About to start a share portfolio and would like to ask about the fundamentals people use as part of their consideration of whether to invest in a particular business?

Hi James,

I carry the belief that the market is efficient and an amazing mechanism to incorporate all available information into prices. This means that we cannot look at information about the company and say that stock is too cheap or too expensive, because that information has been processed by the thousands of market participants to determine fair price for the stock (the current price) and it is very very difficult, if not impossible, for an individual to outsmart the market. There is a lot of evidence to support this.

There are a lot of managed funds out there that employ amazingly smart people with hoards of resources at their disposal to be able to look at stocks and purchase some (and visa versa not purchase other stocks) in an effort to outperform the market - these are called active funds. However, the stats on whether they can outperform the market don't look that good. Yes, there funds that outperform the market in a given period, but just like if I asked 1,000 people to toss a coin 100 times and I am looking for people who can toss more heads than tails, I will get some people who do toss more heads than tails, but we know a coin toss is a random chance outcome. The statistics show that the out performance shown by active managers is remarkably similar to the outcomes you would experience from a random chance experiment such as a coin toss. So, if these professionals who's sole job it is to outperform the market, can't produce a positive outcome over and above the market return with any more reliability than a coin toss, then I don't believe individuals stand any great chance.

As Warren Buffett says, most institutional and individual investors would find the best way to own common stock is through a low cost index fund.

There are a lot of people who might say different because of x reason or y reason. But there are also people that believe that they have a strategy for picking horses, numbers at keno, blackjack etc and they might have won in the past which helps confirm their belief, but that doesn't make it true as we know, their is no reliable method for betting.

All the best with your investing,

Cheers

Glenn

Hi James (great name!),

If you are just starting out & assuming you have a small starting balance here's some tips:

1. Watch your expenses closely. Things like brokerage, and management fees will be relatively large expenses when you first start out - not so much as your balance grows, but they will hurt to being with. Look to minimise these as much as possible as they will diminish your returns.

2. Start with building a position in a well diversified investment. Something like an Australian or International index investment is a great way to start. You wont get the stellar returns you can brag to your friends about but you are also much less likely to lose everything because of a wrong stock pick too. Once this position has built up a bit over time you could look to take a more active position in one stock over another, but never put everything into the one stock. If you get burnt initially, it will be hard for you to build the courage to get back in there.

3. Be consistent with what you do. Go into share investing (like any investing) knowing markets go up and down over time. If you consistently invest on a regular basis, regardless of markets up or down, you will average out these market movements - reducing their impact over time.

4. Don't go into share investing trying to make a quick buck. This needs to be a long term strategy think 5 years + (but more 10+) so only invest money that you know you don't need right now and is surplus to your living needs.

Hope this helps. Best of luck and reach out if you need anything more.

Regards
James

Hi James,
To answer your actual question I can tell you what I did and now do.
First and foremost - start by studying all that there is regarding share trading and the companies listed on the ASX.
The Financial Review is a great source of information.
Become a sponge for information as the more you know, the better will be the decisions you make.
I look for businesses that are going gangbusters and invest in them, i.e. a particular shop that I walk past everyday is always full of customers spending money. This to me is a good sign.
You then need to do some basic research on the company. Look at the current share price and check historical data. I like companies that pay fully franked dividends so that is another aspect I look into.
There are a number of online brokerages you could join so shop around.
Lastly, appreciate that retail investors (that is people like you and me who don't have multi millions to invest) do not influence the market when we buy or sell shares.
A wise man told me that the surest way to have a company's share price increase tomorrow is to sell my shares in that company today. LOL.
Good luck with this.

Hi James,

All very good, very safe advice! I am not a planner, so this purely personal opinion.
It really depends on what your goals are and what other income and investments you have.
I own property and have superannuation so the share trading I do is very speculative. I have looked for trends such as Internet of things, clean energy, technology and renewables and the required commodities and have invested money in smaller companies that may turn in to big companies if I'm lucky. This is a small investment that I am happy to risk for the chance of a bigger gain.
Best of luck
Scott