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:Gulf Keystone Petroleum
The most recent opinion is.

Company :Gulf Keystone Petroleum
Opinion Created:17/07/2016 12:18:00
Opinion Last Updated:10/08/2016 07:12:18
Interested:Yes, interested
Share Price At The Time:3.0000
I have watched GKP move from Possibly In Trouble to Probably In Trouble to Certainly In Trouble.

With the share price at around 3p and an offer of a debt for equity swap on the table things now look quite a bit different for a new share holder.

If I understand the offer correctly existing share holders will be left with a holding that is worth 1/20 of what it was before the swap.

At the current 3p price this equates to a price of 60p prior to the swap and I started looking at the company around 120p.

After confirmation of the new share issue on Aug 5 the company seems to be on a reasonable footing of course
the risks still remain. It is in Kurdistan, it will still have $100m of debt and there is no guarantee of payment for past shipments

As a long term hold I can’t see where the company goes after the main field runs dry, but as a short term hold it shows promise as a 10p share price would equate to 200p before the new shares.

The problem for me is that Lloyds at 55p shows almost as much promise at a much lower risk

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

Lloyds and Barclays look really interesting at the moment, but Barclays trough was 51p in 2008 so 153p is not as low as it can go and Lloyds lowest in in 2008 was about 41p, but they fell further to 23p in 2011.

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....

Current Holdings
Share Bought At
BARC - Barclays Bank 163p
FLYB - FlyBe 42.75p
GKP - Gulk Keystone Petromleum 3.6p
LLOY - LLoyds Bank 53p
LAM - Lamprell 73p
OPHR- Ophir Energy 73p
RBS - RBS Bank 194p

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