Do your spadework before taking the plunge

Don't invest on a whim and a prayer. A thorough evaluation of markets, industries and companies will give you a far better chance of maximising your returns and minimising your risks

I well remember listening to a retired bank manager reminiscing about the technique of one investor at his small branch during the 1960s: "I read out the names of shares that were priced at a few pence and he bought them if he liked the sound of their name". So "penny shares" were being bought on a whim.

I well remember listening to a retired bank manager reminiscing about the technique of one investor at his small branch during the 1960s: "I read out the names of shares that were priced at a few pence and he bought them if he liked the sound of their name". So "penny shares" were being bought on a whim.

When ProShare, the organisation that promotes share-based investment, commissioned research into how investors decide what shares to buy, this strategy thankfully did not surface. MORI Financial Services did the research by interviewing shareholders who actively trade.

The findings were interesting. Of all those interviewed, 65 per cent used newspapers and magazines as a source; 37 per cent friends, family and colleagues; 28 per cent the share issuer's own information and 24 per cent TV programmes. Research prepared by analysts was not a response.

This is hardly surprising as investment banks and stockbrokers provide this for institutional investors such as pension funds and insurance companies. The recommendations may eventually appear in the press as tips and informed comment.

So what is research? Trained individuals who study companies and markets prepare it. They examine statistics and other information regarding past, present and future trends or performance. Their reports give recommendations on which shares to buy and sell.

It helps investors make investment decisions as it gives an insight into markets, industries and specific companies. Every investor's objective is to maximise their return and to minimise their exposure to risk. Reading and digesting investment research - whether about a particular market, industry or company - helps achieve this.

Research may be used in two ways. The first is a top-down approach whereby the investor evaluates a market, then chooses an industry and finally a specific company within that market. The second is the bottom-up approach. Here the investor selects a company and confirms his or her findings by evaluating the company's sector and then its market.

Analysts use two approaches in their reports. Focusing on factors such as past and projected performance and the quality of a company's management is known as fundamental analysis. The other, known as technical analysis, is when they examine the performance of a company's shares and the pattern of past stock price movements. Of course what is of interest to an investor is whether a company's stock is likely to rise. Prices generally increase for one of two reasons. Value stocks are considered currently under-priced by the market. By purchasing these, investors hope to profit in the future when the market re-prices the stock so as to reflect the company's true value.

The second reason why a stock price may increase is that it is regarded as a growth equity. An investor chooses to invest in such a company in the belief that its future performance will be strong. If this proves to be the case, the company's value and therefore its stock price should rise.

Investors who carefully research markets, industries and companies are more likely to make the right investment decisions. For a trial period of three months, all investors in the UK have free access online to research from Merrill Lynch HSBC. Merrill Lynch is one of the largest international names in investment services, while HSBC is one of the world's largest banking and financial services organisations.

They formed a partnership in April last year to provide online investment and banking services. The fully transactional website will be launching soon. Meanwhile, in addition to research, www.mlhsc.com currently offers a Learning Centre containing short but highly informative animated tutorials designed for newcomers as well those familiar with investing.

Subjects covered range from the workings of stock markets through to risk-and-return. Guidance is also given on using research. To freely access the research for three months, a quick registration is required. There is no charge for this and no commitment has to be given to become a customer of the service when it is launched.

As one wag once remarked, an analyst who gets it right 50 per cent of the time is considered "best of breed". Although both Merrill Lynch and HSBC's research has won many awards, all research should be used as part of your homework before investing.

Get to know the company in which you are considering becoming an investor by reading its annual report, visiting its website and learning about its products and services.

This, combined with professional research, should result in your investing with intelligence and not on a whim. The website is at www.mlhsbc.com

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film Ridley Scott reveals truth behind casting decisions of Exodus
News
Andy Murray with his girlfriend of nine years, Kim Sears who he has got engaged to
peopleWimbledon champion announces engagement to girlfriend Kim Sears
Arts and Entertainment
Jake Quickenden and Edwina Currie are joining the I'm A Celebrity...Get Me Out Of Here! camp
tv
Arts and Entertainment
Roisin, James and Sanjay in the boardroom
tvReview: This week's failing project manager had to go
Life and Style
Fright night: the board game dates back to at least 1890
life
Life and Style
fashion
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Langley James : IT Support; Helpdesk, VMware; Manchester, £18k

    £16000 - £18000 per annum: Langley James : IT Support; Helpdesk, VMware; Manch...

    h2 Recruit Ltd: Business Development Manager - HRO - £70k+ ote

    £35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...

    Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

    £Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

    Citifocus Ltd: Operational Risk Analyst

    £Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

    Day In a Page

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
    There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

    In pictures: There's a Good Girl exhibition

    The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
    UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

    UK firm Biscuiteers is giving cookies a makeover

    It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
    Can SkySaga capture the Minecraft magic?

    Can SkySaga capture the Minecraft magic?

    It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
    The King's School is way ahead of the pack when it comes to using the latest classroom technology

    Staying connected: The King's School

    The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
    Christmas 2014: 23 best women's perfumes

    Festively fragrant: the best women's perfumes

    Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
    Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

    Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

    Our partner charities help veterans on the brink – and get them back on their feet
    Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

    Putin’s far-right ambition

    Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
    Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

    Escape to Moominland

    What was the inspiration for Finland's most famous family?
    Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

    24-Hour party person

    Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
    Michelle Obama's school dinners: America’s children have a message for the First Lady

    A taste for rebellion

    US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches