The Motley Fool crew go back to basics this week to explain how to buy your first share. Where do you do it? How do you do it? What does it cost? And do you need to wear special red braces and shout “Buy, Buy, Buy!” down a telephone to make the trade? (Sneak preview: No!) Owain Bennallack gets the answers to these questions and more from podcast veteran Stuart Watson and — making her debut appearance in the podcast studio — Jill Ralph, the boss of the Motley Fool UK.
The following is an unedited transcript of this Fool podcast:
Owain:
Hello, and welcome to Money Talk, the regular investing podcast from The Motley Fool. Iâm Owain Bennallack, and with me in the studio today we have battle-hardened Motley Fool veteran, Stuart Watson, and making her debut in the podcast studio today, Jill Ralph, the Managing Director of The Motley Fool here in the UK. Welcome to the studio, guys, especially you, Jill.
Jill:
Thank you. Itâs a pleasure to make my debut.
Stuart:
Itâs too good to be here again.
Owain:
Youâre a battle-hardened veteran.
Stuart:
Apparently, yeah.
Owain:
So Jill, is this what you expected the podcast room to look like, because I know youâve been over there being an MD, and youâve seen us come in and out, and occasionally sending you cheques for equipment. Did you think weâd have a jacuzzi in the corner?
Jill:
I was as surprised to see the jacuzzi as most people coming in here.
Owain:
Well, after the podcast, if it goes well, we will be taking a dip. Thatâs how we traditionally, we use the mini-fridge, and the butler, he only comes in on podcast days, so itâs quite parsimonious.
Jill:
Iâm not sure what Iâve signed up for here, Owain.
Owain:
Well, we are going to do something a bit different today. We are going to answer a genuine question from a Motley Fool service member, so often, we set sail to the wider frontiers; the wilder frontiers even, of the investing world here in the podcast room, but today weâre not even going to leave the port. Weâre going to stay in the training pool. Weâve got our water-wings on â am I going too far with this metaphor?
Jill:
I think youâre now in the deep end of the metaphor there.
Owain:
Nice. Well, we have to row back to the shallow end, because what Iâm trying to get to is that Graham, a member of our Share Advisor service, Graham has asked some back-to-basics questions about buying your first shares. Graham has sensibly decided to find out how to buy shares, before setting forth and actually buying some, and heâs asking, how do you do it? â and what does it cost? Whatâs the actual process of buying a share, and do you need to know a secret handshake? (He didnât actually ask about the secret handshake, but Iâve often wondered about it myself.) So thatâs what weâre going to do â it sounds good?
Stuart:
Sounds good.
Owain:
Obviously Stuart, as a battle-hardened veteran, this is going to be very familiar territory for him, but I think it is worth, we all have to start somewhere, so itâs great that Graham asked this question. Hopefully, this will be very useful for a lot of people. But before we even get into the secrets, perhaps the secret handshake, weâll go even further back-to-basics, and Jill, Iâm wondering, who should actually be thinking about buying shares? â I mean, someone who perhaps is in debt, who hasnât got a job, who hasnât done any research whatsoever, possibly theyâre not ideal candidates for share buying?
Jill:
Well, Iâd say that my Motley Fool answer, with my jester cap on, is that everyone should really be thinking about investing in shares, and Graham, if youâre listening, and for everyone out there, if you are indeed thinking about it, great â thatâs a great first step, but the other Motley Fool answer, or response, would be, to be Foolish, you donât want to be investing in shares until youâve paid down those high-interest debts â Iâm talking about credit cards. I donât carry a credit card, so I donât actually know what the going rate is right now, but I imagine itâs astronomical.
Owain:
Yeah, I think, if you actually donât pay it off every month, which I do, gold star me, then itâs like 18%. If the stock marketâs annual return is about 10% on average, then clearly it doesnât make any sense to be paying 18% in the expectation of 10%.
Jill:
Absolutely. So if youâve paid down your credit cards, or youâre like me, you donât carry them, the next thing you want to tick off your list is, you donât want to have no cash. You want to be saving. You want to be contributing either to your pension, or into your savings account, and earning not 2% a month, or whatever the interest rate is right now. After youâve ticked through those, if you feel like youâve got some savings under your belt, youâre contributing to that regularly, youâve paid off your debts, then I think at that point you can start looking at maybe buying your first share.
Owain:
And just on the cash points, I think the reason that we have to emphasise that is because, even though cash returns are terrible at the moment, Stuart, you donât want to be forced to go to the market and sell your share, because your kitchen boiler has blown.
Stuart:
No, absolutely. Most people will say, you probably want about six months or so, in terms of your salary. So if you earn say ÂŁ2,000 per month after tax, then ÂŁ10 – ÂŁ12,000, and thatâs to guide you. If you were in a slightly riskier job, if youâre freelancing, for example, you might want a bit more, but thatâs generally a good guide to start with.
Owain:
OK. So letâs say that Iâve got a decent income, Iâm contributing to a company pension, and Iâve even [?? 4.20] away some cash for a rainy day, when the roof leaks, Iâm now ready and very excited about investing in individual shares. Stuart, how do I even get started? What are the ways that I could consider going about this?
Stuart:
Well, thereâs two main ways, I suppose. The old traditional view is, you have your own City broker, so the guy in the bowler hat and the pinstripes, and certainly, in the days before I became battle-hardened, when I started dealing in shares, you had to phone the broker up, and they would charge you, I think it was a minimum of ÂŁ25, and it was sort of one-and-a-half percent of everything that you bought.
Owain:
And thatâs the clichĂ© of Gordon Gekko on the phone, screaming, âBuy Consolidated Oil!â?
Stuart:
Yeah, very much so. Sometimes you even get these brokers will tell you what to buy and what to sell as well. But these days, where we recommend most people start is sort of much more simple, online dealing accounts. So here the charges are a lot less, and then you can log on, you can make your own decisions. You can see all the information about the shares, and buy shares that way.
Owain:
And the key advantage is also that theyâre much cheaper?
Stuart:
They are, yes.Â
Owain:
Before we go into the costs, and those sorts of elements, I think one thing that we need to distinguish, which seems quite strange for us, because we deal in this sort of lingo every day, is the difference between a broker, an online broker, as youâre suggesting, someone who buys shares, and an ISA and a SIPP, because people think that these things are, they donât understand the relationship, I think, between those different vehicles, terms, the structures in the market. A simple answer sounds complicated here, Stuart, so bail me out, and explain the difference between those different things.
Stuart:
Yeah, sure. Basically, theyâre all sort of broking accounts, if you like, but an ordinary dealing account is where you simply put the money in, and thereâs no special tax advantages there. But then you can also look at ISAs, individual savings accounts, and as well as the cash ISAs that a lot of people have got, you can also get a share ISA as well. So that will generally protect you from capital gains tax, and if youâre a higher-rate tax payer, it could help protect you from some income tax on the dividends as well. Something like a SIPP takes that a step further, so self-invested personal pension, so obviously, with any pension, the government seems to be changing the rules virtually every year. You canât take your money out until youâre at least 55, so itâs more restrictive there.Â
Owain:
And the key thing is is that these are different flavours of, they call them wrappers sometimes, donât they? â the lingo?
Stuart:
Yes, sort of almost a tax protection wrapper, so the basic account youâve got within them is the same, but itâs just the tax wrapper on the outside, if you like.
Owain:
And you could easily go to the same provider, for instance, Iâve got a particular provider, and I have a certain amount of money there which is in my online share dealing account, and then I have my ISA with them, which is a shares ISA, as you say. It sits on the same front screen. Itâs just a different button I press, so a different link, and then I go within to my share ISA. The money sits in there until I take it out, in which case I canât put it back in, but otherwise it operates in exactly the same way.
Stuart:
Yeah, sure, you could do that, or some people will look at the different charges on these accounts, so you might find one provider, one broker, whoâs cheaper for ISAs than it is for dealing accounts, so you might split your money that way. Itâs totally up t you, which route you decide to go down.
Owain:
OK, well again we will get to that in a moment, so keep listening, listeners, Graham â keep online. Letâs assume, then, that youâre ready to invest, and youâve done your research. Youâve looked at some of those different aspects of the accounts what you plan to open. What are the main steps to getting to the point where you can own shares in a company that you like? What do you need to do, Jill?
Jill:
So I think weâve boiled it down to about five steps, five key steps. First and foremost, once youâve chosen your broker, there are lots of places you can go online, and you can research the costs of brokers, the offers. For me, a lot of it is choosing a platform online thatâs friendly, and easy to understand and use. So once youâve opened your account, youâve chosen it, and youâve opened it, you then have to connect it to your bank account, so that you can fund your account. You can go lump sum, you can go with regular contributions into your account â itâs really whatever is comfortable for you, the user. You will have already done this, because youâve done your research on what brokerage youâve chosen, but keep an eye on the cost of dealing, because youâre going to pay to buy your share, youâre going to pay to sell your share, so you want to keep that in mind, when you think about the whole cost of becoming a share investor. Then youâre actually going to look online in your brokerage, and see, how do I actually execute the trade? â is it a couple of clicks of the mouse? â is it twenty? I know Stuartâs going to go into a little more detail on how to do that in just a few moments. Then, once youâve done all that, youâve bought your first share, I think you will quickly see how fun it is to actually be invested in shares. You will probably soon own more than one share. Then comes that fifth and final challenge, or to me itâs a fun one, which is really managing all of the different shares in your brokerage account.
Owain:
Cool, well, that sounds my idea of fun.Â
Jill:
Weâre nerds!
Owain:
It really is. Stage five is the stage to aspire to, because thatâs when you log in. You see your various shares have gone up and down, and you feel much more confident, I think, about your financial future. But we have to get there, so letâs start at the top. We canât give any definitive answers in this podcast. Itâs a short podcast, and there are a lot of wrinkles in terms of which account is best for what. But Stuart, what are the main things to look for, when youâre deciding where to open your account? Jillâs mentioned friendliness, which is kind of hard to quantify, but is, I think, very important.
Stuart:
Yeah, customer service is obviously, itâs tough to know from the outside until you actually start dealing with these companies, how good the customer service is. I suppose I would take out five things to look at in particular. If you go to each companyâs website, youâll see a long list of charges in terms of additions and offers, but thereâs five things that Iâd probably concentrate on. So first up, youâve got your basic trading fees, so typically this will be between ÂŁ10 – ÂŁ12 for buying and selling a share. Some brokers will offer a discount if you trade quite frequently, but weâre probably talking about a hundred trades a year, or something like that, which is not something youâre probably going to be doing as a beginner, or hopefully not. Then next, I would look at what happens when you re-invest dividends, so a few brokers offer cheap schemes, which might only charge you, say, ÂŁ1.50, ÂŁ2, when you get a small dividend, and you just want to re-invest that small sum, which might only be, say, ÂŁ20 – ÂŁ30. So if thatâs something you think you might be doing, you might need a bit of thought beforehand to decide that, then thatâs worth looking at. Next up, Iâd look at ISA fees, so some companies charge quarterly or a half-yearly charge for running an ISA. Typically, it doesnât matter how many years of ISAs youâve got, so if youâve got ten years of ISAs, youâll still only pay the one ISA fee, so thatâs quite a good thing. Weâre also seeing more and more in the way of inactivity fees these days, so if you donât trade for a quarter, you might have to pay an ongoing fee there. So if you donât think youâre going to be a frequent trader, watch out for that one. Then last of all, Iâd look at the exit fees, so if you do decide this brokerâs not right for you, most of them will charge you maybe a one-off fee, plus a fee per individual share you own. So if you own, say, ten different shares, you might pay ÂŁ20 times ten, so if youâve got quite a small portfolio, that can be quite substantial.Â
Owain:
Yeah, I guess itâs quite tricky, because even if you think that you could sell your shares, take the cash, and move to another broker, in the future you might have capital gains taxes youâd have to think about, or maybe you would have to take money out. If youâre moving an ISA, youâd transfer it, in fact, wouldnât you?
Stuart:
Yeah, youâd transfer it. You wouldnât actually sell the shares, or anything like that â youâd just transfer the managing of it to a new provider.
Owain:
Weâre probably getting beyond the basics, but you can also risk being out of the market, as well, canât you, if you move?
Stuart:
Yeah, thatâs true. There can be delays, like when you move an ordinary cash ISA, that can take a long time to do as well. But yes, that could be a problem.
Owain:
So basically, do your research, so hopefully you donât have to move. You donât want to suddenly discover that youâve signed up to a dud. I would personally say, look at some of the more trusted and bigger financial names. I know that weâre The Motley Fool, and we think you should do your own research, and not just go with the big boys, who donât always have your best interests at heart, in terms of, theyâre definitely trying to earn their shilling. But with the big, big names, you might not be getting the very best deal, but youâre not going to get a strange deal. There are some funny little brokers around that charge ÂŁ6. Some of them even arenât around two years later, so I would personally be a bit wary of them.Â
Jill:
I would absolutely choose to pay ÂŁ10 per trade, versus ÂŁ6 or ÂŁ7, where that brokerâs going to be out of business in a year or two, absolutely.
Owain:
OK, so Iâve got my account, and Iâve put some money in from my bank account. Iâm ready to invest. How much should I be investing, Jill, in my first share?
Jill:
Just as Stuart said, thereâs no real magic answer or number here. Itâs really about what youâre comfortable with, and whether, as we talked about before, whether youâre going to be adding money to your account regularly; whether youâre starting with a couple of thousand pounds, or a nice gift from a family member or a loved one. Again, each situation is unique. There are costs to keep in mind, and to pay attention to. Weâre Foolish investors, we donât recommend trading in and out, but as Stuart mentioned, the going rate is somewhere between ÂŁ10 to ÂŁ12 per buying or selling a share. There is also, here in the UK, thereâs stamp duty, which is 0.5%.Â
Owain:
Itâs the hated 0.5%.
Jill:
The hated 0.5%, and so you just want to keep that in mind. Doing the very quick maths, we tend to, with a ÂŁ10 to ÂŁ12 trading fee, and the stamp duty, youâre probably looking at wanting to buy, or to invest, about a ÂŁ1,000 per share per time.
Owain:
Minimum.
Jill:
Minimum, in order to keep your costs. We Foolishly tend to recommend, I think, around 1.5 or 2%.
Owain:
Yeah, I think that, if youâre very committed to what youâre doing, and youâre absolutely adamant that itâs the start of your journey, and youâre going to hold your shares for a long time, one can start and save ÂŁ500, but you are immediately 2, 3% in the hole â thatâs the problem with it.
Jill:
Yes, and I would say, one of the founders here at The Motley Fool, David Gardner, when I first started investing (this is back in the US, not here in the UK, so it was in dollars), but he recommended for me that I take my lump sum that I was starting with, and divide it in four. It was still Foolish for me, in terms of it wasnât too expensive, and then I essentially set a reminder on my calendar for once a quarter, and thatâs when I would do my research, find my shares, and invest 25% of the money that I had saved. That has changed for me over time, as Iâve become a slightly more sophisticated investor, but it was a really great way to start. You take the emotion out of it that way, too.
Owain:
OK, thatâs good stuff. So Stuart, weâve got our account. We have got at least ÂŁ1,000, letâs say, sitting in there, perhaps ÂŁ4,000. Weâre going to actually buy our first four shares by the Jill Ralph rule. Weâre interested to hear, in the very first share, the very first ÂŁ1,000 â now, this is where the secret handshake comes in, isnât it?
Stuart:
I can confirm, there is no secret handshake.
Owain:
Darn! What can I blame my lack of success in investing on, then?
Stuart:
I can think of many reasons, but we wonât go into that here.Â
Owain:
Youâve got your ÂŁ1,000 â how do you buy a share?
Stuart:
So you log onto the online dealing account, if that whatâs youâve set up. Say you want to buy shares in Vodafone, itâs a big UK company. You go to the dealing screen, and you could either enter the name, Vodafone, or the ticker code, so each companyâs got normally a three or four-letter code, so Vodafoneâs name, thatâs VOD. Normally, you can enter the company name â thatâs no problem, itâll come up. Usually, itâll just come up with, you mean to buy Vodafone? â and a little description of the stock. Youâve got to a little bit careful here sometimes, because you might have, say, a foreign listing, or different classes of shares, so make sure youâre buying the right one. So if youâre not sure, go away and maybe go back and speak to the broker, and make sure you are buying the right one, if thereâs any doubt there. So also, before you start as well, say youâve got a ÂŁ1,000, you decide, look at the price, Vodafone â say itâs about ÂŁ2 per share, so youâre probably looking at buying 500 shares there, if my maths is correct â I think thatâs right.
Owain:
I think it is.
Stuart:
So when you actually put in, you would say, right â I want to buy 500 shares, or you can sometimes put in, I want to buy ÂŁ1,000-worth. Most brokers will give the option. Then this is when youâll be offered the price, so it will come up, and itâll say, we can offer you buying 500 shares at say ÂŁ2.00.
Owain:
And effectively, at that point, this is where your heart starts to race, when you do it for the first time, and I do remember, because theyâve gone to the market, and thatâs effectively a quote, isnât it? â and thereâs a little time thing that ticks down, because obviously your broker canât say, we will sell you 500 shares for ÂŁ2, and then Vodafone shares go up 50p in the next two hours, and theyâll just still sit around on that screen for two hours. So youâve got a small window, havenât you?
Stuart:
Yeah, and the clock counts down as well â itâs all very Robocop, youâve got fifteen seconds to comply, sort of thing. So yes, you need to do your homework before you go in there, and make a decision, so make sure youâre happy with the price. I wouldnât panic and feel rushed there, because if the fifteen seconds expires, then the offer, you just go away, and you come back again.
Owain:
You donât spend any money to get that offer, do you?
Stuart:
No, thatâs right. Another thing Iâd probably mention here, thereâs probably two ways you can buy the shares there. So you can either go at best, so you ask the broker to get the best price on offer, or you can set whatâs called a limit order. So you could say, I want to buy Vodafone shares, but I only want to pay, say, ÂŁ1.98, rather than ÂŁ2. So your broker will go away, and if he canât actually get that price, then you wonât complete the deal.
Owain:
Thatâs usually, you said, for the day, or something, or thirty days.
Stuart:
Yeah, often it will expire at the end of that trading day.
Owain:
I think one of the reasons itâs good to figure out how many shares youâre likely to get for your ÂŁ1,000 is, in that fifteen-second period, you get a sort of a sanity check, because you mentioned earlier buying the wrong shares, and I think everyone who has bought a few shares in their life has done this. Youâre both looking at me like youâve never done it before! Iâve absolutely put in a ticker, which was very similar to the company that I wanted to buy, and I think I ended up buying the preference shares in the same company, or some different class of shares, which I absolutely didnât want. So if you know that youâre going to be, say you were going for the ÂŁ1,000 route, and you say, I want to invest ÂŁ1,000, it will come back on that screen and say, right, well, thatâs going to cost you ÂŁ12, say, for the dealing fee; half a percent for stamp duty. That means, we subtract those off your ÂŁ1,000, youâre going to get, say, 496 Vodafone shares, so you can compare those two numbers. Similarly, if youâve said, I want 400 shares, say, youâre going to know, in our hypothetical case, it will cost about ÂŁ800, plus the dealing fees. So again, youâre going to see in that fifteen seconds, a summary of your trade, and that is a good â read the small print, I would say; read through, and just make sure youâre buying the right thing.
Stuart:
A lot of these brokers now, they also have dummy trading, where you can actually go online, and you can put in a virtual trade, if you like, and you can see how the process goes, and you can get comfortable with it before you actually go in, and risk your money for the first time.
Owain:
Really?
Jill:
Owain, just so youâre not hanging out there by yourself, I have indeed bought the wrong shares before, in my SIPP. It was one slight discrepancy between where the dot was, before or after the x, and there it was â I bought the wrong share. I still hold them â I just decided Iâd leave them in there, and see what happens.
Owain:
That would be great, if those were the shares that made your fortune, from serendipity. OK, so Iâve gone through that stage. I have bought my shares. Iâm now a shareholder. Iâm now invested.
Jill:
I know, we need a soundmaker to whizz around.
Owain:
We do, because, just as a slight aside, I think people feel sometimes that thereâs a big economy going on out there. Theyâve got nothing to do with it, apart from their job. The fat cats are getting rich, or whatever. If you buy some shares, youâre part of the elite. You own a stake in the economy. If the economy goes up, if companies do well, youâre invested in that. Youâre part of the capitalist merry-go-round. Iâm not using words that make capitalism sound great, but Iâm trying to say this in praise of capitalism. Itâs not a system which is inaccessible to you. If you come to it with some money, you can be part of the growth of the economy.
Jill:
Absolutely, and itâs incredibly exciting, once you are a shareholder, to experience those companies in your day-to-day life. You see Tesco differently, when youâre going into the shop, or Greggs. Thereâs so many different shares out there â itâs really exciting.
Owain:
A great way to get that is to come on holiday with me, maybe if you were my girlfriend. I donât mean you, Jill! â I mean, my actual girlfriend once just screamed at me to shut up, because I have this thing where I always say, I own that company. I donât say, I own shares in that company. If you go through Heathrow Terminal 5, then from getting off the tube to getting on your easyJet flight (thatâs another stock market-listed company), you will pass about maybe ten companies which you can actually go and invest in. So your real life starts to animate the stock market, and vice-versa. OK, so I have my shares; Iâm a shareholder, Iâm excited. Now I guess, Stuart, I go to meet Warren Buffett. We hang out at the share investorsâ club, eat a couple of hamburgers â is that what happens next?
Stuart:
You could do that, but generally, the next step will be, youâll get some sort of confirmation of what youâve actually done. You generally wonât get a share certificate, weâll come onto that in a moment, but youâll get a contract note, which will tell you exactly what youâve done, how much money youâve paid, and itâs pretty important to keep this, because you might need this for tax purposes later on, so always print off a hard copy of that, and file it away. Youâre making faces there, Owain â itâs something youâve forgotten to do, then?
Owain:
I rely probably erroneously on my broker keeping the records, but yeah, they effectively email you within their existing message system. Some of them email you externally.
Stuart:
Itâs probably quite a good point to talk about nominee and share certificates here, so the reason all these online brokers are so cheap compared to the normal brokers is what they call, they hold your shares in a nominee account, so effectively all your shares are mingled in with everyone elseâs, all their other customers, so your Vodafone shares will be with someone elseâs. Now, some people feel a little bit uncomfortable about this, that they donât actually have the paper certificate in their hand, and they donât own it directly, and itâs pretty tricky. If youâre a small shareholder, and youâre just getting started, I think this is a reasonable way to go. Youâve got things like the Financial Services Compensation Scheme, and in the same way it protects bank and building society accounts, it protects investments, although the limit is a bit lower â itâs only ÂŁ50,000. Iâm just trying to think of a broker, a sizeable broker, that has actually gone under, and investors lost money.
Owain:
Yeah, and theoretically the nominee account is ringfenced away from the companyâs finances, so there should be no way that they can … short of complete fraud.
Stuart:
Yeah, itâs very unusual. I canât think of one, where itâs been individual shareholders. The only one I can think is, MF Global in the US, but that was more sort of spread betting and futures. It was a more advanced sort of trading. Itâs something to bear in mind, if this is something that really worries you. Maybe speak to a few other people, and get comfortable with it.
Owain:
And just while weâre on the subject, if I wanted a share certificate, am I out of luck?
Stuart:
I think you can actually request that â probably it depends on your broker. This is probably something you need to think about, when youâre choosing the broker in the first place, I think, if this extra security is important to you.
Owain:
I think it would cost you money, as well.
Stuart:
It probably would cost you more money, and in dealing costs as well.
Owain:
And then you have to find somewhere safe to put your share certificate, because …
Stuart:
You frame it on the wall.
Owain:
Thereâs an existential problem perhaps with nominee accounts, but a share certificate can get accidentally thrown out in the recycling.
Stuart:
You can get a replacement, but then again that will cost you more money.
Owain:
So basically, youâve got your first share, then youâre going to, as Jill said, add some other shares. OK, Jill â itâs time to talk shares. Itâs time to suggest the sort of share, not a specific share, the short of share that would be ideal for a new investorâs first purchase.
Jill:
OK, so I will say, I personally, sitting opposite you two, who are definitely far more advanced investors than I am, I like to keep things incredibly simple, and I like to recommend that new investors also try to keep things incredibly simple. I like to understand, and I recommend that you invest in a company where you understand how it makes money. Iâve brought in a sample ticker for you â you will find this in your house, in your cupboards, in your refrigerator. It is a big company, itâs a huge company; itâs doing a ton of business here in the UK and the world. That means itâs slightly more stable. Youâre not going to see it going out of business tomorrow, after youâve invested in it today.Â
Owain:
Also, it means the shares are likely to be easier to trade, because itâs not going to be some obscure company where only two shares get sold a week, or something ridiculous like that.
Jill:
Absolutely. Youâll hear investors talk about liquidity â the bigger the company, usually the more liquid it is, which means that more shares are available for buying and selling on any given day. So a company I think, that Iâve looked at here in the UK, I am a shareholder â full disclosure; it is Unilever, and thatâs ticker ULVR. Again, look in your cupboard â you will see so many things that bear the Unilever brand. There are soaps and margarines, and this and that. Itâs everywhere, and like I said, it does a lot of business here in the UK, a lot of business around the world. It pays a dividend, which is a really great thing for all investors, but I think new investors like to see that particularly as well. I would say itâs a great starter share. Itâs easy to understand how that company makes its money.
Owain:
I agree; I own the shares. Do you own the shares, Stuart?
Stuart:
I donât, no.
Jill:
Stuart, come on â jump in!
Stuart:
Not yet, no. Iâm thinking about it, though.
Jill:
To bring Owainâs pun back, the water is just fine.
Owain:
I think itâs going to be Unilever shareholders only for the post-podcast drinks with the butler, and [?? 24.11].
Stuart:
Fair enough; OK.
Owain:
Stuart, weâve bought our first share. It was a great pick. Weâre not necessarily saying right now itâs a great pick, or that it isnât, but itâs definitely the sort of company that investors should look at first. What would be a good second share? Would you go and buy Unileverâs main rival?
Stuart:
Well, youâd probably want to look at a different industry, because you want to have diversification there, so if there was a reason why Unilever might be struggling, youâd want your other share to be holding up. So maybe you could look at, say, the oil industry, so one pick there might be Shell, so one of the biggest oil companies in the world. It pays a nice dividend, which I think is probably substantially higher than Unileverâs dividend, I think?
Owain:
I think itâs probably twice, if weâre comparing.
Jill:
Indeed, indeed.
Stuart:
But Shell, it covers the whole oil business, right down from the very basic exploration through to, piping that through to refineries, and even sells petrol to you in the forecourts. I know a lot of new investors, itâs probably a good point to go into this â they actually look at smaller companies, and particular sort of smaller resource stocks like oil and gas, and miners. I think thatâs probably something you donât want to look at for your first few years of investing. These companies, there are some great gains on offer, but theyâre very risky as well. A lot of them, you could lose 100% of your money, especially in times like this, where funding is a bit tricky, and these companies basically live hand-to-mouth, and they rely on getting fresh funds almost sort of quarterly.
Owain:
I totally agree. It probably sounds like weâre being patronising, but when I think of my own share investing career, itâs a good few years since I lost 100%, and I did lose a couple of 100%s early on. Something has changed â Iâm not saying Iâm Godâs gift to investing now, but clearly Iâm avoiding the biggest risk, because I do still buy small companies, but you become more able to understand what your risks and rewards are; maybe disentangle some of the hype.
Stuart:
Yeah, I think you need to get used to the stock market before you start getting a bit more adventurous, and just how share prices naturally move up and down. If you look at any share price chart, youâll see thereâs quite a lot of variation over a year, even though the business itself, something like Shell or Unilever, itâs pretty much the same. Itâs not unusual to see a share price go down 20, 30% in a year, when thereâs been no change at all in the business.
Owain:
Yeah, even with those big companies. I think theyâre good choices actually, Shell and Unilever, because Jill, going back to what we were saying about being invested in the economy, you kind of see potentially economic factors at work, because if oil prices go up, or thereâs a demand for energy, that will probably hurt Unilever, because it has to ship its food around more, the raw material prices might go up; but it might benefit Shell, and again if energy becomes cheaper, that could benefit you. So youâre starting to see the diversification in action, and an interaction with the economic news.
Jill:
Absolutely. I think investing in shares just gives you a new perspective on your money, but also on how the worldâs economies work.
Owain:
OK, so weâve started at the basics, but now weâre ending with the big picture, and I think thatâs a good place to leave it. Graham, I hope weâve answered your questions. If you have any other questions, like how to buy your third share (we havenât got onto that), itâs pretty much the same as buying your first, but look out for the diversification. But if you do have any other questions, email them along to us, and other than that, thank you, Stuart.
Stuart:
Thanks, Owain.
Owain:
Thank you, Jill.
Jill:
Thanks, Owain.
Owain:
And thanks everyone, for listening.
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