Although this post is titled Learning to Invest Week 6, it’s been a month since I posted Learning to Invest Week 5. So I have four weeks worth of material to write up. And, full disclosure, I have now picked the 12 different companies I’m going to start by investing in, and have invested £90 each in six of them, so in a way my Learning to Invest journey is coming to an end for now. More on that to come. I might split these past fours weeks of material up into separate posts depending on how much writing comes out of it, so that they’re about five minutes long to read each.
By the end of Learning to Invest Week 5, I had created three lists of companies: those on the FTSE4Good UK Index; the FTSE Small Cap; and the FTSE Fledgling.
I forgot to add in Learning to Invest Week 5 that there were terms I came across when making my three lists of companies that I didn’t know the meaning of and so looked up. They were:
Trust: according to BlackRock, An investment trust is a public limited company that aims to make money by investing in other companies. AJBell writers that they are risky to invest in, so I am thinking I will try to avoid them…
REIT: a Real Estate Investment Trust, which is, according to Investopedia, a company that owns, operates, or finances income-generating real estate.
DI: I think this means Depository Interest. According to gov.uk, a UK depositary interest is a UK-registered security which represents rights to an underlying foreign security. Depositary interests are created to enable foreign securities to be bought and sold on the UK market and settled within the CREST system. And what is CREST you ask? Well, according to Investopedia, it is the central securities depository for markets in the United Kingdom and for Irish stocks.
NPV: This stands for Net Present Value, but after Googling I’m still unsure of what it means when it is in a company’s name. It seems like it might be related to Trusts… I think I’m best avoiding them for now too…
My plan was to to look up each individual company on those three lists using ADVFN’s Filter X, to see whether or not they met the following criteria I’d set:
Percentage change of adjusted EPS and dividend consistently positive and greater than inflation over the past five years;
Dividend cover consistently hovering around 2 to 3 over the past five years;
Prospective yield at least 10%;
Forward P/E around 15 or lower.
If they did, I was going to mark them on my spreadsheet by filling the cell in light green, and go from there.
So, to start using ADVFN’s Filter X to check which companies on my three lists I wanted to look into more, I added the Key Figures columns: Dividend Cover, Dividend Yield, and PE ratio. I quickly realised this was not an efficient method. First of all, most of the companies were missing values for dividend yield and/or PE ratio. After some digging I realised this was because the company didn’t pay a dividend, and/or had made a loss and thus had no earnings per share - they had a loss per share.
I therefore quickly decided to completely change my strategy.
I downloaded my Filter X data into a spreadsheet so I could manipulate it in Excel myself. I then deleted all companies where dividend yield wasn’t 10% or more - or was missing - since earning 10% or more on my money through dividends is my main aim. I then moved my focus to dividend cover, and deleted all companies where it was lower than 1.5. That only left 16 companies; remember, my aim was to find 24 so I could invest in 12 while keeping a different 12 on the back burner. Looking back at my three lists I’d initially created, only six of the remaining 16 were also on those. Four of those six were missing a PE ratio, so I assumed they’d made a loss, and thus I was left with two. They were Videndum, and Gore Street Energy Storage Fund.
At the time of writing, a share in Videndum costs £3.12, while a share in Gore Street costs just under 66p, and the prices when I initially discovered them were similar. At some point I had read about Penny Stocks on Investopedia: shares that cost less than £1 or $5. My takeaway was that one is better off avoiding them, so that ruled out investing in Gore Street.
At that point I was itching to invest, so after looking into Videndum some more - I browsed their 2022 annual report, focusing on their Five Year Financial Summary (provided on P229) - I decided I’d dip my toe in the water by buying £90 worth of their shares. On the afternoon of 16th February I opened a stocks and shares ISA with Trading212 - as recommended by Martin Lewis the Money Saving Expert - and did just that. Each share cost £3.46 each. As soon as I’d bought them I set up a sell-stop order at £3.20 - 92.5% of what I paid.
Unfortunately, on 7th March, my sell-stop order was activated since the Videndum share price fell to just under £3.17. In total I lost about £8. This initial dabble with investing taught me a couple of lessons though, which I’ll write about in the next post along with where my investing journey took me from there.