Managing your own investments can seem like a bit of a daunting task. You hear about these people who are making millions on the stock market, driving around in their fast cars and fancy suits – surely that would never be you? You don’t have what it takes to manage your own investments successfully, right?! Well the answer may surprise you – it’s not that hard!
The best way to manage your own investments is to make sure you are performing solid research, you don’t just buy into one stock or share and you keep up with the latest news relating to your chosen investments.
Now it’s all well and good saying that you’ve got to do all of these things but how do you actually do them?! Well allow me to show you.
Performing solid research
On the face of it, ‘researching stocks’ sounds like a bit of a mammoth task. What qualifies you to be researching companies and assessing their investment-worthiness? Well, there are a few key things you want to be looking at that will give you a good indicator as to how good an investment is.
Historic price movements
The first thing you’ll want to do is take a look at it’s price movements over different periods of time. This is important because you can get a general feel as to how investors are interacting with the share.
Generally, you want a share to be trending upwards – this doesn’t necessarily mean that it’s overvalued, it means that it’s steady and it’s trending upwards as a result of consistent performance in a growing economy.
You’re going to want to check out any major drops in the lines so you can determine if it’s something to be worried about – see here for example:
This is the price chart of the ‘BMO FTSE All Share Tracker’ which tracks the UK stocks as a whole. I see this huge dip and will want to find out more. Well – the world knows what caused this… a little thing called COVID. Otherwise, the trend is upwards so we can be happy!
Share price
Sounds a bit obvious but the share price is going to be a factor to consider before you take the leap and buy into an investment. You can use some more ‘advanced’ analysis, paired with looking at the historic price movements.
If the share has taken a big dive as a result of some news – you’ll want to assess whether it will impact the chances of the share price rising again. For example – when COVID hit, we knew gyms would reopen, it was just a matter of time. However, investors panicked and sold their gym stocks.
As a somewhat hesitate investor at the time, I thought I’d see what would have happened if I bought into Gym Group PLC (GYM) at the depths of the COVID panic… well let me show you as I’ve still got it on my watchlist today!
Please forgive the shoddy image but you can just about make out the +89.67% gain you would have made if you bought Gym Group shares when everyone else got scared… believe me now?
The ‘advanced’ analysis is where you assess the net asset value of the business and divide it by the number of shares issued. The result gives you the net asset value of a share (the bare bones value of the share) – anything below this means it’s an undervalued share and should be bought.
I’ve explained this with an example and diagrams in my article ‘Buying Stock When It’s Low: Should You Really Do It?’ So if you’re struggling to grasp the concept, definitely check that out!
Don’t Just Buy Into One Share/Stock
I’ve spoken about portfolio diversification on a handful of blog posts – I’ve really gone in depth in my article ‘Investing: Which Investments Don’t Lose You Money?’ so feel free to give that a read.
However, just to quickly recap this – you want to ensure that you have a few investments in different areas.
So what do I mean by areas? This refers to having investments based across different countries, different industries and different investment types (i.e. bonds, shares, funds, etc.) – this stops your portfolio from hitting the floor when one of your investments goes belly up.
Keeping up with the news
Another important one – but not as important as the prior 2 points. Keeping up with the news will not only give you some time to buy out of a stock before it hits rock bottom but it also helps you build up knowledge of how different things affect each other in the world of finance.
This is probably the fastest way to understand more about the finance world and economics aside from taking a course and doing professional exams. Another way to learn about investing is through reading books – I’ve actually got a recommended books list that I’ve read myself to help my understanding. I can’t recommend these books enough!
You have a few options available to best help you keep up with the latest news:
- Join a finance podcast – it doesn’t have to be specific to your investment. A great one is called ‘The Intelligence’. It’s produced by The Economist and is available on Spotify. They post quite regularly and cover tonnes of different topics;
- Google each of your investments and select the ‘News’ tab on the Google search engine. This will bring up the latest news articles that mention your investment – this is a great place to start with your research too; and
- Download a few apps on your phone that will flash up the latest news so you don’t miss anything. My favourite apps are:
- This Is Money UK;
- Financial Times (subscription required); and
- BBC News – you can ask to be updated whenever there is a new article on a certain page like ‘UK Economy’ or ‘Companies’.
Summary
In summary – managing your own investments shouldn’t scare you. As long as you are:
- Researching your investments properly;
- Keeping your portfolio nice and diversified; and
- Keeping up with the latest news;
You can’t go far wrong!