London Stock Exchange – London Stock Exchange – How everyday brands can help start your investing journey | Fintech Zoom

Investing in the stock market can sound daunting but one way to start is by following the mantra of buying what you know.

There may be a stock market-listed company behind the everyday items you buy such as your morning coffee or how you stream your music – and as a customer you are well-placed to consider how that consumer brand is faring.

If you’ve ever sipped a Starbucks Frappuccino, downloaded an Apple iPhone app or streamed your favourite song on Spotify, then you have dealt with some of the largest companies on the stock market. Even your social network and your bank have a stock market listing.

All these companies have built recognisable brands by offering a service or product that has become popular among consumers. 

Following consumer habits is a good way to find decent services and products, but it can also be an effective investing strategy. 

But it’s not as simple as buying into a company because you like its products or services, you need to think about good they are, whether it is growing and attracting more customers and then take a proper look at the financial figures to check up on it.

No-one has a crystal ball so it’s hard to know how a company is going to perform, but there are companies such as Apple, Starbucks, Amazon and McDonalds that all have dominant market positions, a strong repeat customer base, and have withstood the test of time.

It doesn’t matter if you don’t get in at the beginning; recognisable brands with strong business models that you use everyday can still help build a successful stock portfolio with reliable returns on a regular basis.

Here’s a beginner’s guide to shares and how to spot a stock market winner often from right under your nose. 

What is a stock market?

Companies issue shares traded on the stock market to raise money, perhaps for the growth and improvement of their product or service. 

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The stock market also gives the public, such as investors, the chance to benefit from the growth (while also sharing in the losses) of a company by becoming shareholders.

Different countries have their own stock markets. The largest is the New York Stock Exchange in America, where Apple, Microsoft, Amazon and Google are listed.

The country also hosts the NASDAQ, which is for more technology-focused companies such as Facebook and Spotify.

The UK has the well-known London Stock Exchange, where you’ll find companies such as BP, Vodafone and HSBC.

You can buy shares in a company on the stock market either when it first lists, through an initial public offering (IPO), or any time after.

An individual company on the stock market is known as a stock and each will have its own share price, which is how much you have to pay at any given time to own a portion of it.

 For example, if you invested £1,000 in an IPO for a stock with a share price of 330p, you would own 303 shares.

If the price grows to 500p in the first year then your investment will have grown by 51 per cent and would be worth £1,510. However, if the price halves to 165p in the first year, your investment will be worth just £500.

Understanding what causes shares to fluctuate can help you make educated decisions in your investments

What makes shares go up or down?

Rising profits are often the best sign of a well-positioned company but one of the biggest drivers of the stock market can be sentiment.

A share price can drop because of bad news such as poor financial results, scandal or even if commentators decide they don’t like a company’s prospects. Similarly, they can rise from good news and analysts favouring a company.

It is not just the company that is important though – positive or negative sector news can also have an impact.

For example, many technology stocks, such as Netflix and Zoom, have seen a boost to their share price during the pandemic as they are seen as ‘lockdown stocks’ – companies that benefit from people being told to stay at home.

Spotting these trends at the right time is one key to being a successful investor.

Your favourite place to get cup of joe could be everyone’s new go-to drinking establishment – so investing in the company behind it could prove lucrative

What to consider when buying shares

As well as not putting all of your eggs in one basket and diversifying your investments, across at least 10 to 15 different company shares, you might consider going for recognisable brands when building a stock portfolio. 

Can you imagine a world without McDonalds, Amazon, Disney or even Netflix? 

These are often larger companies, which will have a less volatile share price than small firms. However, that’s not true of all well known companies, so investigate how much a company’s share price tends to move. 

But there are other important factors beyond the name and market position.

One of the most common ways to assess a stock is to look at its fundamentals or financial strength.

There are three popular measurements or metrics when assessing the strength of a stock. First is the price-to-earnings ratio, which is the share price of company divided by the earnings per share figure.

A high ratio could suggest the company is set for growth but it may also mean it is overvalued if it is way above its rivals. Similarly, a company may appear undervalued if its ratio is below its rivals.

Online investment platforms such as eToro provide data on price-to-earnings ratios, equity return and annual reports. You can also look at graphs to analyse historical data on stocks to see if you can spot any trends

Many companies will also pay dividends, these are regular payments to investors.

You can work out how the return from this by dividing the dividend per share by a company’s share price to give you the dividend yield (how much a company pays out each year relative to its stock price) and compare it to others from the same sector.

Another measurement is the return of equity, which shows how profitable a company is by comparing the net income with the amount of equity on the balance sheet. 

Before investing in individual shares, you should read a company’s annual reports to spot any developments that may affect its performance. 

Similarly, keeping an eye on news stories can keep you up to date with how the stocks in your portfolio are performing.

The main rule is to work out your long-term goals and reason for investing and ultimately understanding the risks of each stock.

Start with brands you know and monitor the underlying data – you may find that investing might be a risk worth taking.

With over 2,800 brands to choose from and commission-free stock investing, start your investment journey today with eToro’s simple to use platform. Visit eToro’s website.