Investing………The Story So Far….Part 1 – Not The Greatest Start

Around March 2003 I had read enough to be fairly certain that if the stockmarket wasn’t at the bottom of the slump, it was fairly close to it. I decided to dive in and start investing in shares. My timing was impeccable, my stock selection abysmal.

If only I knew then what I know now. I bought a number of small company stocks like Skyepharma, CMS Webview, iTrain and French Connection. The case for all of them was compelling at the time but I lost money on each and every one.

My first mistake was buying on the basis of positive news / tips in a magazine. By the time you or I have read the magazine and disturbed our broker on his yacht, the share price has already risen as a result of the positive coverage. The magazine, of course, claimed success with its small company share picks, but it does have a couple of advantages.

1. When calculating returns very few magazines include the difference between the buying and selling price of the shares (bid / offer spread) and even fewer allow for dealing costs. On small Company shares these costs can be serious. You could end up needing 10% growth just to get back where you started.
2. People tipping shares, as opposed to buying them, can tip loads of Companies and a couple of stars will save the day. When you can only afford a few you cannot afford for them to all lose money.

There are two lessons here:

1. Do not buy on the basis of tips. Even if the tipster is right you will see the tip long after the professionals.
2. Don’t invest until you can afford a balanced portfolio.
   

My second mistake was highlighted by the purchase of my French Connection shares. I had not seen these tipped, I did my own research and their financial history was an impressive growth story. The numbers looked good, there were several continuous years of solid growth, so in I went. After initially rising the shares soon started to head south.

This brings me to lesson 3:

History is just that………..history. There is a reason why financial advisers constantly point out that past performance is not necessarily a guide to future success, because it’s true. After conducting my financial research, had I have looked into the market a bit more I think I would have seen that the FCUK brand was starting to show signs of trouble.

So, my first foray into stockmarket investing delivered losses and a few harsh lessons. I was wounded, but I’m not finished off that easily………