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Halifax ShareBuilder Case Studies
Share dealing isn’t just for city slickers. All kinds of people enjoy buying and selling shares, including lots of Halifax customers. We’ve asked a few of them to tell us how they use their account and the investment strategies they employ:
Buy and Hold
Mary Parris is 55, from Leek in Staffordshire. She is a typical novice investor who wants to use the stock market as a new and more interesting way to save. She is keen to learn and uses the Internet to research companies and investment strategies. Mary is buying shares to build up a valuable portfolio over time and is now gearing up for her first real-time purchase.
Mary’s approach is a good example of the buy and hold strategy. This can be a safe and steady accumulation technique, which makes it popular with cautious, less experienced investors. She sees building up a portfolio of shares as being like making deposits in a bank or building society account; she hopes that over time the value will generally rise. While this strategy can be a low risk way to build a portfolio gradually, it can be more difficult to make big gains when compared with other strategies.
High Yielding Stock
Mike Conroy from Norfolk is 37 and one of a growing number of more experienced investors who are keen to take advantage of the market information and low commission on offer from Halifax ShareBuilder. Mike has four separate accounts and uses a different strategy for each. In the most profitable of his accounts, he places £100 a month and buys stock with a high dividend yield to cover his purchase costs. The value of his portfolio has gained 20% in value in 29 months.
Mike is a good example of someone with a high yield strategy. Dividends are measured as a percentage of the share price and therefore a high dividend yield usually means that the share price has been marked down for some reason. Perhaps the City doesn't believe the company's future projections so the share price is low relative to the dividend (which is of course, paid out of current profits). The high yield strategy means that you are really investing for income rather than long-term gain. Unless, of course, the City is wrong and the long-term prospects are good, in which case you could win on both fronts.
Penny Shares
Matt Smith from Kent is relatively new to share dealing. He invests with a mixture of regular monthly investments and lump sums. Matt currently buys into the more obscure holdings consulting newspapers for advice and tips.
The share prices of these smaller or newer companies are often very low and are called penny shares. The definition of penny shares is where the bid-offer spread is 10 per cent or more of the offer price.
But don't forget, the risk and reward of penny shares are inextricably linked. You're more likely to make either a big loss or a big gain in a short space of time by investing in these types of company's than larger and more stable ones. For example, if you invest £1,000 in shares that cost 10 pence, a 1 penny movement in the share price will mean you make a 10% gain or a 10% loss – and these shares can easily move by two or three pence a day.
Famous penny shares of the past include Microsoft and Coca Cola so big gains are possible but as we've said, so are big losses. This is not a strategy for the faint hearted!
Beating the Fund Manager
David Martin from Kent accumulates shares up to a limit he sets for himself, then moves on to new targets. He always maintains two lists of shares: the first is the stock he owns, while the second is stock he is likely to purchase in the future and which he wants to track.
Many investors use this technique of setting a percentage growth target and then aiming to beat it with their own investments. The growth rate that investors aim to beat can be anything from interest rates, an advertised growth rate from a fund manager or a percentage they set themselves. When they are dealing, rather than hanging on to shares to see a continued growth in value, these investors sell when their shares achieve the set growth rate.
If you follow this strategy, there is a risk of missing out on what could be a potentially even higher growth rate. A strategy taken by some investors in this case is to 'sit on the fence'; rather than selling all their shares as soon as a set growth rate is achieved. They hang on to a small number to see if these can grow even more, therefore potentially making more money than if they had initially sold.
Pound Cost Averaging
Nick Lockwood is from Kent. He has always been interested in investing in the stock market but thought it would be too complicated. However, after joining a small investment club, he was tempted to try out what he'd learnt for real. Now Nick regularly contributes £120 or more every month to his Halifax ShareBuilder. He tends to invest continually in a single stock over a long period of time, to even out the highs and lows of the market.
Nick's technique is a classic example of a pound cost averaging strategy. By investing a small amount on a regular basis over time, you can iron out the peaks and troughs of the stock market. If the market is up you will get less for your money and when it falls, you will get more. Overall, over a period of time you get an average number of shares and don’t have to worry about timing your share purchases.
Halifax Share Dealing does not provide investment advice and the information on this page is not a solicitation or recommendation to buy, sell or otherwise hold any particular investment or to take a particular course of action.
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Please remember the value of your investments and the income from them can go down as well as up. You may not get back the full amount you have invested. If you're in any doubt about the suitability of any of our products, or whether to buy or sell shares, you should consult an appropriate Financial Adviser.
