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How To Pick Shares 1218 PDF
How To Pick Shares 1218 PDF
TO PICK
SHARES
1
IMPORTANT INFORMATION
We’ve written this guide to give you useful information about picking shares, but it doesn’t
include any personal advice or recommendations to buy, sell or hold any investment.
Share prices will go up and down in value, so you could make a loss, and share income can
also vary. Past performance is not a guide to future returns. Yields are based on past income,
which means they aren’t a guide to the income you’ll receive in future. If you’re not sure
whether a share is right for your circumstances, please seek personal advice.
When buying shares please be aware that on a rare occasions shares can be delisted
from the stock market, without warning. If this happens it may be difficult and costly,
or even impossible, to sell your shares.
The information in this guide was correct as at 26 September 2019.
THREE WAYS TO PICK SHARES
Easy methods anyone can use.
PLUS – PAGE 10
A brief guide to researching companies, and a
short glossary of terms you should know.
3
LOOK AT THE ECONOMY
Use the economic cycle to help choose shares.
Over time the global economy will grow and A great example of a defensive area of the
shrink. This cycle is natural and it has taken market is pharmaceuticals. Even when the
place throughout history. economy isn’t doing so well, people and
governments still need to spend money
When the economy is growing strongly, people on medicines.
are typically optimistic. They often have more
money and are happy to spend it. But when They’re called defensives because they can be
times are tough, people tend to tighten their a potential line of defence when stock markets
belts. They may forego luxury treats, the family are falling. Of course, no company can be
holiday or hold off buying a new car. completely recession-proof. And defensive
companies can still fall in value.
You can keep an eye on this cycle, and use its
ups and downs to pick which shares you buy For example supermarkets are seen as
at which time. defensive - people need to eat, even during
a recession. But you could also switch to a
DEFENSIVE SHARES cheaper supermarket or different brands
You can think of defensive shares as ‘steady- of food and drink.
eddies’. They may not grow as fast during the
boom times, but they also haven’t struggled Tip: Think about the products and
to the same extent in tougher times. That’s services you’d buy even in tougher
because companies with defensive shares sell times – the companies selling them
things or provide services that people need are probably ‘defensives’.
and use, no matter what the economy’s doing.
4
When the economy is
growing strongly, people
are typically optimistic.
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THREE THINGS TO LOOK FOR IN A THREE THINGS TO LOOK FOR IN A
GOOD DEFENSIVE SHARE: GOOD CYCLICAL SHARE:
1. The company’s earnings are relatively 1. The company has little or no debt.
predictable – it’s a profitable company
2. When there are downturns, the company
with good returns.
can anticipate or react quickly to them.
2. T
he goods or services the company sells
3. In the good times, the company doesn’t
are always in demand, preferably across a
over-expand.
number of different countries.
3. The company pays a healthy dividend MAJOR CYCLICAL AND
to shareholders – paying out profits as a DEFENSIVE SECTORS
dividend shows the people who run the
company are confident the company will
Cyclical sectors Defensive sectors
continue to make profits in future.
Aerospace Food
CYCLICAL SHARES
Cyclical shares typically mirror the health of Automotive Beverages
the economy. Profits and dividends rise during
Banks Healthcare
the good times, but suffer during slumps.
Construction Household goods
It’s difficult to judge when the market has hit
the bottom. But if you buy at the start of an Engineering and Industrials Life insurance
upturn, you could get in before things heat up. Media Pharmaceuticals
Bear in mind not all cyclical shares are hit at Manufacturing Support Services
the same time. For instance in a recession,
Mining Tobacco
we spend less and retailers feel the effect
immediately. Suppliers and distributors then Property Water
feel the knock-on effect as the shops reduce
their orders. However, makers of components Retailing
and producers of raw materials come into the
Travel & Leisure
cycle last.
6
THINK LONG-TERM
How will the world change over the
next 10 or 20 years? And which companies
will benefit most from those changes?
If you can anticipate future needs and
changes, and invest in shares accordingly, HERE ARE THREE BIG THEMES TO
it’s possible to make good profits. But of GET YOU STARTED:
course there are no guarantees. Shares will
rise and fall in value. TECHNOLOGY
• Will there be a continued shift to
An example of a big theme is the growing online services and products?
middle-class in countries like India. As peoples’ • How will our need for cybersecurity
wealth increases, they usually spend more drive innovation?
too. And the companies that benefit most are • Is wearable technology a
usually those selling luxury goods, technology, growing market?
cars, wines and other similar items.
RISING HEALTHCARE SPENDING
Of course, there’s an element of guesswork • People living longer in developed
with predictions like these. If you get it right, countries – how will this affect their
you could benefit for decades. But buying needs and which companies will
into a big theme is no guarantee of success. meet those needs?
Some companies will thrive, while others • Growing middle-class consumers
won’t. Remember, for every Netflix there’s a in emerging markets – who needs
Blockbuster, and for every iPhone®* there’s what level of care, and who
a Blackberry. provides it?
7
THE BRANDS YOU
KNOW AND LOVE
It might seem too easy, but don’t dismiss it.
There’s a reason why the world’s biggest THREE WAYS YOU COULD USE THIS
brands are also some of the most profitable. EVERY DAY
One of history’s best investors, Peter Lynch,
1. What products or brands do you use
liked the doughnuts at Dunkin’ Donuts so
every day and can’t live without?
much that he invested in the company.
2. Have you found a great new service
The great thing about investing in the brands or product that’s better than the
you know and love is that anyone can do competition?
it. Your experience is as valid as an expert
3. When you’re out shopping, which
investment analyst.
shops look busy?
9
RESEARCHING COMPANIES
How to get the information you need.
10
Know what you own,
and why you own it.
PETER LYNCH
11
NINE PHRASES TO KNOW
BEFORE BUYING SHARES
Stock market jargon busted.
BID PRICE DIVIDEND YIELD
The price at which you can sell a share. This is the dividend paid by company as a
percentage. For example, if a company paid a
OFFER PRICE dividend per share of 5p and the share price
The price at which you can buy a share. was 100p, the dividend yield would be 5%.
BID/OFFER SPREAD It’s worth noting that dividends vary over time
The difference between the buying and and aren’t guaranteed. There’s no obligation
selling price. for a company to pay a dividend.
STAMP DUTY
A UK government charge of 0.5% on share
purchases. Stamp Duty on Irish companies
is 1%.
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HOW TO BUY SHARES WITH HL
It’s easy to get started.