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An early warning system

The stock market is concerned not just with the profits a company is making now, but also with the prospects for future profits.

The health of the stock market can often act as an advanced warning indicator for the wider economy, and for our individual prosperity within it.

As company chairmen make statements about their expected profits in the coming months and years, their share price will react. As this happens across many companies it will be reflected in the FTSE 100 (and other indices). Sometime later, the economy as a whole may follow a similar pattern affecting our jobs and income.

Of course, there are other factors which affect the economy and stock markets differently, but looked at over the long-term, it is noticeable how often a sharp stock market dip precedes a recession and the subsequent market upturn forecasts the economic revival. This ‘lead effect’ is currently estimated by some commentators at between six months and a year. Unfortunately, as with many stock market tools, it is most useful in hindsight and is not always glaringly obvious at the time!

Planning your route

Before you decide to invest in the stock market, you should ensure that you are not carrying expensive debt such as credit cards, etc. As we all know, the interest rate on these can be high, and you’d be better off paying these off before considering investing in the market.

Buying Shares

At Crown Finance Holdings your instructions will normally be carried out immediately and the share price confirmed to you. You will be asked to pay by debit card, but for later deals you could have up to two weeks to pay. There’s no minimum amount to invest in the market, but because you will have to pay your stockbroker a minimum commission of 1% so, $5000 trade with commission would equal to $5,050.00

You may choose to invest in one particular company you know about, or in an Investment Trust or Exchange Traded Fund both of which spread the risk of your investment more widely. Your broker can hold your shares for you electronically, in fact around 99% of all share purchases electronically via a Nominee account.

Selling shares

Selling is an equally simple process. If you hold a share certificate, you can sell your shares through our company. Again, the share price will usually be confirmed to you immediately, after which you’ll need to hand over your share certificate and sign a transfer form.

However, if you hold shares in a Corporate Nominee as a result of a takeover or an employee share option, the procedure is slightly different. You will have been issued with a statement and this will require additional paperwork completing in order that it may be used to support a sale with a stockbroker. This process takes a little longer than a normal sale and may involve a small extra fee.

What is a share portfolio?

A share portfolio is simply the term used to describe your collection of shares.

If you list the shares you own and note the price you paid for them, and the date, you’ll find it easier to track their performance over time.

  • Information Sources

    The basis of successful investing is information and there’s no shortage of sources. When you are on the look-out for investments, the financial pages of the daily national newspapers are a must. You can find out what’s happening in the market generally, and you can track your own companies.

    Throughout the day, BBC News and finance channels like Bloomberg and CNBC will help you keep up to date. And there’s a whole range of websites, like FT.com and Bloomberg.com, which will help you dig into companies’ backgrounds.

    Alternatively, your stockbroker can help with this review process if you decide on an advisory or discretionary service. More regarding this in the next section.

  • Once you’ve made your choices, you don’t necessarily have to check your shares every day. Shareholding is a long-term activity and knee-jerk buying and selling as prices move up and down is not the route to success.

    But don’t put your portfolio in a drawer and forget about it. Ideally, once a month you should check how it’s doing and whether you need to make changes.

    The wise investor will conduct a full review at least once a year. A lot can change in twelve months, both in the economy and in your own personal circumstances, and a good spring clean is necessary every so often to make sure your investments are on track.

  • Once you are under way, you may want to pass on your new skills to start your children or grandchildren on the investment road, by buying small parcels of shares for them as gifts. Following the fortunes of a particular company through the performance of its share price can be a useful learning experience.

    Again though, it’s often best to choose a company the individual will understand - retail companies such as Marks & Spencer or Sainsbury’s are often considered. Remember that investment is a serious business and objective judgements on a company’s prospects are much more important than emotional attachments.