You’ve done your research and decided that you would like to include direct shares as part of your overall investment strategy and that you want to do it yourself but you are wondering how to best get started.

There are a number of important steps to undertake and issues to consider.

Use this section as a ‘check list’ to help you get started.

• Do you have a written investment Plan?
• Should you consider paper trading?
• How do you source your information?

 Do you have a written investment plan?

Colin Nicholson, in his book ‘Building Wealth in the Stock Market’ says that:

‘.. successful investors treat their investing as though they were running a business’

This is the main reason why it is so important to document your investment strategy – it is your business plan for your investing business and sets out your goals and objectives and how you are going to reach them.

Your investment plan will be specific to the shares component of your portfolio and may form part of your overall ‘bigger picture’ financial plan.

Your investment plan will act as a guide or reference point for all your decisions throughout the investment process.

Given that your investment plan is going to be the blueprint for your investment decisions, some consideration needs to be given as to what needs to be included. There are no hard and fast rules but the following list could be used as a starting point:

• In whicy type of instruments are you going to invest?
• What timeframe are you going to use to make your buy and sell decisions?
• How much of your capital are you going to allocate to each investment?
• What are your profit objectives?
• How much of your capital are you going to risk on each investment?
• How are you going to manage your individual investment parcels?
• What criteria must be met before you initiate an investment?
• What criteria are you going to use to determine your exits?
• What tools are you going to use for your investment decisions?

There are a number of investment plan examples available but as investors we are all different so what works for one person may not work for you. Your investment plan should reflect your style, your objectives and your risk tolerances so it is important not to copy someone else’s investment plan blindly but to spend the time to determine what is going to work for you.

Below we have listed a few good books that talk about investing plans and provide examples of how they may be structured. Do your own research and reading and develop a plan that will suit you:

Building Wealth in the Stock Market – Colin Nicholson

Trading Plans Made Simple – Jacqueline & Davin Clarke

Smart Trading Plans – Justine Pollard

Trading Secrets – Louise Bedford

Here are some links to a couple of sites that provide free templates.  Note they say trading plan templates but this can easily be adjusted to investing depending on your timeframe. Also note that you may have to register by providing your email address.

Develop your trading plan

Trading Plan Template developed by Tim Wilcox

Louise Bedford’s website where she offers a free template

 Should you consider Paper Trading?

Before you put your hard earned capital into the market you may want to consider putting what you have learnt into practise by a process called paper trading.

This is where you approach a practise investment just as you would a real investment but without committing real money.

The ASX have some excellent summary articles which you can download and periodically run a Trading game which you could consider.

 How do you source your information

As an investor you are going to need information to help you make your investing decisions. Whether this information is technically or fundamentally based, you are going to need to access some investing ‘tools of the trade’ and often investors are overwhelmed with the choices that are available.

Let’s explore some free sources of information and then take a look at some paid for software and services that may add value.

Note that the AIA does not make recommendations on any products or services, it is up to you to do your own research to determine what resources are going to suit your investing style and budget. The AIA’s intention by providing you with basic information is to help get you started.

Online Brokers

Your online broker should be able to provide you with a wide range of information, usually free of charge, when you open up a brokerage account. Typically the type of information you can access consists of:

• Market depth
• Fundamental information including Dividend Yield, PE Ratio, Debt Equity Ratio, earnings and dividend forecasts etc.
• Basic charting capability
• Access to news and announcements for stocks of interest

Free Charting software

Incredible Charts provides no cost charting software which is internet based and allows you to access charts of Australian, UK and USA stocks as well world indices.

You have access to 10+ years of clean data, more than 50 indicators and a powerful stock screening function.

Because it is internet based you have no data loss or data management issues. There is also a subscription version available.

Incredible Charts is an excellent free software package to get you started. 

Australian stock exchange

The ASX site is a great free resource tool which allows you to do detailed searches on prices, announcements and basic charting.  It is also an excellent resource for further education on all share market related topics. 

Charting software

Good charts and data are the basis of technical analysis.

There are a number of software packages available and prices can range from $200 to $4000.

It is important to know what functionality you need before you purchase anything so always try a demo version if possible.

Charting software needs to be fed with clean (checked and adjusted) data and this can cost anywhere from $30 to $50 per month. Free data is available but be aware that this data may not be reliable.

Moneybags did a review of software packages and while the prices are a little old, the checklist and process and comparison table are all still valid – well worth a look as a starting point for your own research.

A balanced review on the Amibroker charting software which is under $400 to purchase and doesn’t appear on the moneybags list above.

An American article on getting started with charting and technical analysis outlines some excellent points to consider.

Sourcing fundamental information

There are a range of fundamental software packages available for purchase. Three that stand out are:

Stock Doctor

Stock Doctor empowers stock market investors with professional fundamental analysis and portfolio management tools for informed investment decision-making.

Combining Financial Health analysis of more than 2,000 ASX listed companies, professional stock screening and selection tools and unlimited analytical support, Stock Doctor gives you full control over your stock selection decisions within an objective and disciplined framework.

For more information visit the Stock Doctor website.

Team Invest

Membership of Teaminvest provides private investors and the trustees of Self Managed Super Funds with Proprietary Tools and Collective Intelligence Sessions to select Wealth Winners™ and avoid Capital Killers™ from the 2000 companies listed on the ASX – such that members can feel confident about investing.

For more information visit the Team Invest website. 

MyClime

Based on a value investing methodology and information gathered by a team of analysts, MyClime provides you with a combination of key company data, in depth company reports and valuations. It establishes how much a stock is worth to allows you to determine whether the current market price accurately reflects the valuation, and presents an opportunity to buy, hold or sell.

For more information visit the MyClime website.