Advice for a Novice Investor

9th May '20 by martinon1977

34 comments 2984 reads

Hi there

I’m new to all of this and would appreciate any advice from those wiser and seasoned professionals on here. Here’s my story

I stupidly bought Centrica shares (£23k worth) at 60p per share and watched it fall consistently to 30p per share! I held on and it’s now at 40p but I’ve no idea if I’ll ever get my money back.

Following the drop recently I decided to try to recoup some of my losses, so last week (in addition to my Centrica holdings), I bought £5k of Aviva at £2.32, £5k in Barclays at £1.01 and £5k in Shell (B) at £12.59. I’ve still got £5k in cash to play with and considering ITV or Associated British Foods.

I read Naked Trader on Friday so am learning! Just interested in peoples views on whether Centrica might recover (or should I cut my £8k losses and run), whether my new purchases are decent, and what would you recommend on the remaining £5k?

Thanks, be gentle with me

Martin

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Jamie Green

13th May '20

Hi Martin

I’m also a newbie (to Stockopedia) been investing on and off for a good few years. If I may suggest a book to read (as well as carrying out plenty of research on here) it would be ‘The Art of Execution’ by Lee Freeman-Shor. It’s very easy to read and has helped me immensely.
I would also say I have found the Stockopedia forum to be incredibly helpful, not only are there many very knowledgable people but so far I have found that they are willing to help.

Beginner

I am still a beginner after ten years or so. You will always be learning. Remember, this is a long game! (Or at least I hope so!) I think you have chosen well here, and certainly much better than I ever have. Regarding Centrica (LON:CNA) I would hold for now. It is not a great company, but the cashflow suggests the shares are worth at least 60p a go. I first bought this at nearly three quid and was convinced it was a bargain!

I would hold everything you have for now, and probably keep it for the next couple of years. As for your five grand: hang on for now and see what crops up!

( Itv (LON:ITV) need to do a rights issue, so buying in there will see you diluted. Associated British Foods (LON:ABF) is on a PER of 16, which is quite high for a retailer in the current climate).

Good luck my friend.

(Edit: read everything you can, and you will learn to be discriminating. Ignore chat rooms and discussion boards, Learn to crunch numbers. Look for companies with net cash in this environment. Diversify. If looking to generate income see:

https://www.stockopedia.com/content/how-i-build-an-hyp-459388?order=createdAt&sort=asc&mode=unthreaded

Chrischip1981

14th May '20

As I said before, im also a total newbie to this, what I would say if you are thinking of trading frequently, a little like the book you have read, then get your head around the numbers.

If you think you are going to buy and hold its not going to matter that much but if you want to trade learn about the math. Learn about stop losses, work out what loss you can afford to take on average to give yourself a chance of been profitable. Learn about position sizing and avergaing up, to me it seems these are pretty basic things that hold a lot of people back but most people are wanting to know if they are going to get rich without doing the "boring" stuff that can make it happen.

Simonk_695

15th May '20

Check the 'Major Shareholder' list and see if the big money is flowing in, or out recently. But what do I know, I'm a newbie too. (This does not constitute financial advice, do your own research!)

Carey Blunt

I agree with this. I would rather average up and cut losers quickly than average down and hold losers.

You are in a bit of a pickle with regards to Centrica. I would guess you were buying things that you thought might be stable and pay dividends as that felt like safety to you. I would have cut earlier but maybe you might as well stick with it now.

Its a bit late now but I would have started with smaller position sizing. maybe £1200 of each share pick and then add to it if it wins and cut it if it loses. That would be aligned to the naked trader's strategy.

Probably I would sell everything else, take a deep breath, pause, watch the market, listen to advice on here, look at stockranks and fundamentals and buy smaller quantities of a more diverse range of companies.

Breakout

16th May '20

From what you’ve said doesn’t look like you are following the NT guidelines at all ...I suggest to have a proper read and thoroughly understand the content before throwing any more money away .

Javahart

18th May '20

I feel your pain Martin! I started three years ago and bought £5k of £CNA. It was my first 'safe' pick following some advice to build up a decent SIPP, its now worth 75% less than I paid! I've still got them and is a very valuable lesson/reminder every time I log on that the value can go up or down! I've learnt a lot and actually managed to make decent money during this COVID period by thinking differently about what consumers need. I now tend to put stop losses on everything (circa 10% less than buy price). I've also made a lot of small gains by taking 15% profit before the price tops out.

martinon1977

thanks breakout, I bought the shares before I read the book unfortunately, hence the post.

Great advice javahart, will definitely do this with my next investments. Following today’s rally across the board I’m now only £5k down on my £35k investment (was £10k at some point) a thinking of taking the loss On Centrica soon and taking your advcice on some other shares on my watchlist. Thanks again

Loki

29th May '20

My personal opinion as a Centrica share holder.

Centrica (LON:CNA) is not considered as a growth company, though it tried to enter into ConnectedHomes space as growth area. It is perceived as a income company providing steady dividend. I believe Markets always looks at it energy customer numbers which have been falling steadily due to small entrants eating into its customer base. This put pressure on its share price. And cutting dividend also impacted.

However, it has reduced costs (operational and capital) by redundancies and scaling back on projects and is still continuing cost-reduction. Its new CEO is keen on ensuring Centrica's investment grade. It hedges gas years in advance and hence its purchase costs are high considering gas prices falling in recent years which proved beneficial to new entrants who buy gas on spot. But off-late, some if its small competitors have gone bust and COVID situation may impact cashflow of more small competitors if customers default on payment. Centrica's energy residential customer numbers are increasing which will get reflected in its share price in due course.

Immediately it's share will fluctuate based on how it's business customers sales perform and residential customer bad-debt due to COVID situation. But overtime, its share price should start rising. It has presence in North America and Ireland. It considers Services as a growth area and has announced tie-ups with car-manufacturers (e.g. VW) for EV installations. Being largest energy utility in UK and enough cash-flow, it can survive the current downturn.

As a share-holder, I would continue holding it as it seems to have hit bottom and now Jefferies is rating it as a buy.

GloucesterBob

I second reading "The Art of the Execution". It will not help you pick any winners, but hopefully help you work out when to buy, become a hunter / assassin, you need to stop being a rabbit

Had 3 goes but Stocko doesn't want to print more than 2 lines (last go, different computer)

I second reading "The Art of the Execution". It will not help you pick any winners, but hopefully help you work out when to buy, become a hunter / assassin, you need to stop being a rabbit, I like being a hunter.

I use stop losses as it take the emotion out of the sell. I have one share that was up 70%, and I wouldn't set a stop loss as I was emotionally attached, it then went to minus 20%. Since recovered to 15% profit, but If I had set a stop loss and sold at 40% and bought back in, I would be a lot richer than I am today, but we learn from our mistakes.

No stop losses for shares that have gone negative. I bought them for a reason and only if that reason is no longer valid, I will bail out.

Be careful in setting it too low, I find the dastardly market makers can shake the tree by 10% in early trading if they want some of your shares to sell to a buyer and the price then goes up. I use 10% for shares, I am happy to sell, 20% for ones I have conviction in and will look to buy back in, and 30% for those smaller caps that can move 20% in a day, Revolution Bars (LON:RBG) anyone!

Use the screens, to throw up some ideas for further research. I use the Jim Slater one, and then add on extra criteria, I am now lukcy to get 4 stocks a year to buy, but quality over quantity is definitely the way to go. His books the Zulu Principle and beyond the Zulu Principle are worth a read, but heavy going that the Art of the Execution and Naked Trader.

Look at Investment Trusst for a chunk of your money, Fundsmith is certainly a star, and Scottish Mortgage Investment Trust (LON:SMT) would be worth buying on any drop in price, its at a all time high, even in this bear market.

Happy hunting and do not be too keen to buy/sell, take your time.

Bob

William K

30th May '20

Good advice regarding Scottish Mortgage Investment Trust (LON:SMT) - there was a useful article about them on the Hargreaves Lansdown website this week. They're high risk-high return (about half their securities are unlisted), but should beat most benchmarks over the next 5 years. And you'll be employing some of the shrewdest stock pickers in the world.

Sharechap

Some great advice on here. I started out like you a few years ago and then started to learn from my mistakes. You can make decent money in this game but it’s usually over time. I have come up with three golden rules:

1. Buy decent quality growing companies never forgetting that Price is what you pay, Value is what you get (Warren Buffett)

2. Kill your losers decisively if the share price falls below a certain threshold below which you bought the shares.

3. Have a clear plan for your winners. That will usually involve running your winners as far as you can, but could also involve top-slicing (selling part along the journey), a trailing stop loss (so that you protect a decent portion of your gain if the price reverses) and a wholesale exit of the share if the mood music changes.

Enceladus9

31st May '20

To be honest, if I were you, I would consider selling my Centrica shares and putting the money into stock with better prospects over the short term - you seem to heavily invested in Energy for my liking! I wouldn't be emotional about selling your Centrica stock - you are not obliged to hold on to it! Centrica have been on a downward trend for years now and I can see problems for the sector over the next few years so I would diversify if I were you.

UK_Investor_8888

As I said, who in energy would you wish you owned?: Cenes Pharm Ord (LON:CEN) or Telecom Plus (LON:TEP) .

The StockRank and QVM tells you that in probability, you will get a higher more satisfactory return on an average investment in the SR 90 to 100 range.

WealthRoad

11th Aug '20

Naked Trader sells anything that's down 15%, certainly 20%.... went to his seminar and he shows his accounts on screen... sea of green! There were 2 red at -20%... he didn't even look to see what they were and sold them there live. Like weeding out losers fast... very impressive

Rusty2

I don't know Cenes Pharm Ord.

I have held Telecom Plus (LON:TEP).

But Centrica (LON:CNA) are up about 60% since April.

Lessons to be learnt from this, don't get over-exposed in one share and cut your losses earlier.

Greenblobby

10th Apr

First of all why are you buying individual shares when you admit you're still learning. Whilst you're still learning I suggest you buy a simple etf on monthly basis and forget about share picking until you've substantial knowledge. Even then 80% of active fund managers underperformed a passive index. Not great odds. And do you think you may one day be able to pick shares. You may you may not but not whilst you're learning. And even then odds are against you. Good luck

doctor dave

11th Apr

If you did buy all those and then go to sleep you are sitting on at least a doubling of your money. So not such a novice after all!!

Advice for a Novice Investor

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Martinon1977

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