Be a successful stockpicker

Published by Sarah Coles on 18 May 2010.
Last updated on 23 August 2011

share tracker

The easy money in the stockmarket was made last year. This year success lies in being far more selective: you're going to have to pick the winners in order to profit from shares.

If you have the time, skills and knowledge required – as well as the risk appetite – you can take matters into your own hands and pick stocks yourself.

There are a number of routes into share dealing, from a straightforward online dealing account to a self–select individual savings account or a self-invested personal pension (SIPP).

The SIPP is fundamentally different from the other two, as you cannot take the money out of the pension until you retire.

Access to all three of these routes tends to be through a product offered by a stockbroker. Brokers offer three levels of service. By far the most common – and cheapest – is execution-only.

Here you are given the tools you need to research, select, buy and sell stocks online, and left to get on with things on your own without advice or interference.

The advent of online dealing has brought prices down dramatically for execution-only trading. It is easily half, or even a third, of the cost of traditional trading. It also compares well to telephone trades, which tend to cost up to 50% more than their online counterparts.

Even when trading online it's worth being aware of all the charges involved. The big cost is commission. This is either a fixed amount, which starts at around £10 a trade, or it may be a percentage of the sum you are buying or selling.

If you only ever intend to deal small sums, the percentage fee may turn out to be lower. However, if you expect to be putting large amounts through the account in the future, you may prefer the security of a fixed fee.

If you plan to trade frequently, most services will offer a reduced charge for regular dealers. This can bring the costs down significantly.

So, for example, Selftrade reduces its £12.50 dealing fee to £6 if you complete 100 trades a quarter. In addition, you have to add on stamp duty at 0.5% of the trade.

Some services will also charge a fixed fee to cover administration and running the account. So, for example, The Share Centre charges £2.50 plus VAT per quarter, and iDealing charges £5 per quarter.

This is particularly common on self-select ISA accounts, where iWeb charges £17.50 every six months, and Barclays Stockbrokers charges £30 plus VAT on balances up to £7,500 and £50 plus VAT on balances over £7,500.

You also need to watch out for an inactivity fee if you don't complete a set number of trades over a set period. Although less common now, some providers still make this charge. For example, Barclays charges £12 plus VAT for every quarter the account is inactive.

There have been some changes in the market recently with E*trade and Hoodless Brennan pulling out. In the long term, less competition could lead to higher prices.

However, at the moment, the withdrawal of these two players has left the others competing more aggressively for business.

Your trading options

To work out whether an account is right for you, think how you will use it. If you expect to trade fairly regularly, it may be worth paying The Share Centre's administration fee in return for low dealing charges.

(You will need to deal at least twice a quarter for this to constitute a saving.) If you don't intend to trade so often, it may be worth paying slightly more per trade and opting for an account without an administration fee.

There is also another variation on the theme to consider. If you are happy to forgo the instant dealing option you could choose a low-cost account.

These commit to a regular purchase on a specific date every month. The provider then bundles your dealing in with everyone else's, so you benefit from much lower dealing charges.

Interactive Investor, for example, charges £1.50 per trade for this kind of service, and in the current competitive frenzy, it's offering free dealing on its Portfolio Builder until 30 June.

When you are selecting an account, it's not just the charges you need to consider. It's also worth checking out the site of the service you plan to use, to make sure it has all the tools you need and is easy to navigate.

Most will give you easy access to research about the companies, ranging from general news to their latest report and accounts. They will also offer alerts and limits, which will let you know when a share hits a particular price.

You can elect to be notified by email or text about the price rise or fall, or you can choose for the shares to be automatically sold when they hit a particular price – either when it has risen enough for you to take a profit or when it has fallen enough for you to cut your losses.

They also provide practice accounts, allowing you to try your hand at investing in the stockmarket without getting you fingers burnt. Some, such as The Share Centre, also have telephone helplines you can call for advice.

Execution-only trading is a brilliant, lower-cost option for investors who want to go it alone. But if you want a more bespoke approach, and are prepared to pay for it, you could opt for an advisory service. This still allows you to make all the decisions about your investments.

However, you have access to an expert, who can take you through all your options, recommend particular stocks and alert you to any potential buying or selling opportunities.

This service will cost more, though – you will need around £25,000 to access it, but it's a useful approach for investors needing more hands-on assistance.

Alternatively, at the top end of the price bracket are the discretionary services from stockbrokers, where experts make decisions for you. They are like fund managers managing your money in a pot of its own, based on your precise aims and preferences.

These services come at a cost, and you'll need a portfolio of at least £50,000 to get started.

You can get a full list of stockbrokers from the website of the Association of Private Client Investment Managers and Stockbrokers.

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