From my experience, as a rule, I would try to avoid single shares. Although there can be significant rewards, they can also go the other way and you can lose all or most of your hard-earned money. I am not a financial advisor so do your own research and speak to a professional FA. This is just the way I see it.
Look at what happened a few years ago when I lost approximately £8,000 on shares. I put a significant amount of money (money I didn’t really have to lose) on the strength of what my colleagues told me when I first started offshore. This was without any research. Do not invest without doing your own research.
Single shares can get very emotional and this is not the way to invest in my humble opinion. If you have a high-risk tolerance and have a bit of the gambling blood inside you (like me), maybe dedicate a small portion of your investments (e.g. 5% of your monthly total). So, if you invest £1000 per calendar month, use £50 on single shares.
If you do invest in single shares be prepared to lose it. This is not half empty mentality it is just common sense and a bit of self-preservation. Expect the worst and hope for the best. Do not invest thousands of pounds (your hard-earned money) on the strength of a tip you got down the local pub.
My sincere hope is that you invest for your future by investing in funds. If you live in the UK, I would recommend a tracker fund. Check it once a year and this way you keep your emotions out of it. The stock market is very cyclical, and it will have ups and downs. When you look at history, you realise that for well over 100 years, this cycle has reverted to the mean (average). This mean has gone up in a gentle slope and if you had tracked the markets (more on this another time) during this time you would have achieved 7-8% interest.
The key is to keep your inner chimp (emotions) away from you funds and not to listen to the negative stories that will inevitably appear in the British and world press. From the books I have read, a common theme is that many investors sell during bear markets and buy during bull markets.
Do your research. Learn from my mistakes. Pick a fund through your ISA (you can invest £20,000 per year tax free in the UK) and automate your investment. Decide how much you can afford each month and set a direct debit, so it comes out each month automatically. Then check in on the fund once a year.
I invest £800 into my ISA and £200 into my SIPP. My aim is to max out my ISA (£1666 per month) and start hunting down my Financial Independence (FI). My cashflow isn’t where I want it to be yet so I will have to put my ‘max-out’ ISA plans on-hold. Put in what you can afford.
A worry of mine is that there are a lot of people in my local town who do not invest this way. Many people I speak to have little or no knowledge on investing. If anything, too many people prefer the hot tip in the local pub. This is certainly happening with a company that is currently constructing a large Mine along the North East coast – Sirius Minerals.
Before we go any further, I have a confession to make. At the start of July 2019, I invested £500 into Sirius. I am well-aware of the project currently on-going and the share price was low at 15p a share. After looking into it, I decided it was a risk, but the price was very low and I was willing to take the risk. The project is at least 2-3 years from completion so it is hard to judge where the share price will go.
This is a little gamble and I am well-aware of the risks involved. I know of people putting £10,000, £20,000 and I even have a friend who invested £50,000 at the price of 20p a share. At the start of July, the price was 15p so that £50,000 had lost 25% (£12,500) of its value.
As I am sat writing, the current share price of Sirius is roughly 4p. That £50,000 has now turned to £10,000. Even though my £500 has turned into roughly £130, I am comfortable with the loss and again, I was well-aware of the risks when I decided to invest.
Let me re-cap on my experience of single shares. I lost £8,000 as a young contractor when I first started offshore. After a few more years of life experience and after educating myself on money, I have again lost out on single shares. When will I ever learn?
My advice is to stay clear of single shares unless you are comfortable with losing some or all, of the initial investment. Don’t take advice from your taxi driver or the lads down the local pub. Do your own research when it comes to deciding where to put your hard-earned money.