How To Come Up With Investing Ideas

Published in Investing on 15 May 2012

Our beginners' investing series turns its attention to the search for ideas.

Last time in this series on investing for beginners, we had a look at various investment strategies, and I concluded with the suggestion that beginners are best off starting with solid blue-chip shares with a "forever" investing horizon.

But we haven't looked yet at how we obtain the information we need and where we get our actual ideas from.

By that, I don't just mean where we get the raw data from, because if anything we have an overabundance of that these days. Click on this link for Tesco (LSE: TSCO), for example, and you'll see a number of tabs there.

Numbers everywhere

You'll see Fundamentals, with a summary of the past few years' profits, earnings per share, dividends and more. And there's a link to get further details of past results. There's another tab showing forecasts and, well, click around the other tabs and have a look for yourself.

And these days, most companies have their own websites with investor sections, where you can get copies of their full financial reports. They're usually in PDF format, and often go back up to five years.

But all together, that's a huge amount of information across the whole market, and your eyes are likely to bleed before you'll come up with ideas if you try to read too much of it. So how do we narrow it down?

Just look around you

One thing I like to do is take a look around me, at the products and services that occupy my life, and think about who produces them. Do you drink PG Tips tea, spread Colman's mustard on your roast beef, wash your clothes in Persil, clean the sink with Cif? Do you think they're good products with a long lifetime ahead of them?

Well, see if you can find out which companies make them and think about their long-term prospects -- and do it before you even take a look at any financial figures.

Do you wince when you get your gas and electric bills, cringe at the cost of mobile phone calls, and wonder where all the money is going? A good chunk of it is going into the pockets of shareholders, so check out the companies and see how profitable they are.

Talk about it

Getting other people's thoughts is a great help as well, and it's one of the greatest advances the internet has brought us -- but don't forget, idiots and geniuses have equal access to it! The Fool has discussion boards for most big UK companies, and sector boards for companies with no dedicated boards, so use them to ask questions and gauge opinions.

Another thing I like to do, and I've been doing it since the pre-internet days when I used to get my information from the weekend Financial Times, is check which companies are reporting each week and see if any of them grab me -- you can use the Fool's Week Ahead articles to keep up. That way, over the course of a year, I've at least had a quick glance at every company on the market.

Anyway, those are just a few ways to get some ideas -- please feel free to share any of your own approaches in the Comments section below.

Next time we'll make our first "purchase" for the Beginners Portfolio -- we won't be using real money, but we'll treat it exactly as if we were.

And if you haven't already checked those brands I listed above, would you be surprised to learn they're all Unilever (LSE: ULVR) products?

At last -- a special free report that introduces novices to shares! "What Every New Investor Needs To Know" and The Motley Fool are helping Britain invest. Better.

More in this series:

> Alan does not own any shares mentioned in this article.

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Comments

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rigbyf 15 May 2012 , 11:43am

I want to spend this years Isa allowance on a basket of carefully chosen shares. My previous years Isa's are all Unit and investment trusts. My Isa is with H&L and so get initial fee refunded on Unit trusts.
Is it cheaper to buy shares for my Isa or continue with unit trusts?
My first share is going to be Tesco, but how much should I buy considering my Isa allowance? Should I divide my allowance equally between shares and if so how many shares should I choose to maximise costs etc.
Any ideas would be most gratefully received. I am 47yrs old so do want a mixture of good yielding shares with growth potential.
Thank you

Fifi

F958B 15 May 2012 , 2:51pm

Fifi

I am not a fan of managed funds because they eat too much in charges - especially in markets which are basically chopping sideways for years on end (which we've endured since the late 1990's).

Take a wander over to the High-Yield and strategy forums. You'll get plenty of advice there.

http://boards.fool.co.uk/high-yield-share-strategies-51166.aspx

http://boards.fool.co.uk/high-yield-hyp-practical-51676.aspx

http://boards.fool.co.uk/investment-strategies-50090.aspx

You should ask yourself how long will you contribute to the ISA and will it be once per year or once per quarter?
For a relative novice to individual share selection, I'd recommend a drip-feeding approach (although some investors say "the time to buy is always now" - which I strongly disagree with).
You could be making perhaps four purchases per year over several years, to build up a good portfolio. If your dealing costs are low (say 1% comission or less), you may be able to make a purchase almost every month.
With these volatile markets - and with the volatilityb likely to last for several more years - periodic buying may manage to scoop some serious bargains.

sopavest 15 May 2012 , 3:01pm

Good suggestion, Alan.

Of the blue chip shares in my portfolio, almost all of them are companies whose services/products I use day in, day out. Perhaps unsurprisingly, these are the shares that cause me least concern and whose value I feel most confident about.

One exception to this rule is BAE (in which I own shares), but here, I can feel confident that a good % of my tax payments will end up in its coffers from time to time, some of which will be returned to me as dividend payments!

Roland

rigbyf 15 May 2012 , 3:13pm

Thanks for your replies. I intend to keep contributing the full allowance for my Isa for the next 10yrs. I am looking to buy all of my shares over the summer. Depending on the market. These shares will be long term holdings.

I have looked at the boards suggested by you and although I have found some of it helpful a lot of it quite frankly goes over my head.

I have today decided to buy 2k of tesco and 2k of BP. Other shares I am interested in are Vod, GKN. Unilever and maybe Aviva. The problem I have is that my Isa allowance only amounts to £11200 so have to be careful which I chose. Is £2k the right amount to spend on each share?
Any opinions or views would be gratefully looked at and of course, I will do my own research.
Thank you.

F958B 15 May 2012 , 3:46pm

Fifi (rigbyf)

With markets having almost doubled off the 2008/9 lows, and the uptrend having run for over three years (bull markets average 3-4 years), I think there's a significant chance that summer 2012 will be the high-water-mark for stockmarket prices for the next few years.

Be careful out there.....there's a significant chance that a bear market may be heading our way for 2013-14 and the situation needs careful monitoring. The topping process may already be underway, having possibly completed the first top of a multi-top pattern.

wpd88 15 May 2012 , 7:51pm

Hi Fifi
I too am with Hargreaves Lansdown - like you I started out with unit trusts - however having learnt more about costs I have switched to Investment Trusts such as Temple Bar TMPL and City of London CTY for UK diversified funds and Scottish Mortagage SMT and Murray International MYI for overseas. The savings on cost are significant and performance equal or better.
It's true HL charge 0.5% to hold Investment Trusts, ETFs, or Shares for that matter but this is capped a £3.75 per month (£45 per year)
As for individual shares I also trade in chunks of £2000 as with dealing costs of £11.95 this strikes me as a reasonable minimum.
I am still holding this years ISA allowance in cash as - like others - I suspect the market has further to fall.
Good luck with your summer share shopping!

jaizan 15 May 2012 , 8:06pm

1 Generally, it's only worth paying an Investment Trust or Unit Trust manager his annual fee when you are expecting him to outperform the market, or you want diversified exposure to overseas markets (without having the time to research them all yourself).
So I want to see a 10 year track record from the manager.

2 I think dividing your £11200 into 5 equal lumps would be reasonable. Initially, that means you will not be so diversified, but over 3~4 years, the size of the portfolio can build up.

3 As a rough guideline, I would aim to invest those 5 equal lumps at approximately 10 week intervals. However, if the market is down & offering attractive valuations, I would try to buy more (ie a larger purchase, or more frequent purchases).
That's the theory. Putting it into practice can be more difficult.



potato1066 15 May 2012 , 10:27pm

Here's what I did with this year's ISA.

Bought 101 BLT - BHP BILLITON PLC USD0.50 at a price of 1,951.263p

Bought 954 SBRY - SAINSBURY(J) ORD GBP0.28571428 at a price of 311.7779p

Bought 1487 BDEV - BARRATT DEVEL ORD GBP0.10 at a price of 133.1452p

Bought 2408 DEB - DEBENHAMS ORD GBP0.0001 at a price of 82.223p

Bought 822 TSCO - TESCO ORD GBP0.05 at a price of 320.7923p

rigbyf 16 May 2012 , 7:57pm

Thanks so much for all the great opinions and ideas.
Fifi

TMFBoing 17 May 2012 , 6:03pm

Hi Fools,

My recent look at how dividends have improved returns over the past 5 years might help in the search for ideas...

http://www.fool.co.uk/news/investing/2012/05/14/5-dividends-to-reinvest.aspx

Foolish best,
Alan
TMFBoing

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