Beginners Share Dealing / Beginners Share Trading Think bubble

Is the basic truth that everybody knows wrong, should shares be bought for the medium or long term?

What surprised me is that the answer is far from obviously yes for a typical private investor.
WARNING - CFDs And New Traders
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If you are new to share trading and are signing up for a new account, a quick word of warning.

It appears that a number of people are signing up for CFDs thinking that they are buying shares or commodities.

CFDs are sophisticated tools for the expert investor and if used by accident it is likely that they will incur significant unexpected losses in a period of a day or so.

If you are lucky they will produce unexpected profits in a period of a day or so.

Differences Between Retail And Professional Investors

Professional And Private Investors Are Different Professional And Private Investors Are Different

The internet is full of information on share trading and when I started I took a lot of it to heart.

After trading for a while I began to question a lot of what I was reading as it sounded sensible but did not relate to the reality that I was seeing.

So I created this web site as a place to publish my experiences and the views that I have formed as a private individual actually buying and selling shares with my own money.

Some of the pages may appear odd as they address issues that may not even appear to be an issue to people new to share trading, these may be the most valuable pages.

Having traded since the early 2000's I hope that this site is at least thought provoking even if you disagree with it.

Since then the two biggest issues that I found with the information readily available were
  • Most of the information seems to relate to trading by professional fund managers who have much more money to invest than I have and for a much longer timescale, they can regard 20 years as the blink of the eye.

  • Almost none of the information that is more relevant to the private investor is backed up by the author having used their own money to do whatever it was they were recommending.

    A typical example would be an article such as 3 reasons I’d buy Aston Martin shares despite its latest news which ends with ...neither the author or the publisher have a position in the shares mentioned.
One of the reasons for the dearth of relevant information is surprisingly obvious, before on-line share dealing there were very few private share traders. So there has only been a short period of time for anyone to gain and publish their experience.

Pre about the year 2000 there were dentists, solicitors, headmasters etc with shares but they were bought via brokers, generally taking the broker's advice on what to buy and then holding those shares until they retired.

Once you get to the point of investing your own money what is really telling about the advice and services available is that I have yet to see a financial advisor or wealth management company offer to reimburse some or all of your losses.

Clearly there would need to be caveats on any such guarantee but why are there no such offers?

This is of course a rhetorical question.

Is this because the "Golden Rules" that everyone knows even before they start trading may not actually be true;
  • Shares should be bought for the medium or long term.

  • Shares should not be bought for the short term.
If this were so clearly true then it should be possible to offer the above guarantee.

The belief that buying for the short term is always bad is very seriously questioned within the Short Term Holding section of this site and the the idea that buying for the medium or long may be inappropriate for the typical private investor is also examined.

I still regard myself as inexperienced, so there may be useful information here for people who have been trading for a while as well!

Although there isn't an open forum, as I have yet to see a forum that doesn't descend into name calling, poorly thought out posts and blatant lies, there is a feedback section for posting serious comments or questions.


Should I Hold Shares For The Long Term - Barclays, A "Safe" And "Obvious" Long Term Hold.

Everybody knows that shares should be held for the long term.

I read an article recently written for the retail investor that discussed the growth that you would of obtained if you had invested in companies in the S&P 500 index in 1927 until now. This article was completely serious and it totally discounts the fact that most private investors don't invest for 90 years.

Most private investors usually have enough money to start buying shares in their late 30s or early 40s and have to stop at retirement at 65 or possibly 55 in many jobs.

Phrased another way private investors have a 25 year time frame from their first to last investment.

An example of why I question long term holding is Barclays bank.

The chart below shows what would have happened if you had bought £5k worth of Barclays shares in 2002 and used the dividends to buy more Barclays shares.

Over this period, 17 years, you would have received nearly £3k worth of dividends giving a total investment of £8k and the current value would be around £2.5k or a £5.5k loss.

Normally when I share this graph I am told that I have picked a special case, but ask most people if banks are a safe share and most would say yes and 17 years is a long time.
The Losses From Long Term Holding Of Barclays Dividend Graph

Don't forget that had you always withdrawn your dividends as cash then the current valuation would be lower than the chart shows as you would have fewer shares. The value of the initial £5k invested would also have had 17 years of depreciation.

There are more details on the numbers here.

It is worth noting that there is no point between late 2007 and now where you could have sold up and not made a loss.

If retirement meant that you had to sell during the COVID-19 crisis when the share price was 100p you would have lost about £6.25k of your investment or at its worse of 70p about £6.8k.


Holding Shares For The Short Term Or Timing The Market.

Timing The Market is a phrases often used to describe trying to buy shares at a low price and sell them at a higher price over the short term.

It is often used in a quite derogatory way in the same way as Multi Level Marketing/Network Marketing is used to dismiss a business.

There is good reason to be dismissive of the idea especially if you are a professional investor who rarely makes trades of under a couple of hundred thousand pounds and your usual investment is a few million pounds.

Below are charts for Aston Martin's Share Price since the start of 2019 and a recent last 90 days period.

Aston Martin Since The Start Of 2019 Dividend Graph
Aston Martin Since The End Of May 2020 Dividend Graph
But what about the private investor who sees an opportunity in a company where there is a limited number of shares available, too few to interest the professional?

If you were following Aston you would have known that the price of around 35p was the price that a major share issue was made at. If you didn't know that then you may have bought at say 70p when many of the new 35p shares were being sold and been hammered as reality sank in.

Professional investors will also have policies and procedures that say that even if they want to invest in a company they can't, the dividend is too small, the market cap is too low, they can't invest in that market sector.

The professionals may even agree with you but they still can't buy because they are already invested in that company and buying more would unbalance their portfolio.

This distinction between a professional fund manager and a private investor leads to the whole Short Term Holding section on this site, disbelieve in this difference and you will miss the point of that section.

Why Timing The Market is so often dangerous is the chart above covers 90 days in the decline of Aston Martin.


Buy High, Sell Low, Sounds Daft But It Is Easy To Do.

Buy High, Sell Low! Professional And Private Investors Are Different
Although it sounds obvious what you should not do is buy shares at their highest price and sell at their lowest.

I mention this because it is what a lot of private investors do.

The first reason for this is simply a lack of nerve, they thought they were long term holders but as soon as the share price drops they sell "to protect themselves against further losses".

They may even try and justify this to themselves and others as a sign of being a sophisticated investor, they accept that they will make losses as well as profits.

The second reason is much trickier to criticise, they are selling because there is a great opportunity elsewhere that will more than recover the losses of selling the current investment.

This is an easy to understand and a reasonable reason, the danger is that the new share doesn't replace the losses and another better investment comes along and another until there is no more capital left.


 

Thought For The Day - WANDISCO PLC:WanDisco – Very Bad H1, But I Don’t Understand The Company Anyway

In Jun 2020 WanDisco raised $25m with an issue of new shares representing a bit over 6% of the then current number. Issued as 650p it was under a blip in the market price but around the average price over the last two years.

Currently the market cap is around $220m which seems pretty hard to understand given
YearRevenue
$m
Adj EBITDA
$m
Profit
201916.2-11.7-28.3
201817.0-9.4-19.7
201719.9-0.6-13.5
201611.4-7.5-9.3
201511.0-15.0-29.9

Currently sitting on a cash balance of $33m up from $23m seems to be enough for a year or so the company seem to have a history of previous share issues $22m December 2017, $15m June 2016, $24.8m Jan 2015, £19m Sep 2013 (£ not $).

I don’t understand what others are seeing in this company, unless like me they don’t understand it, therefore it must be deeply technical and massively profitable soon.

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Suggested Reading Order
  • Strategies -> Long Term Holding - Reading this first explains why I believe that private investors may need a non-traditional way of thinking.

  • Strategies -> Short Term Holding - This proposes buying shares with the intention of holding them for 6 months or less.

  • Strategies -> CFDs - A get rich quick scheme that is almost certain to turn out to be a get poor quick scheme.

  • Strategies -> The AIM - AIM companies can appear to be like FSTE 100 companies, but they are not.

  • Strategies -> Long Term - Trackers - Something everyone should consider but possibly reject.

  • Commentary - Some thoughts but not advice on some companies.

  • Feedback - Let me know what you think, good or bad.

  • Strategies -> Tools - If you wonder if I have lost the plot this may reassure you that I am serious.

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Disclaimers And Regulatory Notes
This site is not providing any form of advice and it is not encouraging share investing or trading, it is a personal view on strategy that some people may find interesting. For further clarification on what Advice Is you may wish to read the FCA document that makes it clear that information on this site is not financial advice.

MiFiD (Market In Financial Instruments Directive) - Personal Advice?

There is a specific exclusion in MiFiD38 for a recommendation given through a distribution channel (such as a newspaper or other media, including the Internet), where information is, or is likely to become publicly available. By its nature, a recommendation given through these distribution channels will not normally be a personal recommendation.......... The CESR Q&A39 made clear that, in deciding whether a personal recommendation was being given, one criterion was whether it would be reasonable to think that a personal recommendation is being made.

RAO (Regulated Activities Order) - Article 53(1) or not?

For advice to be regulated at all, it must relate to a specific investment.

The FCA clarification does not explicitly discuss strategy but it does make the following statement.

Advice to buy shares in the oil sector or shares with exposure to a particular country is generic advice because it does not relate to a specific investment and is not regulated.