Consideration should also be given to share sectors. It is risky to have too much invested in one sector. Many newspaper City pages recommend individual shares to buy or sell but this can push the price up or down before you can react. Information is also available on the Internet. Company reports can be obtained to provide more information.

There are also tip sheets, which recommend individual shares. They are expensive and one wonders whether the tipper keeps the best ideas to himself.

Word of mouth can be useful and it is a good idea to watch out for new ideas and successes, such as, for example, a shop which seems to be doing well or a product which you have bought or is recommended by a magazine or TV programme.

Smaller companies

There may be a narrow market in smaller companies' shares, which can make them difficult to buy and (particularly) to sell. Also, smaller companies are more likely to go bust than are larger ones.

However, good smaller companies can be valuable investments as they tend to be cheaper than larger companies, have higher dividend yields and provide a greater potential for capital growth and dividend increase.

Fundamental analysis

This term is used to describe choosing shares by looking at the fundamentals the financial results for recent years, including statistics such as profit and dividend trends, the annual and half yearly reports, recent announcements by the company, share price history, share dealings by directors. In addition, there are the statistics for the sector in which the company's shares sits.

Technical analysis

it is possible to carry out what is called technical analysis, which can be done on a computer using a proprietary system. Graphs of the price of each share can be drawn and you can superimpose on them the relative movement of an appropriate index, short a,nd/or long term averages and stop/loss points.

There is a lot to be said for using both types of analysis rather than only one of them.

International shares

It has become easier to invest directly in shares outside the UK, following the introduction of Jiway, which is a recognised investment exchange under the jurisdiction of the Financial Services Agency. The cost to brokers is set in euros at an amount of less than £5, so their charge to you should not be astronomic.

When to buy and sell

Theoretically you should buy shares when the market starts going up and sell when it turns down but few of us can distinguish a blip from a trend. In any case, individual shares may not move with the market.

There is a great tendency to sell a share, which has fallen in price, particularly if it goes below the purchase price, and to buy more of a share that has risen. This may be the right action but decisions should be based not on the past but on expectations of the future.

Cut losses, but let profits run. However, it can be sensible to sell part of your holding of shares that are showing a good profit, leaving in, say, the equivalent of your original investment, particularly if the shares are highly volatile.

Do not churn (continual dealing) as dealing costs can mount up.

Above all, do not panic when prices fall; take the long view most big market falls (sometimes called corrections) are followed by a fairly quick recovery and what seems a catastrophe at the time later becomes only a small blip on a trend line.

Defensive stocks

Shares in some companies are recognised as defensive, which means they are worth holding in periods of uncertainty.

Examples are:

• stores - people need to live and therefore will buy clothing, food and drink;
• utilities such as electricity, gas, oil and water - likewise there has to be a continuing demand;
• transport such as bus/coach and rail (but perhaps not air) - demand for these will also hold up.

Value investing

This term describes the purchase of cheap, unpopular shares, as opposed to growth investing sectors expected to have considerable growth. Together, the two approaches are called style investing.

Suitable shares for value investing are considered to be those with high cashfiow, dividends and earnings yields, and high ratios of sales and book value to share price.

Over the very long run, value shares appear to outperform growth shares, possibly because of the greater volatility of the latter (the tortoise and hare phenomenon!)

Hedging

There are various ways of protecting your shares from an expected fall in the share price (or in the market as a whole) without actually selling them. They also have the advantage of locking in a profit but deferring a potential capital gain.

All use the techniques of 'going short' selling something you have not got, which can be very risky on its own, but because you do hold the shares the high risk is removed.

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