1st time investing in shares. Risks?

Hi all. I'm a newbie here and was just after a bit of advice. I have been saving for about 3 months now and have $12,000 saved. I really want to get into property investing. But in the mean time am thinking of buying some shares (to hold for approx 12 months).
Not game enough to take a big risk and put all my $12k into shares, but would buy $5k worth.
People around me say shares are a big gamble. Can i ask when it comes to losing money off shares, is that more so the people who buy shares and then sell them soon after because they panic when they see the value drop?
If you hold onto shares for a great period of time (5 years or more) are you pretty much guarenteed a profit instead of loss or is it still a gamble?
Is it best if you buy shares in a company and you see them losing value to still hold onto them and hope/wait for them to go back up in value? Does this mostly happens? Havent yet done alot of research but so far thinking of investing in the banks or biotech companies.
Very keen for some replies, Cheers! *Sarah

Welcome aboard Sarah. 1983 was a fine vintage, so you've got a head start over most others!

There are plenty of threads here at ASF that discuss in detail many of the questions you've asked. The search function should assist you in finding these.

Can i ask when it comes to losing money off shares, is that more so the people who buy shares and then sell them soon after because they panic when they see the value drop?

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You're correct in the sense that generally the shorter your time frame, the higher the risk. That said, despite the market's tendency upwards in the longterm, individual stocks do move against the tide, therefore its possible to lose money irrespective of the period you intend to hold for.

The other thing to note is that while property and shares have a reputation for appreciating just by holding them for a long time, it doesn't mean that if you were to buy now and sell in five years you will have made money. Past performance is by no means any indication of future performance.

People around me say shares are a big gamble.

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And I bet that the same people wouldn't have a similar opinion on property. This is because just about everyone owns a house, is paying off a mortgage or is looking for a house to buy. They understand the market fairly well. They're familar with what features are likely to make a property appreciate (eg. location, bedrooms, bathrooms, proximity to infrastructure) but unfamilar with the corresponding 'features' of shares that make them appreciate. They are right in saying that investing in shares is more risky for them as they haven't taken the time to understand it. If you are willing to take the time to invest significant time in research and study, there is no reason why investing in shares should be any more risky.

Is it best if you buy shares in a company and you see them losing value to still hold onto them and hope/wait for them to go back up in value?

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Unfortunately, there is no blanket 'best' solution. Many people here advocate buying in an uptrend and letting your profits run. Others, though not so much on these forums profit well by taking a contrarian view. The common denominator between the two is that there is no hope. Having hope in the market is a great way to lose money. Even the contrarian has done significant research in the company s/he is buying into and believes their risk/reward profile makes the investment worthwhile. The contrarian doesn't hope for a positive outcome, they plan for it.

Havent yet done alot of research but so far thinking of investing in the banks or biotech companies.

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If you are starting out, I would encourage you to get ahold of some books by Daryl Guppy to learn about trading. Even if you are investing, his books touch on many concepts applicable to both and he uses some great examples to illustrate each aspect's necessity.

Finally, you suggest that you're looking at some specific sectors. For a novice investor, this can be beneficial as it allows you to thoroughly study one market so you can get a good feeling of the macroeconomic and political factors effecting that market and where each company fits in amongst its competitors. The main thing to be aware of, if you are buying into a single market, it can increase the risk profile of the investment.

Hi DoctorJ!
Thankyou so much for the reply. I really appreciate the time you took to try and help me out. Also, thanks for recommending me the author Daryl Guppy - I am definately keen on reading up on anything and everything in the next few weeks or so before making any rash decisions.
Well it's way past my bedtime, thanks again for your advice.
'Night! *Sarah

sarah1983 said:

Not game enough to take a big risk and put all my $12k into shares, but would buy $5k worth.

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Don't think that will get you much in terms of quality companies to spread the risk.
Have you thought about managed funds? They may be more suitable, especially if you can add funds to it monthly. However managed funds are longer time frame than you suggested.

sarah1983 said:

when it comes to losing money off shares, is that more so the people who buy shares and then sell them soon after because they panic when they see the value drop?
If you hold onto shares for a great period of time (5 years or more) are you pretty much guarenteed a profit instead of loss or is it still a gamble?
Is it best if you buy shares in a company and you see them losing value to still hold onto them and hope/wait for them to go back up in value? Does this mostly happens?

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Fear is a powerful emotion and maybe some people employ the preserve capital at all costs. I can't really comment on why people would sell after just buying something, but if you were trading on fundamentals then only changes to the fundamentals of the company or economy should get you to sell.
If however you trade on the technicals on a company, the share price action then you may sell after it drops a set amount (10%?) to protect capital.

From my experience, the first share I bought dropped in value 40% from my first buy, but by then I was confident in the company and was screaming at my family and friends to get some (in fact I bet some mates that I'd give them double their money back if the company wasn't up more than 400% in 3 years, which I would have won, no one took me up on it).
From then on the company has been up 1000% although only up 750% or so now.

Over the long term shares in terms of the indices tracked have done well, but there are periods 5-10years every few decades that are terrible like the Depression years of 1920-1930's, 1970's where share indices went nowhere or went down, 2000-2004 could be classed as another one of those periods
No doubt we'll have bad years in the future but its hard to tell exactly when it'll happen again
In my personal opinion we'll see some trouble no to far away

sarah1983 said:

Havent yet done alot of research but so far thinking of investing in the banks or biotech companies.

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Thats a far spread between risk classes, if your going to buy anything, but specially speculative shares only risk what you can afford to lose.

Sarah - your probably keen to get started and buy some shares (after hearing about the success of your relatives).

I am only just starting too and my advice to you would be not to invest in anything at the moment (irrespective of your keenness to start).

Instead I would suggest you start using this current downturn in the market period to become educated in investing in shares.

Read as much as you can (lots of excellent information here at ASF).

As you learn you will realise that this is not a good time for a beginner to start investing. You will also start to realise that you should educate yourself enough so that you can decide when & what you invest in.

One of the most important rules to learn?

Preserve your capital!

(See threads on money management - tech/a and others have written some good posts on this).

Best of luck (although you need more than luck at the moment)

Hi Sarah and welcome,
Just as an aside if you're worried that you'll miss out on some bargains or share gains and want to jump in quick- don't! There will always be opportunities in the market just prepare yourself before investing. You should also remember that it is highly probable as a first timer that you may lose all your money (and possibly more). Most people only look at the upside. Imagine what you would face if you had no money to invest in property as you plan. Patience is amply rewarded in the sharemarket but you must do a lot of research and testing first. This is probably the ideal time to learn about how stocks can also go down.

doctorj said:

If you are starting out, I would encourage you to get ahold of some books by Daryl Guppy to learn about trading. Even if you are investing, his books touch on many concepts applicable to both and he uses some great examples to illustrate each aspect's necessity.

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I'm also quite green at this whole stockmarket thing (22 aswell - today infact!) and have read some of Guppy's books. They contain a great deal of good stuff but I found him a bit too advanced to start with. Any other recommendations doctor?

If you're interested in trading, as opposed to buy-and-hold investing, then Leon Wilson's "The Business of Share Trading" is pretty good.

GP

GreatPig said:

If you're interested in trading, as opposed to buy-and-hold investing, then Leon Wilson's "The Business of Share Trading" is pretty good.

GP

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thanks heaps,
less advanced than his second book?

loakglen said:

less advanced than his second book?

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I haven't read his second book, but from looking at the synopsis, I'd say so. The second book is graded intermediate while the first book is beginner.

GP

The biggest risk in my view (and 95% of traders do it every day) is that they have no idea if the way they trade is long term profitable.

Forget the method you adopt----unless you KNOW its profitable you're just taking a punt trade after trade---------and people wonder why they have a win here a win there and cant make a decent $$.

Ask yourself---would you put $100,000 on your next 20 trades??

How much do you think you'd have left?
Do you know?
Shouldn't you find out?---Even if your trading with $10,000

So I'd say FIND OUT how to FIND OUT if you can be profitable.

I think you should educated yourself more before you start buying stock or invest small amounts of money first to build confidence.

GreatPig said:

I haven't read his second book, but from looking at the synopsis, I'd say so. The second book is graded intermediate while the first book is beginner.

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thanks GP

Hey Sarah,

I started to invest about 2.5 year ago in the stock market. But before I put my first $$ I spent 6 months reading about it.

I like to look at the fundamental of a company and do my homework.

sarah1983 said:

If you hold onto shares for a great period of time (5 years or more) are you pretty much guaranteed a profit instead of loss or is it still a gamble?

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What home work have you done on the shares ?
What does the profit and loss statement say ?
Has the sales been growing ?
What the debt level ?
What the EPS of the share and P/E?
Does the entire figure match in the Profit and Loss to the balance sheet ?
(This can all be found in the yearly report and the internet)

Ok time for the real home work;
I will give you and example of a share I am.
I rang up two of it clients that it reported in it yearly report, ask what they felt.
They I ask some people in the industry what they felt about that company.
I went down to the company show room to see how empty/full it was.
They I rang up the number off yearly report as I had a few questions about it debt level etc.
All of this checks out so I bought myself some of the stock.

I think any sort of investment is a risk, but it up to you to reduce the risk by doing your own research.

Here is an example a stock I was in called MRL( rename to SFH).

I did all my home work on the "books", this all checkout.

Then they announce, they are not going to pay div. this year but reduce debt with the money. Look at the books ....
I could only see a good thing from this.
Stocked drop to 1.21, then .90 cent.

I bought some stock.
The priced dropped further.
75 cents
By this stage I was in a semi panic, so I check all the books went down to the store asked a sale lady how the sale where going etc. Everything checks out ok.
SO I bought some more stock at .70 cents.
Believe u me I was watching that stock price everyday.

Any way the stock rebound back, I sold out at 1.71 about a year ago.

Rules I learnt
Don’t look at the price everyday because you are investing in the long term.
You have done your home work and every 2 months keep doing a health check on the company.
Yes I do have a full time job and it does keep me very busy, but putting aside some time to look at a company and get to know the story of that company for my investment is worth it.

Not boasting.
I started off with 20,000 and I have grown this to be 75,000 in two years and some people have called this luck, but I guess they did not see me doing the homework and look at my notes and scape books about stocks that I was interested in.

Good luck and I hope you get the same rewards in $$ terms and also emotionally as I did.

sarah1983 said:

Hi all. I'm a newbie here and was just after a bit of advice. I have been saving for about 3 months now and have $12,000 saved. I really want to get into property investing. But in the mean time am thinking of buying some shares (to hold for approx 12 months).
Not game enough to take a big risk and put all my $12k into shares, but would buy $5k worth.
People around me say shares are a big gamble. Can i ask when it comes to losing money off shares, is that more so the people who buy shares and then sell them soon after because they panic when they see the value drop?
If you hold onto shares for a great period of time (5 years or more) are you pretty much guaranteed a profit instead of loss or is it still a gamble?
Very keen for some replies, Cheers! *Sarah

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Hi Sarah1983 I have 3 years of market experience and am by no means an expert or technically qualified but I have this to show you.

On this 20 year chart of BHP you will see the ups and downs and what is obvious is the start of the steep price per share rise since 2003.The company pays a dividend along with the longer term share price growth so it offers a safer investment option over time.(please note that this is an example).

The market is in a particularly strong bull run at the moment and no one knows when it will wind down.Markets are at all time highs so entry (the price you want to pay per share) is important if you want to see a continued rise from entry.There is absolutely no guarantee that in 12 months you will have more money but as you can see from the chart and also some reading up of the company of your choice you will achieve capital growth over time.If you have a percentage growth target then that might be easier to hit.Know your company and fairwell.

hongwong said:

I like to look at the fundamental of a company and do my homework.


What home work have you done on the shares ?
What does the profit and loss statement say ?
Has the sales been growing ?
What the debt level ?
What the EPS of the share and P/E?
Does the entire figure match in the Profit and Loss to the balance sheet ?
(This can all be found in the yearly report and the internet)

Ok time for the real home work;
I will give you and example of a share I am.
I rang up two of it clients that it reported in it yearly report, ask what they felt.
They I ask some people in the industry what they felt about that company.
I went down to the company show room to see how empty/full it was.
They I rang up the number off yearly report as I had a few questions about it debt level etc.
All of this checks out so I bought myself some of the stock.

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You don't mention looking at what the SP was doing? So you would have bought on the above criteria even if the SP was going down?

It may be of interest to those posting here that Sarah posted 2 years ago. You guys are talking to a ghost.

lol i was about to point the same thing out, hahahaha

looks like she put her money into property

AnalysisParalysis said:

It may be of interest to those posting here that Sarah posted 2 years ago. You guys are talking to a ghost.

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This has to be one of the funniest posts i have ever read in ASF

AnalysisParalysis said:

It may be of interest to those posting here that Sarah posted 2 years ago. You guys are talking to a ghost.

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Dohhh....failed to look at the date...silly me.:bekloppt: hi sarah.