Paul’s Advice on Share Dealing
This is an extract from an e-mail conversation that I had with a friend today. I was giving some info/advice on shares. Others might find it useful…? Warning, it is a bit disjointed 
Hi,
I started trading in shares late 2007. Last year I cashed in about £5.5k (I gained about 7k and lost about £1.5k). I am currently about £1,800 up with the shares I have and I have around £15,000 invested (including the £1,800). Plus that’s all tax free. There is a limit above which you have to pay tax – I don’t know what it is or how much tax, but I know I’m no-where near it yet.
So for me it has worked out really well so far. Certainly much better than just leaving the money in the bank! However last year was a very up and down year so I think I was quite lucky.
Trading shares is actually very easy on a basic level. You just choose how many shares you want to buy (or how much you want to spend and the website will tell you how many shares that will buy you), plus you pay a commission each time you buy and each time you sell shares.
I use https://www.foolsharedealing.co.uk/_mem_bin/formslogin.asp simply because when I looked they were the cheapest. Their online applications aren’t fantastic, but they are okay. I have tried a few companies and haven’t found a nicer site yet.
They offer 3 types of service. I use:
The Motley Fool Share Dealing Account: an execution only account that allows you to trade for a flat rate. £10 per trade for UK stocks and £17.50 per trade for International stocks.
Most of last year I traded in UK stocks. Mainly Barclays PLC, Heritage Oil Limited, Interserve plc and also a few others (Glaxo Smith Klyne, Renold). There were times when I was up 2k and times when I was down £2k. I made about 4k during the year. In October I had to sell and made a £700 loss on some shares. I had to sell in order to pay off a credit card (the 0% interest on purchases offer was expiring) – if I had sold a few weeks before I would have made £1k.
Right now I am investing in what I know – technology and I’m up £1.8k. I have shares in Apple, Google and Microsoft. I just sold some shares in Yahoo (made £200) to invest in Apple.
Basically, buying and selling shares is easy. I can’t remember how long it takes to open an account – might be a week. I think you start the application online and usually they send you something to sign and return by post, but I can’t remember if fool did that so it might only take a few days with them.
Once you have an account, you basically choose a company and you can do one of the following:
- Buy stock straight away in real time
- Set an order e.g. buy AAPL when it reaches 211.52
- Set an order to sell e.g. buy AAPL when it reaches 216.12
- Set an order to repeatedly buy and sell (e.g. keep buying at 211.52 and selling at 216.12) – Barclays shares go up and down a lot, but I haven’t done this type of trade yet
- Set a stop loss (sell if the price goes below a set amount)
- Set a tracked stop loss (sell if the price goes down by current price – 2.00). This might be good if you know stock will go up a lot then you want to sell if it goes down by 2p at any time
But beware of automated selling – it has caught me out. The markets often close high and then open the next day at a very low value (then rise quickly to the previous days value). I believe this is often intentional to catch people out. Because of this people warn against using automated selling.
That is the basics of standard share dealing. Obviously buying when low and selling when high is the tricky part!
Some things on my mind right now:
- Apple announcement on the 26th Jan. I think it is more likely to be an eBook reader, not a tablet. Amazon have the eBook market right now with the Kindle reader. On xmas day Amazon sold more eBooks than paper books. I do think that electronic media is going to be huge (I purchased ‘Crush It’ from http://www.vook.com recently – not an ebook but similar. Plus I have seen some really interesting eBook reader design concepts. Also the magazine and newspaper industries are continuing to be hit hard, especially with more companies moving to electronic media for advertising (better ROI). Whatever Apple bring out on the 26th, it’s not an update to an existing product line, it is going to be something new – and lots of iFan boys will be out there to buy it, so stock prices should go up (even if the device is a lemon). If it is an eBook Reader, I’m sure they will sell a lot via the iTunes store – and draw people away from Amazon at the same time. I would expect this device to come out in June/July, along with a new iPhone (with 5MP camera)
- 3D TV, films and gaming is going to be huge in 2010 and the next few years. So good investments might be in the manufacturers (Sony, Panasonic, Pioneer, LG, etc.) but a better investment might be in the providers such as bSkyb who have been pioneering the technology – recording live football games in 3D for the past couple of years. Or as you know, many TV manufacturers all share the same components so it might be worth finding out which components they share and get shares in that company?
- OLED is getting a lot cheaper to manufacturer and will become even cheaper once more people start buying TV’s and portable devices with it. So investment in that area would be good
- Yahoo is very cheap right now. They are basically out of the search engine business, but very much into online marketing and other things. A few months ago they made a deal with Microsoft, which will benefit Yahoo 80/20, probably starting late next year
- Microsoft have lots of cool tech coming out, plus Windows 7 is selling very well. Project Netal is going to be huge (Xbox and PC), Azure (cloud based computing) is going to be mega
- Google now have their own mobile phone and the Android OS is taking off. Plus they have lots of other things too. They already have Augmented Reality and free Sat Nav with voice activation out on their Android OS for mobile phones
You can also make money when shares go down – it’s called Spreadbetting. I’ve dabbled in this but not seriously. I’d advise that you stick with standard share dealing at first.
Also, if you buy shares in USA companies, you also have to consider fluctuations in the the exchange rate. the $ has been getting stronger against the £.
I don’t usually invest less than £3k at a time because a UK buy+sell = £20, USA buy+sell = £34 so you need to make enough to cover that before you make any profit. I usually trade over short time periods – a few weeks to 6 months. However if you can invest over a long period of time, investing a lesser amount can be ok. Also, if you want to regularly invest in stock each month, you can do that for £1.50 per trade instead of £10. So £50-100 per month would be fine.
I use Google Finance (http://www.google.com/finance) for keeping track of my stocks. It’s not great but is ok.
Another thing I do is I keep taking out credit cards with long periods (9-12 months) of 0% interest on purchases. Then I use that card for everything and instead of paying it off, I put the money into shares. I have been doing that for about 9 years now and have around 18 credit cards from various banks. I’ve check my credit rating every so often and it’s very good, so having a large amount of bank accounts and cards doesn’t harm it at all – even if sometimes I forget to make payments.
Sorry for the long e-mail, I get carried away when talking about investments
I really would recommend it. There is a lot that I haven’t discussed here, so let me know if you have any questions
Regards.
Paul
July 17th, 2010 at 16:17
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