“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price” ~ Warren E Buffet.
This famous quote of Warren Buffet applies perfectly to many businesses, which are listed on the London bourse. The ongoing trend in the UK stock market offers many such opportunities- Companies that are available at discounted prices with respect to their fair values, which are also known as bargain stocks. These stocks provide a greater margin of safety to the investors.
Since centuries, by far London occupies a dominant position among the most prominent trade and business centres in the world. It is one of the largest visited places on this planet and is among the highly preferred centres to conduct business. The City is a widely known centre for Foreign Exchange, Bond Trading, Stock Trading along with a hub for banking, financial services and insurance industries.
A number of companies listed on the London Stock Exchange are globally well-known companies and brands; their products and services hold considerable market share in many developed and mixed economies. Some of the well-known names are Unilever Plc (LSE: ULVR)- A giant fast-moving consumer goods company, which holds a portfolio of global brands like: DOVE, Lifebuoy, VASELINE, SUNSILK, AXE and many more, GlaxoSmithKline Plc- A global healthcare company, with globally well-known brands like Sensodyne, Aquafresh, Horlicks, Eno and many more, Diageo Plc- A global alcoholic beverages company, with global brand portfolio consists of Smirnoff, Guinness, Bundaberg Rum, Johnnie Walker and many others.
These all aforementioned companies are constituents of the UK's blue-chip index FTSE 100, that's why FTSE 100 Index considered more as a global stock exchange as the majority of its constituent companies are more global companies than mere local London stocks.
However, since the Brexit referendum took place on June 23, 2016, market indices of the LSE have failed to perform at par with their global peer indices; Global indices have recorded a decent rally after 2008 financial crisis till the end of 2018.
Now, this is something which attracts the analyst community towards the London equities as they have underperformed against their global counterparts in the last three years, carry a decent potential and valuations are also cheaper in comparison to their respective global peers at current levels.
How new investors can realise a decent return amidst the volatility of the UK stock market?
Debuting the equity market is gambling for anyone, with market highs and lows to deal with. It is really very challenging for new investors to develop an investment strategy. Below are some guidelines for investment intended for new, first-time investors:
- Start investing with a clear goal
Before one is thrust into the world of equity investing, one should be very clear about why he is investing and what is the purpose. Having a clear goal before starting your investment journey is most important, and this will help you make decisions which carry a decent potential to achieve your objectives. For example: if your goal is to save £100,000 in next 10 years, then start with that aim and with the help of your financial advisor or yourself alone, if you can, figure out how much you are required to invest today in order to achieve your goal after a given number of years. This is the first step every new investor should take before investing his first pound in the stock market.
- Hire a skilled investment advisor
An investment journey with the right financial advisor could lead you to places; the role of a financial advisor is very vital to achieve your goals. Many first-time investors try to test the depth of the water with both the legs, which can turn out to be catastrophic, leaving them to exit stock investing completely for rest of their lives. They keep putting the blame on the stock markets instead of introspecting. If you do not possess the requisite skills for stock selection, better you hire a financial advisor with all the requisite skills to help you navigate and reach your financial goals.
- Do not make all your investments in one or two stocks – Diversify
One should not put their savings into just one or two stocks; rather, they should try to build a portfolio of stocks, which could help you to achieve your goal. The portfolio should comprise of large-cap, mid-cap, small-cap and dividend stocks. Because, a well-researched portfolio not only delivers a handsome return over time, but also protects you against any sectoral pain or downtrend.
- Avoid Frequent Churning- Buy Right and Hold on!
Frequent churning of your portfolio based on market noise or rumours cannot lead to your financial goal. Identify fundamentally sound companies based on thorough research; These stocks will provide an adequate margin of safety. You should stick to these for an extended period. An investment which is not based on thorough research and analysis is generally speculative.
- Stick to One Strategy
There are numerous investment strategies through which people have made money in the stock market; learning all these strategies is next to impossible. Therefore, one well-researched and back-tested investment strategy is essential for your investment journey. The key to success is to stick to that for an extended period of time.
- Exercise Patience
Majority of first-time investors tend to lose their money in the stock market because of a lack of patience and tendency to get dragged by market noise and rumours.
Usually, new investors who are thrust into the investment business try to become wealthier in a very short period of time, leading to accumulation of huge losses. Remember, there is no short-cut in investments; generally, people confuse investment with trading. Trading is transient, with large swings in a very short time period and requires a higher degree of knowledge and skills to harvest a decent return consistently. However, time and again, it is proven that traders have had hardly made enough money in long-term, with a few exceptions. In contrast, there are a large number of investors worldwide, who have harvested substantial returns from their investment portfolios over the long term.
Last but not the least, remember what Warren Buffet had said; First rule is never to lose money and the second rule, which reinforces the first one, reminds us to never forget the first rule.
With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities.
Amidst this, are you getting worried about these falling interest rates and wondering where to put your money?
Well! Team Kalkine has a solution for you. You still can earn a relatively stable income by putting money in the dividend-paying stocks.
We think it is the perfect time when you should start accumulating selective dividend stocks to beat the low-interest rates, while we provide a tailored offering in view of valuable stock opportunities and any dividend cut backs to be considered amid scenarios including a prolonged market meltdown.