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Testimonials
Great
site Kenny.
Technical
Analysis written in a straightforward way so that everyone understands.
There's
only a small few who get it consistantly correct and you are certainly
in
that group.
Chris
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Thanks
for putting this all together and sharing! BHW
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Awesome
Stuff! Kenny has shown time and time again the ability to show us direction in
these markets. Khalsa
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Kenny, I appreciate your insight and analysis. You make sense of what I can rarely see.
Thanks for sharing. Gene
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Took a gold short at 1240
just closed at 1203 :-)))))))))))))))))) ........ top call!! Gekko |
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Rodney
Hobson: Shares Made Simple
A beginner's guide to the
stock market - Part 2
Rodney Hobson: Shares Made Simple
Rodney Hobson, author of Shares Made Simple: A beginner's guide to the
stock market, talks to Kenny of www.tradersdaytrading.com.
It is one in a series of Rodneys books which sets out to give
the beginner small investor a helping hand by taking the reader, step
by step through some of the most basic concepts of stock market
investing.
Rodney, who is also registered with the FSA, is a highly
respected financial journalist and author who has held many senior
editorial positions in his time, positions held include
spells as:
- News Editor for the Business section of
The Times
- Business Editor of the Singapore Monitor
- Head of News at Citywire
- Editor of Shares magazine
- Deputy Business Editor of the Far Eastern
Economic Review
The Rodney Hobson Interview Continued
Kenny: OK, I have no real
knowledge of the markets other that what I see on the news and have
read in the newspapers, but I have heard that there is a lot of money
to be made from trading in the stock market - where do I start?
Rodney:
Buy a beginner's guide to the stock market. Naturally I hope you will
choose my book Shares Made Simple but there are other guides on Amazon.
Learn the basics BEFORE you start to invest. Talk to any friends who
invest in shares and ask them how they go about it and would they
recommend their broker, just as you would ask about plumbers or
electricians. Otherwise set up an online dealing account. You can find
them on the Internet and you can compare charges. They charge a fixed
fee per trade, often �10 or less
Kenny: What I really want
to know most of all - how much money can I make?
Rodney: Hang
on a minute. Don't set off in a spirit of sheer greed. Look for solid,
unspectacular investments, particularly when you start out. The greater
the risks you take, the more likely you are to lose money. Think in
terms of what you can earn in dividends over the long term
rather than quick fire gains. Your aim should be to make more money
buying and holding shares than you would putting the money somewhere
else, such as in a bank account.
Kenny: How do I know what to
invest my money in? 
Rodney:
There are no easy answers. You should decide what you want from your
investments and look for shares that fit the criteria. Ask yourself
whether you are looking for income or to build wealth over a period of
time. How much risk are you prepared to take? Do you want to be an
active or fairly passive investor? As a general rule, look for solid
companies that provide goods orservices you understand and which make
consistent profits and pay consistently rising dividends.
Kenny: How do I know when to buy
or sell?
Rodney:
Nobody knows the answer until after the event, when it is too late.
People construct all sorts of methods and theories but it is simply not
possible to foresee with absolute accuracy the top and bottom of the
market. Every investor gets it wrong sometimes. The important thing is
to look carefully at each company you consider investing in and treat
it on its merits. If you are buying for the long term, as most private
investors are, it is not so important to get the timing spot on. Where
you do hold shares in a company you should watch for signs that the
company is running into difficulties, such as adverse trading
conditions. The warning signs are explained fully in my book
Understanding Company News.
Kenny: I don't want to put all my
eggs into one basket, should I invest in a lot of stocks to spread the
risk?
Rodney:
You are absolutely right to spread the risk, not only by building a
portfolio of shares in several companies but by trying to pick the best
ones in a range of sectors. A portfolio is simply a list of all your
investments. Conventional wisdom suggests that a portfolio of about ten
shares is right for most private investors because it is large enough
to spread risk but small enough for you to be able to keep an eye on
all the companies you have invested in.
Don't be hidebound by numbers, though. I started with a portfolio of
about five companies and added others one by one as I saw an
opportunity. I also bought more shares in existing holdings as I went
along. I now have shares in a dozen companies and feel happy to expand
further but each shareholder should have as small or as large a
portfolio as they feel comfortable with.
Kenny: How much time does it take
to be a private investor, how often do I need to monitor my investments?
Rodney:
Don't become obsessed with your portfolio but don't just close your
eyes and hope for the best. You will probably find yourself checking
share prices of your investments several times a day at first but your
confidence will quickly grow with time. I check share prices of my
investments every morning and read through the financial pages of a
serious newspaper to see if anything untoward has happened or if a new
buying opportunity has arisen. A few minutes over breakfast every
morning is quite sufficient.
Kenny: I am checking my
investments and I find that one of my stocks has taken a big hit and
dropped by nearly 20%. What do I do now? I don't want to make a loss,
should I sell right away or should I hold on to see if it goes back up
again?
Rodney:
In these circumstances it is vital not to panic. Don't worry about what
has already happened. The important thing is to take a rational
decision on what will happen next. Try to find out why the shares have
fallen. Has the whole market tumbled or is it just your company? Has
the company issued a profit warning? As a general rule, if the whole
market is down and your company looks okay then you might as well hang
on for a recovery in the long term, collecting dividends in the
meantime.
Where an individual company slumps in an otherwise stable stock market
you should certainly consider cutting your losses. Do your homework and
take a calm decision. One very important point is that warnings on
falling sales or profits are usually followed by another warning, then
another, with the shares taking a fresh tumble each time.
Kenny: Your new book due out later
this year is called The
Dividend Investor, what is a dividend and how important
are dividends to my portfolio?
Rodney:
Shareholders jointly own the company and are entitled to a share of the
profits. The dividend is the distribution of profits to the company's
owners, including you. The amount of dividend you receive each year for
every GBP100 you invest in the company is known as the yield and is
expressed as a percentage. It is the equivalent of the rate of interest
you receive on your savings account. The higher the yield, the more you
earn on your investments. You can find the yield for each company in
the share price tables in newspapers or on financial websites.
Dividends are the whole point of investing and are far more important
than rises and falls in share prices. Over time, in good years or bad,
you will make far more money from dividends than you will from trying
to buy shares cheaply and selling them at a higher price.
Kenny: So, couldn't I just buy the
stocks that pay the best dividends, why doesn't every one just do
that.....wouldn't it be as easy as that?
Rodney:
It is a very good policy to pick companies making solid, rising profits
and paying solid, rising dividends. You should, however, be wary of
companies with much higher than average yields. It is a sign that
investors are worried that the dividend is unsustainable and could be
reduced or suspended.
Kenny: Rodney, I could talk to you
all day about this. You have given us a fantastic
introduction to the basics for stock market beginners. thank you so
much for talking to us today.
Good luck with your new book, The
Dividend Investor when it is released later this year.
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More Books by Rodney Hobson
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