Stockpickers can now follow the star managers
Shadow the professionals' choices with a new online service. Chiara Cavaglieri and Julian Knight reports
Remember playing follow-the-leader in the playground? Did you know you can do the same thing as a stockmarket investor? That's precisely what a new site, Stockopedia, launched this week promises to help you do. It looks at what some of the best investors would do in a given sceanrio and then follow them, hopefully to riches.
"Investors can pick stocks based on the criteria of investors like Warren Buffett, Benjamin Graham and Jim Slater," says Edward Croft, a former Goldman's trader and co-founder of Stockopedia. "These lists find fast growing stocks, bargain stocks or income stocks depending on your investment preference."
Stockopedia ranks, filters and sorts business data provided by Thomson Reuters to find the best opportunities. Practical features include Stock Reports which enable you to avoid red flags such as "earnings manipulation risk", "bankruptcy risk" and bad financial health trends. This tool proved its merits last week when its indicators flagged Supergroup as high-risk shortly before the retailer tanked 40 per cent following a profits warning.
In essence, Stockopedia is a stock selection tool for the UK market which usually costs £14.99 a month, but is currently £9.99 for early birds.
Mr Croft adds that private investors are at the mercy of poor stock tips and rumours, or over-charging fund managers, the majority of whom underperform the market or are little more than "closet index trackers". But there are some star name managers who seem to perform in most market conditions good or bad.
When starting to look at stocks, check out those professional fund managers buy, for example, the largest holdings in Neil Woodford's Invesco Perpetual fund include GlaxoSmithKline, British American Tobacco, BT Group and Vodafone. All of these are large income generating stocks suitable for those looking to enjoy capital growth with a tidy chance of income. But, remember, the information on holdings is likely to be slightly out of date and you need to consider carefully the type of fund you're looking at.
"While it is impossible to replicate a fund manager's expertise and greater access to information, when managing their own portfolio, investors should adopt many of the same traits as a fund manager would," says Andy Parsons, head of investment research at The Share Centre.
"It is vital to know and set your boundaries; look at the time frame you want to invest over, the level of risk you are willing to take and the sectors and regions you want to invest in."
Thorough research into any share should start with the company's accounts and published research. But as you build your portfolio, just as a fund manager would, you should spread the risk by keeping it diversified and within the boundaries of your own risk appetite.
Many online platforms offer analysis to help, and you may be able to have a dummy run without committing cash, for example, The Share Centre offers a practice account with fantasy money.
If you are going to pick stocks yourself, you can do so through an online dealing account, with a self–select individual savings account (ISA) or a self-invested personal pension (Sipp). With all three, you need a stockbroker, but selecting the service is one of the most important decisions to make.
There are three levels of service to choose from. The most expensive is a discretionary stockbroker, who acts like a fund manager working solely for you, and is free to buy and sell shares on your behalf (based on your preferences) without consulting you each time. This enables them to make immediate responses to market changes and hopefully avoid missing good opportunities.
This is potentially a good option for new investors who lack the time to devote to share dealing. On the flipside, your broker could make more deals than you actually want or need them to. You also need a large sum of money to make the extra cost worthwhile – you are often required to have a portfolio of at least £50,000.
Another option is an advisory service in which the stockbroker offers advice, often sending you market information and stock recommendations. They may also look at your overall portfolio to guide any longer-term goals. You will be consulted before any moves are made so that the ultimate decision is still yours. But again, you need a large sum, this time around £25,000, to get started.
The cheapest option is an execution-only service in which you instruct your stockbroker to make trades on your behalf. Although you don't benefit from advice, most brokerages do provide online market information and research tools to help you make decisions. There is commission to pay which is either fixed (for example at £8 per trade at SimplyStockbroking, or £12.50 at Selftrade), or is a percentage of the sum you buy or sell, (Stocktrade charges its online traders 0.4 per cent for up to 50 trades and 0.2 per cent thereafter). The former could work well if you intend to deal in fairly small sums, while the latter may offer a better bet if you have larger amounts to move around.
You also need to consider how often you will trade as most services offer discounts for busy dealers and conversely, may levy an inactivity fee if you don't meet a set number of trades per quarter. There may be administrative or management fees too, for example, iDealing charges £5 per quarter to cover the cost of running standard, ISA and Sipp accounts,
Transfer fees are another consideration if you want to move your holdings over to another broker and could be charged as a flat fee per trade. Whoever you pick, you also need to pay the 0.5 per cent stamp duty levied on all UK share purchases.
Before you approach any form of dealing, financial advisers say you need some safety measures in place. Crucially, you should be free of debt outside of your mortgage and have a buffer of six months' savings to cover any financial emergencies.
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