Would you like to pick the shares to invest in yourself?

By DavidGreth on January 20, 2011 In Investing

Would you like to know how to choose what Shares to invest in yourself?

Most individuals think that picking shares from an established stock market is very difficult for them and can only be done by professionals who spend all their time researching endless amounts of data from companies and institutions.

The surprising fact is that each of us can have, at least, a lead into the shares ‘of which companies we should be buying by just keeping our eyes and ears open to what is happening around us and following this up with questions and research.

For instance if a lot of new shops are opening in our area, what is the brand, is it opening up throughout the country? In our own lives we are considering purchasing something new which we haven’t looked at before. Is the company getting a lot of coverage, do you notice more advertising by them on T.V., billboards etc.

Have you noticed more of a certain brand of car on the road recently, have you changed toothpaste recently because of a development in an alternative brand?

All these experiences give you a sense that something may be happening in these companies. It may therefore be worth finding out more from Companies House (where accounts are available) and of course through the World Wide Web which will provide incredible amounts of information. It must be stated however that research needs to be comprehensively done and the overlying consideration of risk is still of paramount importance.

Professional investors will, of course, work to certain guidelines for both research and selection. These can be summarised as factors affecting a) a countries general economic policy and current position, employment rising or falling, is the deficit static, what is the relationship between imports and exports etc, b) are there any underlying trends in the market at present i.e. Are high tech companies the flavour, or food companies, energy companies etc. and c) gather as much current information as is available for individual companies and sectors.

Within the research needed is the decision as to where the shares being considered are in their pricing range i.e. no one wants to buy a share which is considered to be at the top of its pricing range as it is likely that it has only 1 way to go. Of course this is tempered by knowledge for instance a share may be deemed high now but future government activity is likely to affect that particular sector and so drive the share prices in that sector higher. Fundamentally though shares should be bought when they are low to historical prices rather than when they are high.

When research is completed the decision to invest comes down to a few factors

a) Is this company on an upward curve where earnings will increase?
b) Is the sector in which the company is situated at a safe stage in the economic cycle?
c) Is there anything likely to happen by government which will affect the sector or company?
d) Are the Directors/management of the company committed and what level of shareholding do they have, and are they buyers or sellers of shares?

e) Is the share price at a fair point i.e. not at highest?

If you stick to these simple few questions and apply common sense and add a little bit of research into the process there is no reason why you can’t be as successful as some of the Data crunching experts.