Yesterday’s foray into stocks & shares mentioned that I had little experience in share dealing – I have done a few trades in the past, but two trades I did make taught me a useful lesson in stock market investing.
Just under 6 years ago, I had a little more money at my disposal than I do now (I was single, living at home etc), and the idea of dabbling in the stockmarket excited me.
At the time, like a lot of companies post 911, telecoms company Marconi had been going through quite a rough time, and their shares had plummeted, to be valued at almost nothing. If I recall correctly, it looked as if Marconi were about to go bust, but I thought if a buyer was found, the shares would recover. I decided to buy myself a few, thinking I had found the bottom of the price. I only invested Â£100, but of course, I was convinced they’d start to rise in value quickly and I’d be able to make a tidy little profit in a few months time.
Not long after, I decided to add to my “portfolio” with some BT shares. My dad had worked for them for 30 years and had always held some himself for aslong as I could remember. He always went on about the dividend they paid being good. So I ploughed another Â£200 into the stockmarket with this new investment. Unlike the Marconi deal, these were to be kept for a decent period of time, and if I could forget about them for 10 or 20 years, I’d remember them one day and find I was sitting on a little pot of gold.
A few months after the Marconi deal, they’d not recovered. In fact, the value had slid even more. My Â£100 was now worth abouth Â£60. Eventually, when Marconi became Telent, the 800 Marconi shares I’d bought in the original deal were recalculated, and I ended up with just 14 shares – checking my Selftrade account (I originally bought the shares through comdirect, which later became Squaregain, and then Selftrade), I’m not even sure if they’re worth anything, or even if they’re still trading. There is some suggestion on the Telent website that the shares have been delisted.
As for BT, well, they’ve not really moved in 6 years. That could probably be said for a lot of shares too, although the FTSE has risen by a decent amount since 2002. And although the BT share price has risen a little bit (about 30p higher than the price I paid for them) the high charge I paid for the deals at the time (something like Â£12.50) means that I’m still not in profit from them.
So what have I learned from my novice attempts at trading?
Well, the Marconi trade showed me that it’s incredibly difficult to make a quick buck with shares, especially if you only have a very limited amount of money, and probably even more so if you haven’t got a good idea about what is going on with the business. When you become a shareholder in a company, you really should keep an eye on what’s going on with it, something that I didn’t do, probably because that isn’t the exciting part of trading. Watching the numbers increase is the interesting part.
The BT trade taught me a couple of other things. Firstly, there is little place for sentiment in investing. A large part of the reason I invested in BT was because my dad had worked for them for so long, but this obviously has nothing to do with the future share price. Also, don’t listen to the advice of novices like my dad!
Another point is that the charges I’d paid making the original investment have really eaten into the performance of the shares – so much so that I’m still yet to make a profit on them. A Â£12.50 charge on a Â£200 investment means that their value needs to increase by 6.25% just to break even. Many shares will struggle to do this in a good year. This is one of the reasons I mentioned the low-cost trading yesterday – with free investments until June, all of your money is invested in the shares from day one.
I hope to be able to invest in shares again in the future, but for the moment, my experiences have taught me a few useful lessons, and I realise that it’s not something to be done lightly, especially now that I have responsibilities that I didn’t have before. When you have a family to look after and a house to pay for, it’s important to get the basics in order, such as savings and debt, before pretending to be the next Nick Leeson.
What financial mistakes have you made in the past, and what have you learned from them?