Stock market

Start buying shares for under £1,000? Here is how I would do it.

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The prospect of building a stock market portfolio may sound appealing. But a lot of people who say they want to start buying shares – sometimes go on forever.

One reason may be the perception that it costs too much money. In fact, it is possible to start investing with just a few hundred pounds. This will be a foundation on which to build if more money becomes available down the road.

Some basic principles of good investing

I’d like to start buying shares as I mean them: as an investor, not as a speculator.

So I’ll follow some basic principles that I think characterize good investing. For example, I would only invest in businesses that I felt I understood. I’ll manage my risks carefully: The stock market can be a bewildering place for all investors, especially newbies.

I would diversify my portfolio into a few different stocks. For the portfolio, incidentally, I would set up a share dealing account or a stocks and shares ISA.

Choosing Shares to Buy

To illustrate the type of share I would happily buy for my portfolio, consider a recent what to buy: Racket (LSE: RKT).

The company operates in a market that is large and likely to endure: consumer goods. This helps explain his considerable income.

Note also that, by and large, that income has been growing over time.

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But revenue is only part of what makes a successful business. It also matters how well the company can turn them into profits.

Here, again, I find Reckitt attractive. Last year, it made a profit after tax of £1.6bn. Like thanks to its unique brands to terminate It is able to charge a pricing premium, helping profitability.

But a common mistake when people start buying shares is to only look at one year’s worth of accounts. It is always important to get the broader picture. The racket’s highly volatile revenues over the past few years provide evidence as to why.

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Several factors explain this. But the main thing is the disastrous acquisition of the nutrition business in 2017. It was expensive and has since performed poorly.

Reading Company Accounts

However, income and losses do not necessarily equate to money coming in or going out the door. Income is an accounting concept that does not necessarily reflect actual cash flows.

I will not start buying shares before I have grasped at least the basics of company accounts.

Looking at the racket’s earnings over the past few years, this discrepancy seems like a potential red flag. Free cash flow has also jumped – but they’ve been positive and I’m less alarmed by earnings.

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Valuation of shares

The racket is not out of the woods yet.

Scaled-down nutrition operations remain problematic. A tight economy may make consumers less willing to pay premium prices for everyday products.

But I see it as an attractive business. Another mistake some investors make when they start buying stocks is confusing the good business With a good one investment.

That is why value matters. I think Reckitt’s is decent – and I’m now the happy owner of some Reckitt shares.


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