Money: Safety first tip for a white knuckle ride. Don't panic!

David Prosser assesses the pros and cons of picking winners rather than paying someone else to do it

There is no doubt that investing in shares can be pretty scary. Share prices sometimes move a long way up or down in a very short space of time. If you are on the wrong end of one of these movements, as investors were during the stock market crash of October 1987 and, to a lesser extent, during the recent bout of share price volatility, you can lose a lot of money very quickly.

However, investors would be wrong to ignore equity investment simply because it does not always offer the smoothest ride. Not least, this is because over the longer term, shares have performed much better than other types of investments. In fact, this is more true the longer the period that you look at.

Unfortunately, if you are investing over the shorter term there is more of a danger that your money will not do so well. But leave your money in equities for five years or more and you stand a good chance of making money.

Of course, this is not to say that all investors should pile into shares today. Clearly, many will feel happier investing through a unit or investment trust, funds designed to limit risk by investing in lots of different shares.

However, investing on the stock market yourself, rather than delegating the job to an investment fund manager, does have its advantages.

Richard Hunter, head of dealing at NatWest Stockbrokers, which claims to do more share deals on behalf of small investors than any other broker in the United Kingdom, says a unit trust can be so widely spread that you get little benefit from individual star-performing shares.

Another reason for buying shares directly rather than through a fund is that many companies offer their individual shareholders attractive perks such as discounts on goods and services, something that investors who hold shares through unit or investment trusts do not get.

P & O, the shipping company, for example, is very popular with small investors because it gives its shareholders very generous discounts on cross-channel ferry crossings.

While it is wrong to invest in a particular share simply to benefit from a perk, discounts and special deals are a bonus if you think buying the shares makes sense from an investment point of view.

In addition, many investors like buying shares because it is fun to sift the winners from the losers.

The buzz of occasionally beating stock market professionals at their own game often makes share dealing worthwhile, even before you start counting your profits.

Do not presume that simply because you have no idea how to read a balance sheet, stock market investment is not for you. Justin Urquhart-Stewart, a director at Barclays Stockbrokers, says: "An awful lot of people have a great deal of knowledge of companies, even though they're not analysts".

He recommends that an investor starts by studying companies of which he or she has direct experience. This might be the company for which you work, for example. Or it might include companies that run shops where you are a regular customer.

Equally, many customers of the building societies that converted to banks earlier this year, and received free shares at the time, might have a feel for how well their investments are likely to do simply by virtue of being customers of the new banks. It is often the customers who first notice when the way in which a company is run takes a turn for the worst.

Of course, it is not sensible to invest in the shares of Next, say, just because you were very pleased with the last pair of shoes you bought there. Fortunately, however, there are plenty of sources of advice to which you can turn to get some help with understanding the finances and prospects of particular companies.

Reading the coverage of the stock market and company finances in the Independent and the Independent on Sunday will give you much information. There are also several specialist stock market publications to read. Scrutinising the media will not turn you into a savvy City trader overnight, but it is an excellent starting point.

In addition, many stockbrokers make a living from giving advice to investors who want a little bit of help with their share selections. You do not have to pay the earth to benefit from this advice. Most brokers simply charge slightly higher share dealing commissions to investors who want advice. Alternatively, one broker, The ShareCentre, has a premium rate telephone line that you can call to check whether the experts think your latest hot share tip is such a good idea.

The key to successful stock market investment is to think long term. As long as you do not risk money that you cannot afford to lose and as long as you do not panic the moment things get a little dicey, you will benefit from buying shares. After all, remember that despite the October 1987 stock market crash, share prices ended that year higher than they began.

And as Richard Hunter, of NatWest, says: "If you've taken the quantum leap and decided to invest in shares, why not go the whole hog and do it directly?"