principal and The Con Men, here they collaborate to bring us an excellent guide focussed on share selection. This would be an good introductory guide for anyone looking to start investing in individual stocks; it examines different investing strategies and principals, as well as what sort of person you have to be to stick to them.

I have chosen three lessons from the book, there were many more but these made enough of an impression that I will use them in my own strategy moving forward. If you want to read it for yourself, you can buy it here.

Lesson 1. Averaging down.

This was my number one take away from this book and one that will impact my investing strategy directly and in a practical way. Averaging down means adding to your holding of a stock you already have at a lower price than you previously paid for it, to lower the average acquisition price.

Often when we look at stocks that have become undervalued, the share price has been decreasing while the company remains financially strong. For that reason, our picks are frequently bought when the price has been decreasing and sometimes the price will continue to decrease for a period of time after we have bought it. Old Mr Market can take months or even years before it values the share price correctly. We do very thorough research on our picks at Start Investing and we know that the companies we buy are very strong, so if one of the previous month’s picks has decreased in price from when we initially bought in it can be very tempting to load up on more stock at new bargain prices. I have actually done this on a couple of occasions believing that it falls in line with value investing principals

However, this book maintains that the only thing that matters is the state of the company in relation to the current share price; the previous purchase price is irrelevant.

“Markets tend to over-react by pushing a share price up or down more than is justified when there is some important, surprising news. But even if you are sure the company is good and the shares are undervalued you should not start buying more until you are sure the fall has stopped. ”

It is important to remember that the vast majority of traders do not have a value investing mind-set. So if a stock’s price is tumbling, the majority of traders will sell and continue to sell until the stock reaches its bottom, when larger investors will get involved and the price will increase. This book recommends waiting for 3 consecutive days without a drop in share price and at least one day of a rise in share price before buying more . This sounds a little like trying to time the market to me but does make more sense than averaging down.

Most people lose money by averaging down, so hard consideration is needed to make sure you are not throwing away good money after bad.

Lesson 2. The efficient market hypothesis cannot be right.

I am not a believer in the efficient market hypothesis; a theory based on Eugene Fama’s research in 1970 stating that share prices reflect all relevant information, and thus that it is impossible to beat the market or achieve above-average returns. In fact, value investing depends this theory being untrue, as it would mean that the existence of an undervalued stock would be impossible.

The book has a very reassuring chapter entitled: 'Why the efficient market hypothesis is wrong'. When discussing the 2008 market crash, the author says:

‘What happens to make shares worth 20-70% less in only a few days? In general, nothing very substantial has happened to the underlying businesses. It must therefore be true that either shares were over-valued before the crash, or under-valued after, or both, rather than being correctly valued both before and after.’

Lesson 3. If Warren Buffett was British.

As a value investor, so much is read about the investing greats in the USA and their investing strategies. I find myself looking at UK companies wondering which of them would fit into a Buffett portfolio. This book identifies three good, long term holds from a Buffett perspective:

· Rio Tinto

· Pearson

· Schroders

All three companies possess a wide economic moat, shrewd management and policies that keep shareholder’s interests in mind. I won’t necessarily be purchasing these stocks on this advice alone, but I will certainly keep a close eye on them with a view to buying if they become undervalued.

Overall this was a very helpful guide and will help you identify what type of investor you want to be. If you want more tips like these three you can pick the book up here on Amazon.

Thanks for reading!

Joe

Individual Stocks vs ETFs – Which is the better option for young investors?

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 24 Oct 2018 09:12:15 GMT

An ETF is an ‘Exchange Traded Fund’ and it is supposed to act like a tracker for various bundles of stocks. For example there are ETFs that track the FTSE 100 and S and P 500 as well as a host of others. Some ETFs are real; in that when you buy the fund you are buying real shares in the companies listed. Some are synthetic, where the fund is basically an agreement between the fund provider and an investment bank. This provides cheap access to markets that may be difficult to access for the average investor but it does mean that if the bank cannot pay, the shareholder could be exposed.

The ETF has been hailed as the solution for the passive investor by many Internet forums, you have probably seen this sentiment repeated many times online:

“Buy the S and P 500 ETF, set and forget, don’t even try to beat the market because it’s impossible for the average investor.”

On the face of it they certainly have a point. ETFs are low cost; the Vanguard FTSE 100 charges 0.09% per year plus a similarly small charge for holding your account with them. They don’t just have trackers for the whole market either; they have funds for growth, dividends, international, small cap and many more. They also have the backing of two investing heavyweights, Buffett and Graham, who both advocated that passive investors could beat the vast majority of actively managed funds by investing in ETFs.

“My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. I believe the trust’s long-term results from this policy will be superior to those attained by most investors who employ high-fee managers.” - From Warren Buffett's annual letter to shareholders, Feb 28th, 2014.

Not only that, Warren even made a $1 Million bet against hedge fund managers Protégé Partners, that over a 10 year period an index fund would outperform a collection of hedge funds. He won the bet in 2017. There are a few issues with this style of investment though, illustrated by the fact that Buffett himself does not invest in ETFs.

There is an assumption that Investing in ETFs requires no real knowledge of the market, this is not true; a passive investor can still make unwise decisions when the market suffers a downturn or bear market. The set and forget approach works in theory, but when a passive investor who doesn’t understand market cycles sees their portfolio drop by 10%, they might be tempted to sell their stake and make a loss. A long term mindset with a firm belief in a system is still imperative to make good returns. Investing in individual securities forces the investor (or should force them) to learn about the market as a whole and develop their own systems. Some might argue that the average investor in individual stocks would have the same temptation to sell in bear markets, which may be true, but the examination and purchase of individual stocks should drive home at least one key point; you are investing a real company. The investment in funds adds another layer of complexity between the investor and the business, after all it is still the business that makes the money even in an ETF. Often ETFs have hundreds of businesses within them, so in asking: ‘Which is the best fund to buy in order to make money?’ Y ou may also ask: ‘Which is the best supermarket to shop at in order to make a lasagne?' It is not possible for the average investor to value a fund accurately with any confidence, so we rely on massive diversification.

We know there are success stories of investors who have become wildly rich by investing in individual stocks. Are there the same success stories with funds? If you have a look around you will find a lot of millionaires who invest in ETFs but not a lot of people who invest in ETFs who have become millionaires. The reason? The market has averaged between 6-9% per year over the last decade depending on the country, so even when investing £500 per month at 9% it takes 31 years to make your first million. The invention of the widely available, online ETF is a fairly recent one, so recent that the mass of investors who have pumped in $50 billion into Vanguard’s ETFs in 2017 alone, may not have had time to see their wealth compound.

The brevity of the widely available EFT is also a concern. Don’t forget that within real ETFs, real company’s shares are being purchased and not necessarily on merit. Do investors know that when they purchase the S and P 500 that they’re buying already inflated Amazon shares at a price to earnings of over 130? Eventually we might see ‘ETF bubbles’ forming where share prices go up irrespective of poor business performance.

A real positive for ETFs is the ability to access foreign markets without having to deal with currency conversions or double taxation. The USA economy has been a juggernaut for the last century and is home to the biggest companies in the world, being able to take advantage of that from the UK with less than a 1% fee is undoubtedly an exciting prospect.

What about dividends? Most ETFs will pay a dividend, the Vanguard S and P dividend yield is 1.9% and the FTSE 100 is just over 4%, which is the average yield of all of the stocks within the index.

From a personal perspective, investing in ETFs doesn’t lend itself well to a value investor’s principals. It is difficult to determine whether funds are undervalued, whether their prospects are good, whether they have a durable competitive advantage and so on. Furthermore, ETFs mean diversification ad nauseam, which means matching market returns at best. Even beating the market by a few per-cent per year can have a huge effect on compounding interest; have a play around with a compound interest calculator and try 9% annual return versus 13-15%. There are those out there who beat the market every year and have been doing it for decades. It is possible! Buffett and Graham may advocate the use of funds for passive investors but they do not use them. The point they are making is that low cost funds usually outperform actively managed funds due to the massive cuts taken by the fund managers. Both Buffett and Graham made their fortunes beating the market in individual stocks using value investing techniques. Matt and I aim to beat the market every year with our monthly stock picks and have done consistently in 2018. You can follow our picks here for free. We release our picks at the beginning of every month; all you need to do is sign up to our mailing list .

In conclusion, ETFs offer a low cost way for passive investors to access the UK and international markets, and with an average rate of return much higher than a cash ISA, they are a very useful option. It remains to be seen whether the easy access will inflate prices of stocks in popular funds. For those of us striving to beat the market however, investing in individual stocks are still the best bet. The potential rewards for those who are willing to put in the work, choose the right stocks and have a long term mind set are far greater. Of course, there is no harm in investing in both ETFs and individual stocks, especially in order to gain exposure to foreign markets.

You can follow our real money portfolio here for free, we email you our stock pick on the first day of each month.

For more ' stocks and sharing' - sign up to our mailing list or check out the rest of our blog .

Thanks for reading!

Joe

Five Lessons from the Warren Buffett Stock Portfolio.

startinvestinguk@gmail.com (Joe Hodgson) — Sun, 14 Oct 2018 10:53:57 GMT

Hello Investopals,

Warren Buffett is the ultimate value investor and is living proof that compounding interest is an incredibly powerful thing. Warren bought his first stock at age 11 and has been investing in the stock market for 75 years. As a result of his canny investments and longevity he is now worth $84.9 billion.

This book examines his most successful stock purchases in fine detail. As a humble value investor starting out on my own investing journey there was plenty of wisdom to be absorbed here.

These are the top five lessons:

1, Patience.

He is very careful with his stock selections to the point where he causes frustration to colleagues at his investing firm Berkshire-Hathaway; his partner Charlie Munger has a nickname for him - ‘The Abominable No Man.’ He waits for great companies to become bargains, usually through downturns in the market and will buy when everyone else is selling. For example, during 1990 fears of a California real-estate crash caused the share price of Wells-Fargo to drop by 50%, despite already having shares in the company Buffett said 'We welcomed the decline because it allowed us to pick up many more shares at new panic prices.' So despite losing a fortune on Wells-Fargo, he knew the company was strong and doubled-down on his investment, which payed off massively later on.

2, Durable competitive advantage .

Warren looks for a protective moat that surrounds the business and guards against financial pitfalls. Durable competitive advantage can be a strong brand, great location, the best product or even efficient management. It is an asset that means the company's share in the market and therefore their profits aren't going anywhere soon. Warren would rather wait (and wait) for a great company's value to drop than to invest in a mediocre company even if it is trading at a bargain price.

3, 'Predictable Products Equals Predictable Profits.'

A company with a durable competitive advantage has the benefit of being able to produce the same products year on year and know they are going to sell in a predictable way. For example, he talks about the rise of the internet in the late 90s and the way it might affect some of his businesses; ‘I look for businesses in which I think I can predict what they’re going to look like in ten to fifteen years’ time. Take Wrigley’s Chewing Gum, I don’t think the Internet is going to change how people chew gum.’ He looks for evergreen products which sell all year, every year. That way he can predict future sales, profits and the value of the company.

4, Buy companies with consistent earnings.

Warren discovered that companies that show a consistent upward trend in earnings over a ten-year period are often the ones that have a durable competitive advantage. Erratic earnings tend to mean that the products produced are in and out of fashion and cannot be relied on in the long term.

5, Look for a history of rising dividends.

Despite Berkshire Hathaway not paying a dividend Buffett is a huge fan of companies that do, especially when they have increased that dividend year on year. For example, Coca-Cola has increased its dividend every year for the last ten years and he takes this into account when projecting for a company’s future value. Companies which have a history of rising dividends tend to want to keep their track record going, it shows growth and that they take care of share-holder's interests.

Conclusion

Buy great companies with durable competitive advantages, which pay a dividend at bargain prices. Sounds simple right? We can’t all be like Warren Buffett; he has had the luxury of being able to wait and wait for the right investment opportunities and has had the intelligence to pounce when the right moment arises. This comes with a great mind-set and, lets face it, being so rich you can spend all day reading. However, he started out with $100 in his account just like we did and he did it without the Internet! He devoured as much knowledge as he could, developed an investment strategy based on Benjamin Graham’s value investing method and he kept going.

We are doing the same here at Start Investing, we only pick strong companies that pay a dividend and we search for the most undervalued stocks in the UK market each month. To find out which stocks we are buying subscribe to our mailing list and we will email you on the first day of each month.

To find out more about The Warren Buffett Stock Portfolio, you can buy the book here.

Have a great Sunday!

Joe

Understanding IPOs and Ticker Symbols

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 10 Oct 2018 07:34:39 GMT

Hi investors / soon-to-be investors,

For this month's blog post, I thought I would tackle a couple of market phrases which are often flung around by industry experts and churned out by the media. And, as per usual, it is expected that everyone knows exactly what they mean!

This week's topic:

IPOs and Ticker Symbols ; what are they and why would a company "go public"?

First of all, what does 'IPO' stand for?

An IPO (or ' Initial Public Offering ') is when a company first offers the public the opportunity to purchase shares in the company.

Once the company has been "listed" on a stock exchange (e.g. London Stock Exchange, or LSE), shares are available for purchase by the wider world, and the company 'belongs' to the public.

But why would a company want to be listed on the LSE, and who decides on the initial share price?

The main reason a company would want to "go public" is to raise capital without involving a financial institution.

Put simply, companies would rather not ask banks for money (which they would eventually have to pay back with interest), when they can ask for the general public to invest in their business.

This investment can be put towards growing and expanding the current business to generate more revenue and greater profits.

Now, in order to determine an initial share price, the company must first be valued.

Typically, the company would hire an underwriter. Their job is to analyse the company in question and to determine the likely demand for the company's shares. This involves a thorough examination of the company's finances (income statements and balance sheets) and enquiries are made to some of the largest investors in the country to gauge interest.

From this rigorous analysis, the company is valued and, from that, the share price is determined.

However, once the shares are made available to the public on the first day of trading, the share price is dictated by the market, just like all other public companies.

A great example of a recent, high-profile IPO is Aston Martin. The luxury car maker (most famous for the numerous James Bond cameos over the past 54 years) announced in the summer of 2018 that they would aim to list their company shares on the London Stock Exchange in the Autumn of 2018.

Last Wednesday (3rd October 2018), around 25% of the company's shares were made available to all investors as the company "went public" for £19 per share, after the company was valued at around £4.33 billion (just short of being included in the FTSE 100 Index, for now anyway).

So, what about ticker symbols?

A ticker symbol is a unique three or four letter abbreviation given to every publicly-traded company. It is typically used as shorthand for the company.

For example, the now-public 'Aston Martin Lagonda Global Holdings PLC' company has the ticker symbol 'AML'.

Here are the ticker symbols for the 10 largest companies in the FTSE 100 at the time of writing (Wednesday 10th November 2018):

Company	Ticker Symbol
Royal Dutch Shell	RDSA and RDSB
HSBC Holdings	HSBA
BP	BP
British American Tobacco	BATS
GlaxoSmithKline	GSK
AstraZeneca	AZN
Diageo	DGE
Unilever	ULVR
Rio Tinto	RIO
Reckitt Benckiser Group	RB

Our Monthly Stock Picks vs. IPOs

Of our ten monthly stock picks selected so far in 2018, all are considered to be 'well-established' in the market.

The main reason we choose to avoid IPO companies is because it can often be hard to get your hands on good (reliable!) financial reports from before the company became public. We use this historic company information to determine the strength of a company, which feeds into our Inherent Value Index (IVI) calculations.

We'll be announcing our November stock pick on Monday 29th October 2018 . If you're interested in finding out which company we'll be backing, subscribe now .

In summary, IPOs are exciting to look at from a distance, but as value investors, we prefer to back the long-term winners. And win BIG.

Happy investing!

Matt

Why Brexit Is Good For Value Investors

startinvestinguk@gmail.com (Joe Hodgson) — Sat, 29 Sep 2018 08:07:04 GMT

Hello again investor pals, today we’re going to talk about Brexit, but fear not! I come baring good news.

The value investing strategy is dependent on purchasing companies that are trading below their intrinsic values, whether this is due to bad press, going out of style or a depressed market.

We are going to use the FTSE All Share as our basis for the entire UK market in this example. As you can see from the below graph of the FTSE All Share, we have suffered some pretty severe troughs in the last 40 years; Black Monday 1987, the bursting tech bubble in early 2000 and the housing market crash in 2008.

FTSE All Share price 1980-2018

Source: Yahoo Finance.

However, when looked at over the long term, the average share price has increased 7-8% per year since 1980. If we compared a monthly deposit of £100 into a piggy bank versus into a FTSE All Share Index fund starting in 1980, instead of having £45,700 you would have £277,563.40. Compound interest; it is magic.

Remember, that means the £100 was deposited EVERY MONTH, come rain or shine, market bulls and market bears. If you deposited your money only when the market was doing well, you might end up just buying on those mountain peaks right before the crashes. If you’re only buying when the market is expensive you are going to miss out on the biggest gains when it recovers. That means buying even when everyone else is uncertain.

There are a lot of rumblings at the moment about what will happen after Brexit, when the next financial crash will occur and how the American trade war will affect the UK. The truth is; no one knows how it will affect the UK market. The benefit of a long-term, value-investing strategy is that ultimately it doesn’t matter. We are going to be investing the same amount into the market either way! At the end of the day Brexit will look like a blip on that chart just like all the others, the market will go on and the price will continue to rise just as it has for the last 100+ years. The only difference is how many companies are trading at a discount to their intrinsic value, right now there are a lot!

UK Average P/E Ratio Aug 2017-Aug 2018

Source: www.ceicdata.com

We have discussed the P/E (price/earnings) ratio in the Start Investing blog before; it is an indicator of how expensive the market is in general. As you can see the average P/E ratio of the UK market has been driven down by Brexit uncertainty this year from 27 to 13. Comparing this with the US market, currently sitting at >25, the UK market is looking pretty cheap.

Rather than trying to time the market, which has been shown over and over again to be impossible, we will keep investing every month into good companies with strong financials. We will buy dividend-paying stocks with a margin of safety and we will hold for the long term. Tune out the noise, stick to your principals.

If you want to follow our investing strategy, we offer access to our monthly stock picks at www.startinvestinguk.com/subscribe .

If you want to keep one finger on the UK stock market’s ever-bounding pulse, subscribe to our mailing list here .

Until next time,

Stay Calm, Don’t Buy Bitcoin.

Joe

Understanding The FTSE

startinvestinguk@gmail.com (Joe Hodgson) — Wed, 12 Sep 2018 07:49:46 GMT

The FTSE 100 and FTSE 250; what are they, where did they come from and why do they matter?

Hi investors / soon-to-be investors,

For this blog post, I thought it would be good to continue on the theme of 'Understanding the [ insert market phase here ]'. We know that the information and media surrounding the stock market can often leave people feeling confused, what with all the buzz words and acronyms flying around.

We are here to provide you with a clearer understanding of how the market works, so that you can feel comfortable in getting your hard-earned cash working for you.

This week's topic:

The FTSE 100 and FTSE 250 ; what are they, where did they come from and why do they matter?

In order to determine the performance of a company's share price or an individual's share portfolio (the collection of shares an investor has), you must be able to measure its performance. This performance can be judged in relation to standardised market metrics, also known as 'Market Indices'.

A market index provides an investor context when reviewing the company he or she has invested in.

For example, if you have invested in 'Company X' and the share price falls by 3% over the course of a day, you would want to know whether this fall was an isolated incident for 'Company X', or whether a similar fall in share price was observed across the market.

In 1984, the Financial Times ( FT ) agreed with the London Stock Exchange (L SE ) that the UK stock market needed a formalised set of market indices to help investors review their investments against 'market yardsticks'. This resulted in the birth of the FTSE (pronounced 'Footsie').

The two indices which are used most often to measure performance are the FTSE 100 and FTSE 250 .

FTSE 100

The basis of this index is the 100 largest and most valuable companies whose shares are listed on the LSE. The companies are all ranked in order of their market capitalisation (the market value of the company's outstanding shares, or share price multiplied by the number of outstanding shares). The FTSE 100 is often quoted as making up around 80% of the total market capitalisation of the LSE's main market.

The full list of companies that currently make up the FTSE 100 can be found here .

This list is reviewed quarterly, with some of the smaller companies (often ranked in 98th, 99th and 100th place) being replaced by companies from outside of the FTSE 100 . This is where the second market index comes in.

FTSE 250

As you may have guessed from the previous section, this index includes the 250 largest and most valuable companies outside of the FTSE 100 (positions 101st to 350th). The FTSE 250 represents around 15% of the total market capitalisation of the LSE's main market.

The full list of companies which currently make up the FTSE 250 can be found here .

To put these two indices into context, we can make a simple comparison to football (bear with me non-sports fans!).

In the UK, there are more than 7,000 football teams who play every week. Generally speaking, they are all ranked within their leagues depending on their performance and pedigree.

The largest, and most well-established teams play in the Premier League ( FTSE 100 ). The teams which are not quite good enough to belong in this elite group (though, still playing at an incredibly high standard) play in the Championship ( FTSE 250 ).

Every season, some teams are relegated from the Premier League and some teams are promoted from the Championship. This is similar to how companies can move from one market index to another.

Other Important Global Market Indices

Many stock market indices are calculated worldwide, and used to measure company share performance. Some of the main benchmarks can be found below, along with their country.

Index	Country
Dow Jones Industrial Average	United States
NASDAQ 100	United States
S&P 500	United States
Xetra DAX	Germany
CAC 40	France
Hang Seng	Hong Kong
Nikkei 225	Japan
Shanghai A	China
BSE Sensex	India
Bovespa	Brazil

Our Monthly Stock Picks vs. the FTSE 100

Of our nine monthly stock picks selected so far in 2018, eight of the companies are currently listed in either the FTSE 100 (six) or the FTSE 250 (two).

In order to determine the performance of our monthly stock pick portfolio, we measure our monthly stock picks against the FTSE 100 which is displayed on 'The Graph' .

We'll select our October stock pick on the 1st October. If you're interested in finding out which company we'll be backing, sign up to our monthly stock picks now.

In summary, the FTSE indices are important for benchmarking your own portfolio performance. Remember, you can only manage what you can measure.

Happy investing!

Matt

The August 2018 Stock Pick: A Case Study

startinvestinguk@gmail.com (Joe Hodgson) — Mon, 20 Aug 2018 07:25:07 GMT

Hey investors,

With our website launching this month, I wanted to write a post about the step-by-step method we use for choosing stocks and how we came to pick our stock for August.

It has generally been a slow couple of months in the UK market, with tasty dollops of Brexit rumour and a light sprinkle of Trump trade standoff, bargains are not hard to find.

As we talk about in our website www.startinvestinguk.com we rank every company in the FTSE 100 and 250 to find the top 20 most undervalued stocks in the UK market for the month. This means we look at hundreds of financial reports and input the data into our ranking system EVERY MONTH. That gives us the data we need to get the most complete assessment of a company we can from a numbers perspective.

What data do we use?

There are a lot of ratios used in investing, that is because they give you information in a way that means you can easily compare companies of vastly different sizes. If you only look at a company’s revenue, let’s say Tesco, they had a revenue of 55 billion in 2017. Sounds good, but it doesn’t really tell us anything tangible about the company. Is that a good number relative to its share price? Is the revenue up from last year? What about debt levels? Numbers by themselves aren’t particularly useful so we combine them to make them more relevant.

Here are a couple of examples of the many ratios we include in our ranking method.

1, P/E ratio –

Price/Earnings; the headliner, the stalwart, the undisputed heavyweight champion of the value investing world. It is the company’s share price in relation to their earnings per share for that year.

Say there are 2 chickens for sale on the market, one with a P/E of 10, one with a P/E of 100.

If you pay 10 eggs for a chicken with a P/E ratio of 10, you would expect that chicken to be making you 1 egg per year in return.

However, in order to get your 1 egg back from the chicken with of P/E of 100 (looking at you Amazon), you would have to pay 100 eggs.

In very basic terms, low P/E is better for value investing, we aim for less than 25. BUT a company’s P/E can get too low, if it gets down around the 5-6 mark or lower, it’s usually a sign that something is wrong.

2, D/E ratio -

Debt/Equity: this ratio shows how much debt a company has relative to its shareholder’s equity. It is shown as either a percentage or a decimal. A company with £100 in shareholders equity and £50 of debt would have a D/E ratio of 50% or 0.5.

What it really shows is how much a company is relying on money that it had to borrow to keep running. We start to get a little uneasy with a D/E of around 100%. If profits take a hit in that situation, debt repayments can stack up and companies can get into a sticky situation. Not good for its shareholders. By the way, if a company goes bust, who do you think gets paid first? The shareholders, or their debt obligations? Sadly for us it is the debt that is paid first and the shareholders last (or sometimes not at all!) so we take high debt levels very seriously at SI.

Financial institutions such as banks and insurance companies tend to have a lot of debt because of how they operate, so it is not unusual to see very high D/E ratios. For example HSBC currently has a D/E of 122%. Many investors don’t see this as a problem but it still makes us nervous, especially given what happened in 2008! So we tend to be extra careful when investing in financial companies.

3, Dividend Yield -

This is the amount a company pays out each year in dividends relative to its share price. For example, if one share of Tesco costs £2, and their dividend yield is 1%, they will pay you 2p per year in dividends.

In the long term, dividend paying stocks are the ones that are going to pay us our salary. Let’s say you manage to make a million pounds in savings by the time you’re 60. That sounds like loads right? You can do whatever you want! Well maybe not, let’s say you live until you’re 90. 1 million pounds becomes £33,333 pounds per year over 30 years, and with inflation increasing every year, that might not be enough to live the life you want. Ok, now let’s say you have 1 million pounds in stocks paying a 6% dividend yield. That means you get £60,000 per year from your stocks, and don’t forget the market increases by an average of 9% per year without dividends. So you get your salary and the money in your stocks increases every year! This is the ultimate goal, and this is why we always pick stocks that pay a dividend.

We aim for >3% yield but we will make exceptions for the occasional company, especially if they have been increasing their dividends year on year.

There are many more metrics that we use to pick stocks, but in the interest of keeping this post short ish I will move on to our August stock pick.

August Pick

Pets at Home

The stock we ended up choosing hasn’t been on our radar much in the last few months, it is a good company but it has been relatively fairly valued. The share price has been steadily decreasing and despite its strong overall numbers it started to look undervalued.

It first appeared in our top 20 undervalued stocks at the beginning of July and its price continued to drop until it was a mouth watering prospect.

Let’s have a look at some of ratios that we looked at above for Pets at Home just before we bought it on the 1st August.

P/E ratio - 8.8

D/E ratio - 21.46%

Dividend Yeild - 6.42%

These are some excellent figures, and to be honest it looked good on all of our metrics. The market has decided to bash Pets at Home down due to increased competition, but from our analysis we thought that the stock price was low.

With a high dividend yeild as well, this makes PAH a good long term prospect

So we decided to purchase the stock on the 1st August and recommend it as our monthly pick.

You can see a video of the step-by-step buying process here where we buy Pets at Home on the trading platform Interactive Investor:

https://youtu.be/Qb4XDHJQOJI

Nine days after the recommendation the stock increased in value by 10%.

Source: Yahoo Finance

Now we could sell our stock with a tidy profit but history tells us that that the real gains come over the very long term. We’ve bought a great business at a bargain price, now we sit back and watch those dividends roll in year after year and let compound interest work it’s magic. Unless something happens to make us sell this stock (the stock price lowering is NOT one of those things), we will keep this stock for the next 20-30 years. To find out what makes us want to sell one of our carefully chosen stocks, see our website!

If you want to follow our portfolio and get in BEFORE the price starts going up, sign up to our stock picking service at:

www.startinvestinguk.com/subscribe

Sign up before August 28th to get September’s pick!

Thanks so much for reading!

Joe

PS. We don't want to see anyone getting into financial difficulties, so never invest money you can't afford to lose, stock prices can decrease. We are not intending to be a substitute for professional financial advice, so if you're not sure if stocks are right for you, please seek professional guidance.

Understanding The Market

startinvestinguk@gmail.com (Joe Hodgson) — Mon, 13 Aug 2018 00:00:00 GMT

Stock Market Basics

Hi investors/soon-to-be-investors,

We know that entering into the world of stocks and shares can be scary so I thought I'd kick off our blog with an overview of the stock market, and the wonders of dividends and compound interest.

See this as your first 'toe dip' into value investing, and why this stage in which you can grow your wealth is not as intimidating as you might have thought.

What is the stock market?

The stock market is the platform for a company to raise money (or 'capital') from investors, in exchange for part-ownership (or 'shares') of their business.

Part of the stock market consists of 'stock exchanges'. These stock exchanges operate within a geographical stock market. For example, in the United Kingdom, the stock exchange is the London Stock Exchange (LSE).

What is a share?

A share is a portion of a company which can be purchased. In order for a company to grow, investors are offered the opportunity to buy into the business with their own money.

That's right - when you buy shares in a company, you own a small part of that company!

Why should you invest in the stock market?

People are often saying "invest for your future". But what does that really mean?

An investment is a purchase which you hope will:

a. be more valuable at a later date, and so can be sold for a higher price (profit)

b. provide a steady income for the foreseeable future

An ideal scenario would be an investment which is able to deliver both.

But what are the most common types of investment?

1. Property

Houses or land are often seen as a good investment. Buying property in good areas often increase in value, and when rented out, can be used to generate steady income.

However, the cost of getting onto the property ladder (10-15% deposits, legal fees, stamp duty etc.) is making it harder for young people to own their own home. The number of people aged 25-34 who own their own property has dropped to 1 in 4 from almost 3 in 4 in the 1970s.

2. Pensions

As the UK moves more towards workplace pensions, people are encouraged to "save for the future". The main benefit of putting money away on a monthly basis through your employer is that this money is protected from tax (i.e. the money is taken away before the taxman can take a slice).

However, pension schemes are often quite restrictive when it comes to selecting where you would like to focus your investment. Generally speaking, most people opt to invest their pension into a low risk fund, which means that growth of the funds are often restricted.

3. Cash ISAs

Cash Individual Savings Accounts, or ISAs, are very common in the UK. They provide anyone who wishes to save money with a simple way of depositing funds on a regular or one-off basis. They are popular to own, as many of them allow easy access to funds in case of emergency.

However, the return on investment on a cash ISA is often very low (due to low interest rates), unless the funds are locked away for an extended period of time and inaccessible when you may need them. In some cases, savings accounts actually decrease in value, as the interest rate can be less than inflation.

4. Investing in the Stock Market

This option is often seen as the biggest 'gamble' to people who only ever hear about the stock market when it is covered in the news. But trust us, there's so much more to it than that...

When you buy shares in a company, you can profit in one of two ways:

a. the share price of the company increases as the company grows

b. the company shares some of the profit it has generated to the shareholders on a regular basis. These payments are often referred to as 'dividends'.

What are dividends, and why are they important?

As outlined above, dividends are effectively a type of profit share, and many companies offer these to their shareholders. These dividend payments are often made every 3, 6 or 12 months.

Importantly, these dividend payments are not directly dictated by the 'ups and downs' of the stock market. In other words, companies who pay a dividend will do so even if the price of the company stock decreases .

For this very reason, all of our monthly stock picks pay a dividend.

What is meant by compounding interest?

One of our favourite quotes which relates to investing came from the mind of probably the greatest physicist ever to have lived, Albert Einstein. He said:

" Compound interest is the eighth wonder of the world. He who understands it, earns it... He who doesn't, pays it."

Compound interest relates to the reinvestment and growth of interest gained on the original investment i.e. 'interest on interest'.

There are many ways of trying to describe this phenomenon, but we think that the easiest way is to show you.

The graph below outlines two scenarios in which an initial investment of £1,000 is made, with annual interest of 10%:

Scenario A.

A pot of money which is allowed to grow and gain interest from the original investment alone but the interest is paid out and not reinvested

Scenario B.

The same starting pot of money which is allowed to grow and gain interest, but all of the interest is reinvested

As you can see, both pots of money track each other closely over the first 10 years of investment. However, between years 11 and 30, the magic of compounding kicks in. By the end of year 30, it's clear which scenario is the winner

Stock Growth and Dividends

As we know, investing in companies in the stock market can generate profit in one of two ways: increasing share price and dividend payments.

We believe that both growth and dividend payments are the key to successful investing. This is why buying undervalued stocks which pay a dividend is at the heart of our value investing method.

startinvestinguk

Start Investing Stock Portfolio: 2020 Review

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A market crash is the time to buy shares. There is a sale on and now is the time that smart investors will take advantage.

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By listening to a little over 33 hours of pure, distilled knowledge, you could save yourself 15 years of work. Bring your retirement forward by following the advice of the best in the business.

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The August 2018 Stock Pick: A Case Study

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I took some inspiration from an unlikely source: basketball

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