Buying Company Shares

Buying and Selling Company Shares

Anyone can buy shares in a ‘listed’ company (listed on the London Stock Exchange ‘LSE’). Take a look at a quality daily or Sunday newspaper to see a full list of available shares in familiar companies.

To buy a share on-line you need to register with one of the share web sites (some are listed below) and open an account. Once the account is open you can buy and sell over the Internet in ‘real time’: i.e. in theory, you can buy a share at 2pm for £1 and sell it again at 3pm for £1.50 if the share price has risen in that period. There are fees to be paid for buying and selling, so in practice a £1 share with fees can be £1.05: this means that you need your share price to rise by 5% before you have started, with the same scenario for selling.

Tracking Your Company Shares

The FTSE 100 (‘footsie one-hundred’) is a list of the top 100 UK companies that you can but a part of. Staying within the FTSE 100 is supposed to be the safest way to trade in UK shares, however, a number of ‘technology’ companies have made brief appearances of late and that’s not in any way safe! There is an FTSE 250 (with the top 250 UK companies below the FTSE 100 bunch), and even a FTSE Eurotop 300 (Europe).

As mentioned above, take a look at a quality daily or Sunday newspaper to see a full list of current share prices, together with the numerous web sites dedicated to providing real time experiences (good and bad of course). And for those of you who love gadgets your WAP phone will keep you up to date wherever you are.

Share Earnings: Dividends & Share Price

Earnings from shares are two fold:

a) The value of the share can rise when the performance of the company involved is trading well, or subject to a takeover (therefore making the company a bigger entity), or has, say, invented the next ‘gadget’ that every home needs.

b) A ‘dividend’ is paid from the annual profit. A company may announce a dividend of £0.10p for each share held. However, in less favourable years there may not be any dividend and the share may loose value because of that. A low or no dividend can mean that the members of the company’s board decided to re invest profit in an attempt to improve growth and profitability in future years which is an acceptable situation (that is if you stick around and the strategy works).

If a company has 1 million shares in the hands of shareholders (you) and the profit for the year was £100,000, the dividend would be £0.10p (100,000/1,000,000 = 0.10) for each share held if they were to distribute all of the trading years pr ofit.

You should look to hold onto your shares for about 3 years to ensure a reasonable return. That said, there are many situations that call for an immediate sale of all shares. You will sleep easier if you spread your investment over a number of companies or take part in a share club.

Share Club Membership

Share clubs are usually informal groups of individuals who pay into a monthly scheme with a purpose of buying shares in listed companies. A group can comprise of any number of individuals, paying any sum of money: i.e. six individuals paying £30 each per month will allow £180 of shares to be purchased each month. The group will meet once a month (this is where the pub comes in, so it’s not all bad). And the group will discuss current share performance, what to sell and what to keep, and where to invest the new cash. It is best that each member of the group specialize in a particular industry area and give a monthly report, and advise on current trends. Try to discourage wild speculation in the early days until the group has experience, and even then it would be inadvisable to back more than one risky investment at a time. Formal Agreements are advisable with significant investments.

Foreign Investments

Foreign shares are a must when building portfolios, although only experienced buyers should consider companies outside of the elite industries we are all familiar with: PC and car manufacturers, telecoms etc.

Information & Warning

For information on which investment to back it is advisable to look at the many on-line investment portals (some links can be found below and any quality Sunday newspaper.

Taking the advise of anyone in this area has a certain amount of risk and there is usually little recourse with the advisor company: as they say, again, ‘the price can go up as well as down’, and if it was that easy for everyone to make lots of money don’t you think there would be a lack of advisors (being that they would all be somewhere hot, sandy and with more fun than they could shake a stick at).