UK Individual Shareholders Society
HOW TO INVEST IN THE STOCK MARKET
If you don’t know where to begin, you could call us for some general advice.
ShareSoc can provide some general advice for new investors (but not specific advice on what shares to buy or sell). Go to the Contact page to contact us.
This page covers four basic questions that face new stock market investors:
1. How to trade in shares.
2. How to hold your shares.
3. How to select a stockbroker and monitor your investments.
4. How to construct a portfolio.
How to trade in shares
Shares are normally now traded either on-
Stockbrokers typically offer three types of account:
Note that in addition to actually owning shares, you can trade on the basis of the share price going up or down by using Certificates of Deposit (CFDs) or by using spread betting. These are not something that ShareSoc would recommend except to sophisticated and experienced investors, and they tend to be used for short term trading whereas ShareSoc deals primarily with medium to long term investing rather than speculation.
How to hold your shares
There are three ways you can hold shares in companies -
In practice if you approach a stockbroker, and don’t specify what you want, they
are likely to set up a nominee account for you -
A Personal Crest account ensures your name is on the share register of the company
and gives you all the benefits of direct ownership. But because it is an electronic
system, it still enables you to trade quickly (e.g. via phone or the internet). It
does require a stockbroker to support this system though (they act as the interface
to the Crest system for private shareholders), which not all do, and some make a
small charge for supporting it. So this system tends to be used by more active or
sophisticated traders. However we do recommend Personal Crest accounts for those
who are active and serious investors. More information on Personal Crest accounts
is given in this article published in June 2015: Personal-
Share certificates are the original and old fashioned method but again at least you are on the share register of the company. To sell the shares, you will need to post in the paper certificate to your broker so “clearing” times (i.e. how quickly you get the cash) are delayed. It is also easy to accidentally lose the paper certificates, or have them stolen so it is not a recommended method in the modern era for new investments. However, many shareholders hold certificates from past investments. Stockbrokers may charge more for trading in paper certificates because of the extra costs involved.
Note that moving a certificated holding into a digital format (personal crest or nominee account) is known as “dematerialisation” and you can also go the reverse way, although there can be charges for such transfers. There was a move to dematerialise all paper share certificates in recent years into a new “electronic” format which would have had many advantages for shareholders but this was killed off by the Government in 2010 after lobbying by stockbrokers, which is unfortunate. But this is likely to have to be revisited due to an EU Directive on the subject.
There is a page here: Brokers, which gives a number of brokers who still support Personal Crest Membership or Certificated share trading. This article published in a ShareSoc Newsletter explains why that might be of interest if you are worried about your stockbroker going bust: Protecting Against Brokers Going Bust
Selecting a stockbroker
The trade body for stockbrokers, called the Wealth Management Association (WMA), offers a “find a broker” facility on their web site. This enables you to customise the search based on your local geographic area, how you wish to trade and hold shares and by other criteria. It enables you to quickly identify several brokers that might meet your basic criteria. Go to their web site at www.thewma.co.uk to use this facility. Unfortunately ShareSoc cannot recommend specific stockbrokers but as when dealing with any financial institution you may want to research their background and financial stability before using them.
Boiler rooms and other share promoters: You should be very careful not to deal with
anyone who approaches you out of the blue to sell you shares -
Monitoring Your Investment and Attending General Meetings
One of the things that you should do as a shareholder in a company is to monitor what it is doing and ensure you read the information that it issues, particularly the Annual Report and Accounts. Go to this page for information on receiving Annual Reports from a company, and other news: Annual_Reports. In addition it is wise to attend the Annual General Meeting of companies in which you are invested so you can meet the directors, hear what they have to say and ask them questions. See General_Meetings for information on that.
How to construct a portfolio
The first problem any new stock market investor faces is how to pick the first few
shares. There are lots of investment publications and tip sheets that will give you
stock picking ideas. But it is essential that you own more than a few shares -
Do tread carefully before you have built up some experience. It also takes time to
build up a “trading style” that you are comfortable with. Do you really wish to spend
all your day monitoring share prices as active traders need to, or rely on a longer-
If you don’t want to put in the effort to select and monitor investments in individual companies, you can choose to invest in a “collective” fund such as an investment trust, unit trust, OEIC or ETF. Many people choose a combination of direct company investments and holdings in collective funds to assist diversification. See this page for more information on those (particularly on investment trusts): Investment Trusts
Obviously joining ShareSoc as a member could help you -
Did you find this information useful? If so why not join ShareSoc and help to support our activities? Go here for more formation: Membership