Beginners Share Dealing

This site is not providing any form of advice or guidance and it not encouraging share investing or trading, especially not to beginners, it is a personal view that some people may find interesting.
Picture of me Everybody knows that shares should be held for the medium or long term, you can't go onto a share dealing forum or investment site without seeing this.

As a beginner in share dealing it is easy to believe this, but is it true?

It is clearly true that the companies that survive over the medium and long term have share price increases and may have paid dividends. What the medium and long term hold argument ignores are the losses that occur when you are holding shares in a failing or failed business.

When should you have sold your shares in Yellow Pages, Woolworths, Royal Bank Of Scotland....?
So should beginners to share dealing be buying shares with the intent of holding them for the short term which is the strategy discussed her?

To be a successful share trader you need a combination of market knowledge, experience and some money. The more that you trade the more experience you gain and as you are trading more frequently you will have to gain more market knowledge.

Unfortunately to gain this knowledge and experience you have to trade with real money as you will react differently when it is real money rather than numbers in a simulated trading account.

Beginners Share Dealing, A Strategy

The strategy discussed here is focused on individuals who have roughly £5K to £100K to invest.

If you have a fund of over £100K then you are probably doing it right already and if your fund is much less that £5K, then the amount of money that you will be gaining using these strategies may be too small for the necessary effort.
  • The basic ideas is that you take your investment funds and break them up into pots of around about £5K, the total number of pots being dependent upon the total amount available. There is nothing magical or scientific about the £5K size, it is like a 30mph speed limit, experience says that it is a good starting point.

  • These pots are then used to purchase shares in a range of solid companies,(FTSE 100, 250 or All Shares but not The AIM) trading at around 30%-50% off from their recent peak price but not "falling knives".

  • These pots are then sold when they offer a profit in the range of 5%-15%, meaning that you are selling well below their peak prices and hopefully trading each pot 10 times a year.

  • Although these profits sound small, taking them means that at the end of the year there has actually been some growth, rather than none whilst waiting for that "big one".

  • The strategy is based on compound growth and 10% share price increases are relatively frequent whilst 50% increases are not. As each investment is slightly larger than the previous one you need 18 trades at 4% for a 100% growth not 25.

  • The low profit and high trade frequency aims to avoid the, much more frequent than you might expect, massive share price drops that wipe out the growth from other trades.

  • At some point in time there will be a big stock market drop and you need to be able to accept a few years of no growth whilst the market recovers.

  • This strategy is aimed at building a pot for retirement not for income, so it is best suited to those who have have a job or another source of regular income.

  • If you think this sounds too easy, try it and you will find otherwise. The work involved in doing this is not trivial, expect to spend about an hour a day on this.This not a get rich quick strategy based on it once worked by luck, it is a disciplined, almost engineering approach.

This approach is contrary to the traditional view that shares should be bought and held for a number of years as I believe that doing this is very risky for the smaller investor.

The point of going for small profits is that such opportunities are frequent, relatively plentiful and as far as any share dealing can be low risk, these are. Significant growths, those much over 15% are much rarer and generally occur over much longer time frames.

Instead I am happy holding shares for a few hours up to about three months, possibly letting it drag on for 6 months although this would be regarded as a failure.

Experts may present this as gambling, a cynic may suggest that this is because the expert can be judged over a short period whereas over a longer period he will have changed jobs, rearranged funds to disguise losses or added extra capital to a fund hiding losses.

This is not gambling and is very different from CFDs (Contracts For Difference) or day trading; There is an objective and if that objective is achieved within a few hours, then so be it, sadly but as you might imagine the few hours is much more of a theory than a reality.

Another "everyone knows" is DYOR (Do You Own Research) when deciding which shares to purchase, it is critical to understand that you have NOT done the necessary research because you can't.

A final factor to consider is the management ethos, do you understand the management's motivations and do they match yours? Initially I was staggered by the number of failing companies that had management taking large salaries because "They are worth it."

We now get the tough part, when you bough a share you should have decided on when you will sell it, but things are looking good and there is more profit if only you wait a bit longer take the profit or loss.

Spread sheets can be your enemy here, the spread sheet says hold on a bit longer and the numbers will look great, the spread sheet still says that as the share price drops back down and your pot is no bigger.

Finally don't get depressed by the missed opportunities. I've watched Dixons shares rise and the business merge with Carphone Warehouse but it could have been Comet who won out and Dixons who went under.
Latest Opinion:Flow Group
Company:Flow GroupOpinion Created:27 Dec 2016
Opinion Last Updated:29 Dec 2016
Strategy:Highly Speculative
Opinion ID:22
Share Price At The Time:8.5p
Target Share Price:15p
Last Checked Share Price:8.5p
Starting off as Energetix Group in 2006, The Flow Group spent most of the time between then and 2013 developing hi tech Combined Heat and Power boilers.

Between 2006 and 2013 they were mostly funded by share issues as products were developed.

Around 2013 they also became a supplier of power to consumers and currently have a positive review by Which in their Oct 2015 supplier review.

Customer acquisition is apparently going well, in Oct 2015 they had around 100,000 customers, by June 2016 they had 220,000 and 255,000 by September 2016.

This is promising, but aren’t energy suppliers primarily administrative businesses with limited scope for anything truly imaginative?

It is very easy to acquire some customers in the energy business; you sell at a loss so that you appear very attractive on price comparison sites!

As the number of customers goes up, so does the number of staff and it becomes harder and harder to avoid the issues that haunt the Big Six energy suppliers.

The boilers business which is easier to understand financially is based on "Flow Brand Ambassadors, high quality, forward-thinking Gas Safe registered heating engineers who will explain and promote Flow’s products in customer homes"

As I assume that almost nobody really wants to buy a boiler, high tech and expensive boilers need various sales inducements such as the 5% reduced VAT rate for Green Energy, or payments for selling electricity back to the National Grid.

The trouble is the 5% VAT was repealed and there are serious discussion about the desirability of micro generation.

The latest ides is “Processes in place to sell finance to our customers”, in other words my independent boiler installer recommended Flow Energy, Flow Boilers and the finance company to pay for the boiler. Can anyone see a potential problem here, as time and time again the domestic market gets upset with a lack of independence, long term contracts and the idea of mis-selling?

After being in business this long there are items in the 2016 half year report and 2015 annual report that are of concern to me;

  • Growth of income accompanied by growing operating losses.

  • Another fund raising event, almost an annual event.

  • Directors remuneration that doesn't seem related to the profit of the company.

The positives are that there is an agreement with Shell supplying energy with extensive credit facilities in return for a share warrant, Flow boilers are made by Jabil who have invested and taken shares in Flow Group and Daikin products can also be offered.

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Stop Icon Retreating into cash just before the EU/EEC referendum seemed prudent, but what now?

I am still unsure if there is the political will to remain in the single market at the cost of Free Movement Of Labour. I am hopeful about this as I suspect that the EU as a whole will move to Free Movement If The Job Is Already Arranged. This system used to work in the UK under SAWS, the Seasonal Agricultural Workers Scheme and I believe that this was the original intent of the EU policy anyway.

On the other hand if your funds are in a Shares ISA and you can't easily withdraw them then maybe....

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