Finding stocks to invest in has never been easier, in some ways. There’s a wealth of information available on the internet right now on this subject. Thanks to improving technology, virtually anyone can put out an opinion. But just because you can do something easily, doesn’t mean it’s the right thing to do. When trying to find the best UK stocks to invest in, blindly following the crowd isn’t always the best option. And investing just because your account gives you discounted fees or high leverage shouldn’t be your main driver.
So what’s really important when looking to make a worthwhile investment? Below are some of the points I’d suggest looking at, drawn from lessons I’ve learnt over the years.
Take Buffett’s advice
Find and buy stocks that you’re happy to hold for your whole life (if needed). Now, I’m not saying you should never sell a stock. But do buy a stock with the mindset that you could hold it forever. This should encourage you to ignore risky ideas, like penny stocks that might explode higher but are more likely to be duds. It could also make you much more aware of the dangers of leverage, which can force you to exit positions prematurely.Â
This is a similar philosophy to that of Warren Buffett. He’s been quoted as saying that “our favourite holding period of a stock is forever”. Given the incredible success he’s experienced over many decades of investing, I’d take his advice.
Check for Covid-19-resilience and diversificationÂ
Another point on my checklist when looking for the best UK stocks simply reads ‘Covid-19’. The elaboration is that you really need to have a handle on how well a business has coped during the pandemic. With a rising number of cases in the UK, we could be in for a serious second wave. So it’s important to look at the financial soundness of any firm you invest in. Is it heavily retail-focused? Does it depend on physical locations? Are the goods or services offered seen as a necessity? These are all good questions to think about.
A final point on the checklist is looking at how the stock works with your current portfolio. You may find six top UK stocks you want to buy, but if the firms all operate in the same sector, it’s worth rethinking. Check how much the stock helps your diversification overall. Buying a top UK stock that runs differently to most of your existing holdings will help not only via its performance, but also by diversifying your other stocks.Â
For example, you could buy a domestic-focused firm. If your other stocks all traded internationally, then the domestic firm is a nice play on a potential Brexit deal. Alternatively, if things don’t go well, you’re protected somewhat from the international (excluding the UK) exposure of your existing portfolio. Â
Finding the top UK stocks
The above points are all worth considering, and many will be personal to you. Everyone’s portfolio is different, meaning there isn’t one top UK stock that fits for everyone. Some specific stocks I like (to get you thinking) can be read about here.