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Great site Kenny.

Technical Analysis written in a straightforward way so that everyone understands.

There's only a small few who get it consistantly correct and you are certainly in that group. Chris

Thanks for putting this all together and sharing! BHW

Awesome Stuff! Kenny has shown time and time again the ability to show us direction in these markets. Khalsa

Kenny, I appreciate your insight and analysis. You make sense of what I can rarely see.

Thanks for sharing.

Took a gold short at 1240 just closed at 1203 :-)))))))))))))))))) ........ top call!!  Gekko

Rodney Hobson: Shares Made Simple

A beginner's guide to the stock market - Part 2

Rodney Hobson: Shares Made Simple

Rodney Hobson, author of Shares Made Simple: A beginner's guide to the stock market, talks to Kenny of It is one in a series of Rodneys books which sets out to give the beginner small investor a helping hand by taking the reader, step by step through some of the most basic concepts of stock market investing.

Rodney, who is also registered with the FSA,  is a highly respected financial journalist and author who has held many senior editorial positions in his time, positions held  include spells as:

  • News Editor for the Business section of The Times
  • Business Editor of the Singapore Monitor
  • Head of News at Citywire
  • Editor of Shares magazine
  • Deputy Business Editor of the Far Eastern Economic Review

Buy Shares Made Simple at AmazonBuy Shares Made Simple at Amazon

Return to Shares Made Simple: The Rodney Hobson Interview Part 1

The Rodney Hobson Interview Continued

Kenny: OK, I have no real knowledge of the markets other that what I see on the news and have read in the newspapers, but I have heard that there is a lot of money to be made from trading in the stock market - where do I start?

Rodney: Buy a beginner's guide to the stock market. Naturally I hope you will choose my book Shares Made Simple but there are other guides on Amazon. Learn the basics BEFORE you start to invest. Talk to any friends who invest in shares and ask them how they go about it and would they recommend their broker, just as you would ask about plumbers or electricians. Otherwise set up an online dealing account. You can find them on the Internet and you can compare charges. They charge a fixed fee per trade, often �10 or less
Kenny: What I really want to know most of all - how much money can I make?
Rodney: Hang on a minute. Don't set off in a spirit of sheer greed. Look for solid, unspectacular investments, particularly when you start out. The greater the risks you take, the more likely you are to lose money. Think in terms of  what you can earn in dividends over the long term rather than quick fire gains. Your aim should be to make more money buying and holding shares than you would putting the money somewhere else, such as in a bank account.
Kenny: How do I know what to invest my money in? Author of Shares Made Simple: Rodney Hobson
Rodney: There are no easy answers. You should decide what you want from your investments and look for shares that fit the criteria. Ask yourself whether you are looking for income or to build wealth over a period of time. How much risk are you prepared to take? Do you want to be an active or fairly passive investor? As a general rule, look for solid companies that provide goods orservices you understand and which make consistent profits and pay consistently rising dividends.
Kenny: How do I know when to buy or sell?
Rodney: Nobody knows the answer until after the event, when it is too late. People construct all sorts of methods and theories but it is simply not possible to foresee with absolute accuracy the top and bottom of the market. Every investor gets it wrong sometimes. The important thing is to look carefully at each company you consider investing in and treat it on its merits. If you are buying for the long term, as most private investors are, it is not so important to get the timing spot on. Where you do hold shares in a company you should watch for signs that the company is running into difficulties, such as adverse trading conditions. The warning signs are explained fully in my book Understanding Company News.
Kenny: I don't want to put all my eggs into one basket, should I invest in a lot of stocks to spread the risk?
Rodney: You are absolutely right to spread the risk, not only by building a portfolio of shares in several companies but by trying to pick the best ones in a range of sectors. A portfolio is simply a list of all your investments. Conventional wisdom suggests that a portfolio of about ten shares is right for most private investors because it is large enough to spread risk but small enough for you to be able to keep an eye on all the companies you have invested in.

Don't be hidebound by numbers, though. I started with a portfolio of about five companies and added others one by one as I saw an opportunity. I also bought more shares in existing holdings as I went along. I now have shares in a dozen companies and feel happy to expand further but each shareholder should have as small or as large a portfolio as they feel comfortable with.

Kenny: How much time does it take to be a private investor, how often do I need to monitor my investments?
Rodney: Don't become obsessed with your portfolio but don't just close your eyes and hope for the best. You will probably find yourself checking share prices of your investments several times a day at first but your confidence will quickly grow with time. I check share prices of my investments every morning and read through the financial pages of a serious newspaper to see if anything untoward has happened or if a new buying opportunity has arisen. A few minutes over breakfast every morning is quite sufficient.
Kenny: I am checking my investments and I find that one of my stocks has taken a big hit and dropped by nearly 20%. What do I do now? I don't want to make a loss, should I sell right away or should I hold on to see if it goes back up again?
Rodney: In these circumstances it is vital not to panic. Don't worry about what has already happened. The important thing is to take a rational decision on what will happen next. Try to find out why the shares have fallen. Has the whole market tumbled or is it just your company? Has the company issued a profit warning? As a general rule, if the whole market is down and your company looks okay then you might as well hang on for a recovery in the long term, collecting dividends in the meantime.

Where an individual company slumps in an otherwise stable stock market you should certainly consider cutting your losses. Do your homework and take a calm decision. One very important point is that warnings on falling sales or profits are usually followed by another warning, then another, with the shares taking a fresh tumble each time.
Kenny: Your new book due out later this year is called The Dividend Investor, what is a dividend and how important are dividends to my portfolio?
Rodney: Shareholders jointly own the company and are entitled to a share of the profits. The dividend is the distribution of profits to the company's owners, including you. The amount of dividend you receive each year for every GBP100 you invest in the company is known as the yield and is expressed as a percentage. It is the equivalent of the rate of interest you receive on your savings account. The higher the yield, the more you earn on your investments. You can find the yield for each company in the share price tables in newspapers or on financial websites.

Dividends are the whole point of investing and are far more important than rises and falls in share prices. Over time, in good years or bad, you will make far more money from dividends than you will from trying to buy shares cheaply and selling them at a higher price.
Kenny: So, couldn't I just buy the stocks that pay the best dividends, why doesn't every one just do that.....wouldn't it be as easy as that?
Rodney: It is a very good policy to pick companies making solid, rising profits and paying solid, rising dividends. You should, however, be wary of companies with much higher than average yields. It is a sign that investors are worried that the dividend is unsustainable and could be reduced or suspended. 
 Kenny: Rodney, I could talk to you all day about this. You have given us a  fantastic introduction to the basics for stock market beginners. thank you so much for talking to us today.

Good luck with your new book,  The Dividend Investor when it is released later this year.

More Books by Rodney Hobson

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