Investing Beginner Q&A

I got some questions through the Contact PowderFool form last week in regards to some Investing Beginner FAQ. So I am going to answer them here so you can read them or discuss them more if you like.

1. How to pick a right broker? There are a lot of brokers providing services but how to know if they are not scam e.g. trade24 scam or not?

I personally recommend these brokers as I use them myself. Here’re my personal criteria for broker selection:

  • Reputable companies: Big names that have been around for a long time, high street banks, long-standing brokers. I don’t want to worry about my funds disappearing to some private offshore account.
  • Low cost: The lower the cost, the better your returns in the long run. Beware of annual management charge, if you are selecting stocks/funds yourself, why pay brokers for holding your investment? The lower the trade commission the better too.
  • Access to the Whole Market: Let’s say you find a small company (Company XXX) that is listed on London Stock Exchange (LSE). You want to buy it, but the broker online trading platform says you have to call their trading desk to trade for this small company. That is a lot of hassle to buy a company. Generally if you sign up for reputable companies (my first point), the chances of this happening are rare, unless you are trading outside your local market. (For e.g. you are buying US small caps/companies when you are using a UK broker)

2. Would you recommend to study any books before starting investing e.g fundamental and technical stock analysis books?

OK, let me clarify the difference between Fundamental analysis and Technical analysis first. In short,

Fundamental: Investing based on Company Valuations and Financial performance.

Technical: Investing based on Market sentiments and momentum.

Personally I invest based on Fundamentals as I invest for the long term. I invest in great companies and hold it until the thesis changes. If I buy a stock when it is $5 or $10, but it went up to $50. Yes, buying at $5 is great, but buying at $10 is still pretty good.

Embarrassingly I have not read many investing books, as I tend to read books which are strictly not investing but related to the market. Though some of my investing buddies do read a lot. So these are a few books that we would recommend:

Value Investing, From Graham to Buffett and Beyond by Greenwald, Kahn, Sonkin, van Biema.

The Little Book That Builds Wealth by Pat Dorsey

One Up on Wall Street by Peter Lynch

Liars Poker by Michael Lewis

The Thin Green line by Paul Sullivan

3. Where to look for information of stocks to invest on daily basis e.g yahoo finance, watch market, financial times…?

I would not recommend investing on a daily basis. That sounds too frequent. As the cost of transactions would quickly wipe out your gains, and no-one could predict the market for the short term. You might be lucky once or twice but over time you would end up losing. (If you are a professional prop or volume trader, this could be an exception)

Personally I use Financial times (FT), Google finance, Yahoo finance for most of my companies information.

4. Is there any tax allowances on a capital gain in UK?  £15,000?

Yes, there is. I am not an expert in tax, but for 2015/16 personal capital gain tax allowance is £11,100 in the UK.

Hope that helps.

If you need more clarification, please leave your comments below.

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