Let me show you here the path that I took to be a millionaire haha! Being this a personal kind of blog, I'd be using this page to keep track of my investments and how they develop, sharing any tips along the way. I don't mind sharing my finances with you, lovely public reader, but what I don't want is you to follow my advise by the word. I am not providing any financial advise, neither I am an expert, professional or anything like that: I'm purely expressing here my progress for personal tracking and references

I live in the UK, therefore all investment I describe in here are UK-based. Here we go with 3 good advice to remember:

"Shares should be viewed as long-term investment, and not short-term gambling"

"The money is put at risk. Companies go into liquidation and markets turn down violently"

"Despite the risk of individual shares and of the entire share market at certain times, a broadly based portfolio held for substantial periods of returns"

 

 

The Stock Market

To start in the stock market, open a "HL Fund & Share Account" with Hargreaves & Lansdown: https://www.hl.co.uk/investment-services/fund-and-share-account Why them? -you'll ask me- and I will ask you: why not? Just be mindful that, for every share transaction that your perform on HL, they will charge a commission of £11.95, so I learnt that if you want to buy 1 x share from one company during a transaction, you better buy 2 x shares to make it worth the £12 commission charge

This is my HL Watchlist: https://www.hl.co.uk/watchlists?id=00000000602dfd0f0932d4ac1015623681

But by using HL, you an also create a new watchlist, and choose "copy from account" so all your shares are listed on your watchlist, this is handy if you don't mind sharing your finances (like me) and want to see them without having to be logged on all the time: https://www.hl.co.uk/watchlists?id=0000000060a0f67904db23ac10156ef3e5

 

I opened my account in 2018, and this is a snapshot of my HL stocks at the time on writing, showing the different companies on which I have invested since:

 

As you can see, I have bought shares on Technology Companies that I use and love, like Microsoft, Apple, Cisco, Netapp, Cloudflare and even Splunk, which doesn't show on the screenshot. I have also invested in companies which I thought would be a hit, like AstraZeneca, Coinbase for crypto and online dating platforms such a Bumble and Match, as well as Uber and a Water company. Let's see, maybe one of these companies will make a hit in the next 2/3 years and their shares will sky rocket, that would be fab!

Microsoft shares

But coming back to reality, there are a few companies that have a very strong presence in the market and are here to stay, for good. And one of these companies is Microsoft (who doesn't use Microsoft Word??). In this article, I'm basically following the process of the shares in companies that give me the most dividends. Let's start then with Microsoft, I bought 2 shares from them back in 2019 spending £230 on them, and I've received since that time just under £5 in dividends... okay, not much at all, you might argue, but it is a lot better than if I would have just kept those £230 in the bank in a savings accounts. Not only I have received just under £5 benefits (taxable, of course), but if I decided now to sell these 2 shares I'll get a lot more than when I bought them, because their prices have almost double (this is called Capital gain). So yeah, I recommend you to start investing in Microsoft asap

 

 

 

Apple shares

As you can see in the table below, my Apple shares don't look that good. I bought 4 shares from the company (silly me, in two different transactions, so I was charged £12 twice by HL), just at the end of last year, and there has not been enough time for the shares to steadily grow, like they will do, because Apple is another company who is gonna stay on this planet for a long time. Therefore, the advise here is start investing in reputable companies like Microsoft and Apple early! If I would have bought my Apple shares earlier, and not just a few months ago, they will be way more valuable now

 

Netapp shares

Of course, quite the opposite can happens, if given the fact that absolutely everything is possible, it could be that your shares will never grow because the company that you bet on is not doing well. That seems to be the case with my Netapp share, a technology company of storage that we heavily used at work, and in spite of being one of the oldest shares that I bought (back in 2018) it is actually given me a loss: nowadays their shares are cheaper than we I bought them!

 

Cisco shares

And the final and fourth pattern of behaviour that I want to share with you are my Cisco shares. They have not improved much since I bought them back in 2018, but I decided recently to buy even more! So I got a total of 5 shares in Cisco, will the company grow as expected? Is SD-Wan going to have an impact on the networks of nowadays, replacing all VPNs, as forecasted? Is Cisco going to eat the market left by Huwaei after this company has been kicked out in some countries? Time will tell, only time can tell, but for the moment at least they are giving me dividends, better than if I have my money idle on a Savings account

 

A bit of theory about the Stock Market

The Stock Market, like everything, is moved by the force of supply-demand. Some shares could be listed 149p-150p (to sell-to buy, meaning they can be bought for 149p and sold at 150p) and when the market is in equilibrium, these shares are sold and sell in a steady flow. However, when the demand is higher than supply the "market makers" need to balance their books, and this is when shares rise or fall. To buy/sell shares in the London Stock Exchange (LSE) you have to do it through a stoke-broker, which can be a retail (private-client brokers like HL, for investors) or a corporate broker, acting on behalf of a determine company. Some brokers may charge you even when you're not trading on their account through a "quarterly inactivity change", with the justification that this fee covers the distribution of dividends and issuing statements, so shop around! and don't choose HL just because I did it. You can check the Broker's directory of LSE here: https://www.londonstockexchange.com/personal-investing/member-firm-broker-directory?services=EXECUTION

About half of UK investors have accounts in more than one broker

Partnership; they present tow big problems: unlimited liability (let's say you and I have a 50% partnership of a company. If our company goes bust, the bank will go to get its money from the company, and if it can't it will go after each of the partners, and if I declare myself bankrupted, then the bank will go after you full on; even though you only own 50% of the benefits of the company your are responsible for 100% of its debts) and continuity (let's say I want to leave the partnership and sell my 50%, if you can't buy my part of there is no buyer for it, most likely the company will have to be dissolve so that I can get my 50%)

Limited liability; this fixed the problem of the partnership, by creating a legal third entity called "company" that is responsible of the debts. This is how nowadays most companies work: if they go bust, the banks and creditors cannot ask the owners of the company for their possessions, hence the extensive credit checks that the banks do before lending money to a company. To avoid these checks and get better investments, we decided to divide the company in portions or shares and put them for sale.

Stocks and shares; probably in purpose, these two terms are confusing and often use interchangeably, and while in the UK shares are equities in a company (equity = ownership of assets), in the US they call that 'stock'.

Compounding; is ploughing back the income received and then getting a return on the accumulated ploughed-back money as well as the original capital

Execution-only; also called dealing-only service is when you instruct the broker to buy shares on your behalf without them offering any advice, pretty much what I've been doing so far, you take all the risk, and their only commission is that of executing your order, in case of HL a £12 charge. There are other advisory services that you can arrange with a broker, an they may give you 'hot tips' to invest, but this might not be investing but speculating instead = gambling

Beneficial owner; when you buy shares through a broker you become the "beneficial owner" of the shares (the one who will receive the dividends) but the "registered owner" of the shares is the broker itself. Of course, if you're not happy with their quarterly charges, you can move your shares to another broker: https://www.fool.com/the-ascent/buying-stocks/how-to-transfer-stock-between-brokers/ 

OEICs (pronounced 'okis') are open-ended investment companies that issues shares rather than a trust, which issues units. OEICs have a single price for both buyers and sellers, and becuase their price is based in the underlining assets and not based on the supply and demand of its shares (as with investments trusts, which by the way are also called closed-end funds)

ETFs; Exchange Traded Funds are group of indexed companies and its shares; they are use to get exposure to a particular market index or sector. For example, the FTSE 100 comprises the best 100 companies in UK, the S&P 500 index in the US market or the EuroStoxx 50 in Europe. Useful website for ETFs are https://www.trustnet.com/ and https://www.ishares.com/uk/individual/en/products/251786/

Ordinary Shares; with them you own a piece of the company, and can influence it if you have many by voting in meetings, etc. The directors of the company are under no obligation to give you any money back regarding your investment, and if they can they will give dividends to the shareholders. If the company goes well, two things happens: you receive dividends and the value of the shares that you have increases

Funds could be explained as shares within a share; let's say you have £100 to invest, and me too, and 18 other people also have £100 to invest, we can then put all of our money together in a fund to we have a large amount to invest (20 people x £100 each = £2,000 available fund to invest). A Fund Management Group is then being created, and we split this fund in "unit trusts" which then function like ordinary shares that you can sell/buy within the fund. The companies holding the funds might invest 80% of their assets in shares, but others may decide to invest in properties, bonds or other things. Unit Trusts should be viewed as a medium to long-term investment, given the cost involved in running them, specially the 'actively managed fund', where high charges and commissions may be involved and funds complication or promoted with interest, when the Fund Management Group has several funds to manage, to that respect https://citywire.co.uk/ tracks the performances of individual Fund Managers rather than funds

With-profits policies (!); sort of shares issued by insurance companies, but it is not advisable to buy them due to its utterly opaque returns and lack of transparency

Bonds; similar to shares but with a lower rate of return because they have some safeguards that makes them less risky (is the company goes in liquidation, bonds are paid long before shares are attempted to be paid). They can be a good investment for private investors (like you and I) to hold, and they are issue with an expiration date (called maturity date). They are many types of bonds, and often they are collectively known as fixed-interest securities

  • Corporate bonds; they are much safer than investing in shares, but riskier than gilts. The most secure type of bond is called a debenture, secured by either a fixed or a floating charge against the firm's assets
  • Eurobonds; they got nothing to do with Europe, these are anonynmous bonds that countries create with the currency of other countries, for example UK can create Eurobonds in US dollars, France can create them in pounds, etc

Insurance company bonds; with them let's say to decide to invest a lump sum of £1,000 for a period of 5 years, and in return they'll give you a fixed rate of interest. If you don't hold to maturity and try to cash early, you probably will suffer a penalty

  • Guaranteed income bonds (GIBs) pay a regular income net of basic rate income tax once a year, or monthly
  • Growth bonds, the interest accumulates until the maturity date of the bond
  • Stock-market linked bonds; they could be problematic and ensure you read the fine print before investing, these bonds go up if the market goes up, but can go down exponentially if the market goes down, so if the market goes down 1% beyond a barrier, your capital value goes down by 2%
  • Hedge funds; just for the rich, as you need to be net worth at least £600,00 and be prepare to invest hundred of thousands to be able to invest in these type of funds

Gilts; most of the time the UK Government does not raise enough money through taxes to cover it expenditure, in these years it makes up a large part of the difference by selling bonds which are called "gilts". The risk of these bonds is very low (it is very unlikely the UK Government will go into 'liquidation') but the drawback is that you have to keep the bond for many years in order for them to mature. You'll buy gilts through https://www.computershare.com/uk/Pages/Gilts.aspx, which represent the UK Debt Management office (www.dmo.gov.uk). Having said that, you can buy or sell gilts through brokers in the same fashion as with shares. Gilts usually pay coupons twice a year

Private Equity; is defined as a medium-to-long term finance provided in return for an equity stake in companies

Overseas shares; my shares with Microsoft are overseas, so we have to watch out for the "custodian fees" which may be high given the fact the Stock Change holding your shares is abroad. Consider that some shareholder rights might not be protected in countries other than UK

Derivates; a derivate is an asset whose performance in based (derived from) the behaviour of the value of an underlying asset, commonly a commodity, e.g. tea, pork bellies, shares, bonds, currencies, interest rates, etc. Derivates are contracts which give the rights/obligation to buy or sell quantities of the underlying assets, and they have existed for hundred of years, for example in the Middle Ages contracts were traded in secondary markets for the price of the wheat (to warranty the price) long before the harvest period

  • Options; they are contracts giving the right (not the obligation) to one party of buy/sell a financial instrument, commodity or some underlying assets at a given price at or before a specific date. One option example could be the right to buy a piece of land for £10k before such and such date, and the company with the option may exercise this right if, let's say, that piece of land value decreased (or increased)
  • Share option; an example for this is the right to purchase x amounts of shares at a specific price at some time in the future, if the shares at that time go up you may exercise this option and buy them at the price it was agreed. Call Options are the number of options that you might have, and you may choose to trade options to reduce risk and eventual losses, but hey this thing of trading options is pretty much for professionals
  • Futures; they are contract between 2 parties to undertake a transaction at an agreed price on a specific future date; in contrast to buying options, which give you the choice to walk away from the deal, with futures you are committed and are unable to back away, an example for this could be that you agree to buy 1,000 shares for X company at x fixed price in exactly 3 months time...you're hoping that their shares will go up at that time so you buy them for a cheaper price and cash a capital gain that way, if not...oh dear. The risk invovle in stock futures is very great
  • Spread betting: another crazy thing that I personally don't recommend: you bet on the market like saying I per £10 per share that this company stock will down from x price, and if the company goes down 30p from your betted price, you gain £10 x 30 = £300, but if they go up by 40p, you lose more than you bet, avoid!
  • Contracts for difference; CFDs are similar to spread betting but without a settlement date, so in theory your betting can continue until you choose to close it... or, of course, until it is closed to you because you failed out or margin, meaning that your losses could be even greater than when doing spread betting
  • Warrants; the are similar to options, by which you have the right (but no the obligation) to buy or sell shares at specific prices, let's say you buy this right from a company to buy 1,000 of its shares within 5 years at the price of £1 each; if during that time the company's share rise to £1.50, you can exercise your right and buy them at £1, as agreed by the warrant, but sell them at £1.50, making a good profit there

Company Analysis

Before investing in any company you should run some analysis on it first, otherwise what you would be doing is speculations (betting), just putting money into the shares of a company without knowing nothing about it is bad, bad practise. The financial performance of the company is measure by Quantitative data as well as Qualitative elements. All company accounts should be clear to read and understand, if they are not that probably means that they are hiding something, so avoid investing when clarity is not provided. It is vital that you gain confidence in interpreting the essential financial data. UK Companies are required by law to publish a set of accounts annually, you can get them from here: https://www.gov.uk/government/organisations/companies-house

The law required the following information to be provided:

  1. A director's report, which is required by law. A chairman statement is not required by law, but most companies do it
  2. A profit and loss account, also called income statement, this is a great indicator of health because it shows whether the sales revenue was greater than the running cost of the company (basically, it tells you the turnover)
  3. A balance sheet, that should include a cash flow statement as well as a listing of all the assets
  4. An auditor's report, to determine that the company financial reports are not misleading
  5. Notes to the account

If I was to tell you that company A has a profit of £10 million and company B a profit of £20 million, you'll automatically assume that company B is better than A, right?... .wrong... maybe Company B has got more net assets than the other company. To put these reports into perspective, the following financial metrics are in use:

Price-earning ratio; abbreviated as the PE ratio, this is the current market price of share / last year's earning per share, so if a company's share are £10 each and last year earning per share was £1, its PE ratio will be 10/1 = 1 . This value is "historic", so people also use the "prospective PE ratio" where you divide the value of the current share price per the expected earnings per share in the next year

Dividend yield; this is the percentage  of dividing the following = [Dividend per share (pence) / Current share price (pence) x 100 ], so if a dividend per share was 50 pence and each share cost £1.20, the dividend yield will be 50p /120p x 100 = 41.6% ;dividend yields are important because they are actually the return you are receiving from a company, the consensus is that the lower the dividend yield the better, meaning that the company is growing. Shares offering very high yields often indicate that the dividend will fail as the company heads into difficulties

Market Capitalisation; this indicator is useful for comparing the size of companies, and is the number of shares that have been issued multiplied by the market price

Net asset value (NAV); total number of assets of the company minus all its liabilities, this value is what is left for shareholders in case the company gets liquidated

Profit margins; basically there are the gross profit / sales x 100, but there are different profit margins to consider, operating, pre-tax, etc, therefore this piece of information by itself is not an indication of how the company is doing

Return on capital employed (ROCE); is the percentage that measures the return per pound invested in assets within the business, showing how successful a company is at investing the money it takes from investors and lenders in real assets. If ROCE is below 26% is likely the returns are not good

EBITDA; stands for Earnings before Interest, Taxation, Depreciation and Amortisation (is pronounced e-bit-dah), this term is not covered by any accounting standard so basically is all bullshit

Dividend Valuation Model; to value the power of a share, analyst do often estimate all the future dividends taking into account risk, inflation, impatience to consume, etc

The accounting trade use things like Goodwill, Fair value, exceptional items, revenue, stock (inventory), depreciation, capitalisation, off-balance sheet items, share stock options, etc. When analysing industries you should consider the rivalry of existing companies, the threat from substitutes, the industry evolution, technological change, learning, economic change, government and social changes

 TTRACK is a system that classifies companies resources into these categories. What makes any of these resources extraordinary is the demand, scarcity and appropriability

  1. Tangible, for example McDonald's always chooses the best location in busy highways
  2. Relationships
  3. Reputation, Coca-Cola has got a good brand and reputation
  4. Attitude, the culture of the organisation
  5. Capabilities, the company's ability to undertake a set of tasks
  6. Knowledge

Managing your Portfolio

Among other types, companies could be Private Limited Companies (Ltd) or Public Limited Companies (Plc), and the term "going public" means their shares will be available for the general public to buy. The grey market is the market where shares that do not yet exist are traded. The book goes by saying that if you are fortunate enough to make a living of capital gains from your investments, then Inland Revenue would be very interested in hearing about it, it is illegal to evade taxes, but it is legal to avoid them; these are the most common tax methods that the HMRC (Her Majesty's Revenue and Customs) office uses:

  • Stamp duty; a 0.5% charge of the value of share purchases, the government uses this tax purely to create income for them
  • Tax on dividends; when a company sends you a dividend, it has already deducted 10% for taxes
  • Capital Gains Tax; if you sell and asset for more than it cost, then you may be liable for Capital Gain Taxes CGT
  • Interest-bearing instruments
  • Inheritance tax

Individual Savings Accounts (ISA) should not be viewed as investments in themselves, they are tax shelters that protect your investment from income tax and CGT, there are to taxes to pay on investments held in a ISA

Personal Pensions; you are permitted to start receiving the pension after the age of 50, and you are compelled to do so at the age of 75

Indexes; the best way to reduce risk is to investigate what you are buying into, and obviously diversify

  • FSTE 100; the Fosstie 100 is based on the 100 largest companies (generally over £2 billion market capitalisation; this index value changes every 15 seconds and is closely watched by investors
  • Dow Jones Industrial Average; index for the USA
  • Standard & Poor SP500, also USA
  • NASDAQ 100, for the Japanese market
  • Nikkei 225 index for France
  • CAX-40 for Hong Kong
  • DAX Index for Germany
  • FTSE Eurotop 500, for Europe

 

Great links to watch out in regular basis:

See the stock index data at a glance: https://www.slickcharts.com/ You need to have a presence in the 4 of them:

  1. S&P 500 (Standard & Poor) (USA)
  2. FTSE 100 (UK)
  3. CAC 40 (France)
  4. DAX (Germany)
  5. Nasdaq 100
  6. Dow Jones
  7. Nasdaq

My index investments

Regarding indexes, I've invested in both the FTSE 100 for UK (£200) and S&P 500 for US (£500)

 

 

 

Other investor brokers:

https://www.vanguardinvestor.co.uk/

https://www.charles-stanley.co.uk/

 

Links of interest

www.apcims.co.uk ;Association of Private Client Investment Managers and Stockbrokers (APCIMS)

A magazine about investors: https://www.investorschronicle.co.uk/ 

https://uk.advfn.com/ see share prices, with the "Level 2" display you see the prices along side the orders to buy or sell stocks, so you can check the activity and current supply & demand conditions

To keep with the news:

Websites for investment trusts:

Fixed Rate Bonds:

Stock Exchanges:

 

 

 

 

 

 

 

The Crypto Market

I started late, again. Back in May 2017, when the world was hit by the Wannacry virus, I saw on the news that they were asking for payment in bitcoins. I have always heard about that crypto currency, but it was then when something lighted on my mind and I thought: "Oh dear, if these criminals are asking to be paid in crypto, that's probably more valuable than the pounds that I work for and that are kept in the bank. I shall go and buy some bitcoin"

 

 https://uk.investing.com/analysis/cryptocurrency

 https://www.investorschronicle.co.uk/ideas/2021/05/11/how-your-crypto-gains-are-taxed/

 https://blog.coinjar.com/crypto-tax-uk-in-2021-everything-you-need-to-know/

 

References

The Financial Times Guide to Investment, Glen Arnold (2004 edition); https://www.goodreads.com/book/show/654683.The_Financial_Times_Guide_to_Investing 

Stock Market hours, when is the best time of day to trade shares?  https://www.cityindex.co.uk/market-analysis/stock-market-hours/

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