People often want to get my view on whether or not X, Y or Z company is a good one to buy into, and whether or not they should buy shares in them.
We’ve all heard the story from someone who bought shares in Apple or Facebook, etc. when it was $2 and they sold out at $220 a share. In theory, they could have turned $10,000 into $1.1 million in only 14 years (rough figures for Apple shares - 2004-2018).
So why is it that I generally don’t recommend individual shares for 95%+ of people?
Well, cos the above scenario - making your millions through individual stock picks, is more theoretical than actual. Vast majority of people will have bought at $220 and then sold at $150 in a panic.
So here’s what you need to know.
Which would you rather own shares in?
Company A - increasing revenue and profits each year. A great board of directors. An amazing product that has a monopoly.
Company B - flat revenue and profits. An alright board of directors. An old product that has a lot of competition.
Kind of obvious which one you’d want, right? A lot of people think that this is the kind of research value investors, such as Warren Buffett, do. But they’d be wrong.
Cos what matters is the next stage of the research.
How much are you paying for these companies? The ONLY thing that matters in investing is the price. The worlds best company at a high price is a worse investment than an OK company at a great price.
What you’re trying to do is time the market so you buy low and sell high. This, is freakin difficult! There are legions of people out there studying every conceivable metric to try and work out when something is cheap or oversold, and they usually get it wrong.
What special insight do you have that means you can outperform these trained professionals? I’m not saying it can’t or hasn’t been done, I’m just saying that it was probably blind luck that was the biggest contributing factor.
Facebook, another $20 to $200 share (sometimes referred to as 10 Baggers), didn’t just go up in a straight line.
In the Autumn of 2013 the shares pretty much doubled within a couple of months. Equally, in 2018 the share price dropped by 40%.
Do you have the balls to hold the shares and not sell any when you see your $10k turn into $20k within 3 months?
Do you have the foresight to keep holding the shares when you see your $50k turn into $30k within 6 months?
Hypothetically, and with the benefit of hindsight, most people think they can. The reality is most people can’t and don’t.
It’s too tempting to take all that money you just made and secure it somewhere else, or go buy yourself a treat with it. It’s basically free money isn’t it?! So why not, you deserve it, you made the money with your smarts!
Or, it’s already dropped 40%, what if it keeps dropping? I should sell now before it goes down even further and I lose even more money! I’ll wait until it’s stopped dropping before I buy in again.
There’s a comfort and logic to those statements. But that’s why most retail investors don’t make money in the stock market. Market timing and not holding your nerve or convictions.
The downside of course, is there are many times when those two statements are the best things to do.
You watch Nokia share price drop by 20% and you hold strong, cos you’re a good long term investor! Then it drops another 20%... then another… now it’s down 85% from it’s all-time high and has no signs of going back to those levels. SHIT.
Or BT. In mid 1998 it was about £5 per share, by end of 1999 it was nearly £10 per share. SELL, right? Nah - you’re a long term investor and you’ve read an article from some dick who said you shouldn’t get greedy and sell shares for a profit just because they’ve doubled. So you keep them all.
Oops. Share price dropped back to £2.50 per share in 2002, and £0.92 in 2009. In fact you’d have to wait until 2016 to just breakeven. 18 years of no capital growth.
That’s a lot of numbers I’ve just thrown at you. Sorry about that.
My basic point is, share prices go up and down. They are pretty volatile. And you don’t know if what you’ve just bought was a low price, or a high price, or if the price it’s currently at is the highest it’ll ever go, or if it’s a tiny stepping stone on the way to 10x growth.
Nobody knows. A very small selection of people makes their living purely from trading shares. There are fund managers, and a really good one will make around 15% - 25% per year. But they do that by buying loads of shares, not just putting all their money into one single company.
There are then professional traders, and they tend to trade exclusively on price for short time periods. It’s harder to say what they make as a return, due to the way they invest, but a good one of these will make 50% with a degree of consistency.
You, I’m afraid to say, if you’re reading this, probably aren’t a full-time trader and don’t have the insights to be a fund manager. Soooooo, probably don’t bother.
Steady ya horses there twinkle toes. Don’t be too hasty.
I said don’t be an individual share picker, but you should almost certainly be investing in the stock market. Just the majority of people should do so via a tracker fund. These are the funds that don’t rely on a human picking the best stocks, and instead just follow a formula.
E.g. the biggest 100 companies in the FTSE, or the biggest 500 in the S&P.
These funds can give you the exposure to the 10 baggers like Facebook, Amazon, Google (Alphabet), etc. but also gives you the boring companies that don’t do much, but pay out a consistent dividend. Vodafone, United Utilities, British American Tobacco, etc.
You’ll also get some screw-ups in there as well. But you won’t have them for long. The downside is protected in some instances because once the share price falls far enough, it gets kicked out of the fund because it’s no longer - in the top 100 / 500, etc. So sure, you’ll take a loss on some shares, but you won’t (hopefully) hold them until they get to £0.
I know someone of you are adamant that you can beat the stock market and I’m just being a downer. And you’ll no doubt throw some random facts about a bloke you know from the pub or your Uncle Nigel who has been buying shares for years and is a trillionaire now.
Well first of all, I don’t care. If you don’t like or want my advice, stop fucking reading my blogs. Ya weirdo.
But, there are exceptions to every rule. You could well be that teenie tiny percentage of people that do really well from individual share picks. Yay for you. I am genuinely pleased for you. But I’m here to protect as many people as I can, often from themselves, so as I say, for MOST people - share picking ain’t the route to go down.
Now, if you have some inside information on a company (so long as it’s not insider trading), then you might be in a good position to buy shares in an individual company.
Maybe you work in a pub and you notice that a new drink is becoming really popular, or you notice that your supermarket is always a lot busier nowadays and they are starting to put their prices up.
This might be enough for you to research the companies involved and see if you can buy shares in their company. It’s not foolproof, it’s not guaranteed to work. But it’s possible that this is the kind of information that the professionals don’t have access to, and you stumble across a new up and coming brand or company.
NOTE: If you work in the legal department of a company and you happen to know they are about to sell to a competitor for loads of money… I’m pretty sure that’s insider trading and illegal. So probably don’t get yourself arrested, eh?
I want as many of you as possible to have a stress free, successful and long term investing career.
I’d rather that, than 3 people become rich as fuck on the back of what I say, but everyone else loses money.
So yes, I’m aiming for the top end of the middle of the pack. Sounds shit when you put it like that, but it’s the place to be. Leading from the front, but not so far forward that you're the one the zombies take out as you walk around the first corner. (I’ve started using Zombie, Run! App and it’s brilliant).
The majority of my investments in the stock market are in funds. Having invested in shares over the years, I’ve found I’m not any worse off by going for funds, and I’ve saved myself about 20 hours a week of research and trading.
I go through how I research the funds I buy in my video course, Make Money Your Bitch. It’s fairly straight forward, and the method that a lot of professional investors use. Probably more sophisticated than most financial advisors would use, so if you want to be smarter than the trained professionals, maybe give it a bash and see what you think.
But what do I know, you do what you want.