Tip 1 - Know the kind of investment you want to make
Are you looking for capital growth - do you want shares whose price is going go up strongly or are you looking to create an income through shares which pay high dividends? They both require you to take different factors into account when choosing a company to invest in.
Tip 2 - Understand the risk you are taking with your money
There is no such thing as a sure-fire winner. Share prices can go down as well as up and investors may get back less than their original investment. Past performance is not a guide to future performance.
Before buying shares you need to decide what level of risk you are prepared to take. Are you looking for shares that that don't carry too much risk or are you prepared to accept higher risks in return for potential higher returns
Tip 3 - Understand how the company makes its profits
What does the company do? The more you understand how the company operates the better informed you'll be and you'll be able to make sound investing decisions about whether those shares are a good home for your money or not.
When you invest in shares you buy a piece of a business. You literally become a part-owner. So its important as an owner to know who is managing your business. Its your money that you are trusting them with!
Tip 4 - Beware of trying to time the market
You should always check the recent price performance of any share you are thinking of investing in - that stands to reason. But don't just look at what the price has done. Try to work out why it has done what it did. What news has impacted on the share price What is the stock market sentiment towards the share.
There are always two sides to a stock market story. A share that is low in value may represent a good buying opportunity OR it may be low in value because the company is losing money. A share that is rising may rise further as the company makes greater profits or it may be overpriced and due for a correction that will see it fall back.
Tip 5 - Don't put all your eggs in one basket
Alright it is a cliche. But cliches become cliches for a reason! Investing in a range of companies will help reduce your overall level of risk. Lets be honest, not every investment you make is going to be a winner. Spreading your investment around means diversifying into different stock market sectors as well; having all your investments in several different companies that operate in the same sector is almost as risky as putting all your money into just one company.
However don't spread yourself too thinly. Structure your portfolio of investments to take account of how much money you have to invest. Remember to take account of your dealing costs. They can eat into any profit you may make. The right number of companies in which to invest is not a precise science and depends on your individual circumstances.
Tip 6 - Know how your share price can be affected
Share prices can be like horses - easily spooked! Many things will affect the value of the shares you own. Stockbrokers and investment banks employ teams of people to analyse them whereas you're on your own. But there are plenty of obvious things you can be doing to understand whats likely to move your shares up or down.
Keep an eye on the news and not just the financial pages. For example a high oil price might be good news for oil producers but it'll hit transport businesses. A cold winter might be good for electricity providers but bad news for retailers.
You may also need to watch whats happening overseas. Many UK companies now have some or even most of their business operations overseas; so you need to know whats happening in the countries those businesses operate in.
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