An Introduction to Stock Trading Part 1

As I have previously stated I am very interested in the Stock Market at the moment so I have decided to compile an introduction to the Stock Market in the hopes that it may help someone who is in the position I was in last year.

I hope someone may find it useful, if there is anything you think I should include then please let me know so I can research it.

Thanks.

The first part is just a few definitions of terms, phrases and ratios

Stock/Share

I guess the first thing to define is what is a Stock? There are a few different types of stocks but for the basis of this guide I will only look at Ordinary Shares, which are the most regularly traded. A stock is basically a part of a company, how much of the company depends on how many Stocks are in circulation. A Limited Company owned by an individual still has a Stock but there is only 1 which covers 100% of the company if there were two directors then each share would cover 50% and so on. With the larger PLC (Publicly Limited Company) the volumes of shares is massive. Lloyds Banking Group as an example have 71,368,000,000 shares in circulation so a single share gives control of 0.0000000014% of the company. When the company holds meetings and decisions need to be made then every shareholder is entitled to a vote equal to the percentage of the company owned.

Ticker (EPIC) Symbol   

The ticker symbol of a stock is the abbreviation code by which it is traded, It is called a ticker symbol as a historical throw back to when the prices were released on a giant ticker tape. The symbol comprises two elements the first one being the name of the company and the second being the exchange that it is registered on. The first part of the symbol can include letters and numbers and is usually up to 4 characters. The market identifier is added to the end of the Ticker after a "." a company can (But doesn't have to) use the same code on different exchanges.

i.e. BP PLC has the following ticker symbols.
BP.L                 London Stock Exchange
BP                    NYSE
BPE.F              Frankfurt Stock Exchange
Obviously in this situation using BP alone would not be a unique identifier. It is good to know the ticker symbol of Stocks that you are interested in as it will remove the need to search through lists (It is also useful to always add the ".L" onto the share when looking for UK shares as otherwise many websites will assume you are after US securities.


Market Capitalization

The Market Cap of a company is taken by taking the share price and multiplying it by the number of shares, in essence this is the cost to purchase the company (Assuming everyone was willing to sell) so for Lloyds Banking Group with a share price today of  83.16p the Market Cap would be 83.16p X 71.368M shares which means that Lloyds as a company are currently worth £59,349,000,000. The market Cap is the default measure of a companies worth (At least its worth according to the stock market) and is a key metric of listed companies and it is market capitalization that is used to work out the constituents of share indexes such as the FTSE 100 (The 100 largest companies on the London Stock Exchange)

Scottish Independance Makes Business Nervous

With the big vote coming up in September on Scotland's status in the UK there have been several people speaking out on the matter recently, ignoring the clearly biased views spouted by the likes of Alex Salmond (Wants to be King of Scotland) and Alistair Darling (wants to ensure Labour don't lose the seats in Westminster) a few interesting points have come out in the last few days.

Firstly Mark Carney governor of the Bank of England spoke out about what independence would mean from a technical monetary position. before Bob Dudley, CEO of BP spoke out about the uncertainty that comes from being unsure what the Union would look like at the end of the year, although he still stated that BP were going to invest £10Bn in Scotland.

Basically these neutral viewpoints are going to be the most interesting as we head through into what I think may well become a really nasty campaign full of scare tactics and accusations where assessing what Scottish independence means may become difficult.

Personally I support Scottish Independence as I am very interested in what will happen next (I would imagine that not much would change to be honest.) My only worry is that if there is a Yes vote then we will be stitched up when it comes to negotiating the settlement with Scotland taking all of the North Sea Oil Revenue and taking on none of the National Debt. But that is more my fear in the ability of our politicians to negotiate than a fear of independence itself.

Monthly Share Updates

Not a great deal of action with my portfolio in the first month of the year, I was due to make a top up or a new purchase to balance my portfolio a little more, to do this I decided to either top up BP or National Grid or to buy into either Glaxo SmithKline or a house builder.

In the end I bought some more Tesco (reducing my per Share price from £4.34 down to £3.92 unfortunately this is still well above the current £3.21 price tag but at the end of the day I believe in Tesco and think that the recent news hasn't been as bad as made out in the press so think that the Share Price has some rebound in it. I would be expecting Tesco to sit around the £4 mark by the end of the year.

What I really learned is that I need considerably more self control to create a true High Yield Portfolio as I seem to be too driven by my feelings.

Anyway here is the state of my augmented portfolio taking into account a Dividend from National Grid as well as the £/Average of Tesco.

Interesting to see that if I had invested £1,000 in each of these as proposed in the table I would now be looking at a profit of £2,905

Stocks and Shares

I am a big fan of the stock market - to be honest I am a fan of anything that creates such a wide variety of statistics but having read Rich Dad, Poor Dad I have started to realize that I have not been paying enough attention to money producing assets.With that in mind I am going to create a HYP (High Yield Portfolio) which I am going to update on here in case anyone else is interested in my portfolio and wants to start a discussion about it.

My current portfolio contains the following shares.

Barclays
BP
Lloyds Banking Group
Royal Bank of Scotland
Tesco
Vodafone
National Grid

Now those of you that know about dividends will guess that this portfolio wasn't constructed to be a high yield portfolio as I bought all of the Banks during 2009 as I sensed a bargain, experienced investors will also notice that this portfolio is very badly balanced with 3 out of 7 banks over the next few months I am aiming to get this balanced as well as pick up some more High Dividend Payers. I will update when something is interesting but this is where I find myself at the end of the calender year. (Although the divs are calculated as a financial year so divs paid between now and March will be added and final Yield will not be finished until March.) Also I bought National Grid only a few months ago hence have not yet received a Dividend.

*For full disclosure I should say that I do indeed own all of these shares however the volumes are worked out on investing £1,000 in each share (The Purchase price is the price I paid but I didn't buy £1,000 of each - I just don't want to tell the world too much about my finances.)*

Anyway this is the state of my real/modified portfolio that I will be updating around the time I make any real trades.

BP - Beyond Protests

The Trouble with BP is continuing as on the day that they announce that CEO Tony Haywood is standing down to be replaced by a more "US Acceptable" boss. Along with £11bn pounds loss for the second quarter, it is lucky for BP that RBS had such an atrocious year back in 2007 otherwise it will be the worst quarter by any UK PLC, (RBS lost £20Bn)

But on top of these there was a protest by Green Peace targeting BP filling stations inside London, BP claimed that they shut down 50 of the stations but BP claim there were only 16 effected, The protesters it seemed entered the filling stations and removed the safety switches therefore preventing the stations from opening - because nothing bad ever happened from messing about with the safety at a petrol station! - anyway it appears that all the garages are reopened now so now lasting damage has been done, although as the London Ambulance service have a contract with BP it could all have been a lot worse. The protesters message was that BP should not be spending as much money on trying to get new sources of Oil, a message that I personally think is a joke, whilst I would love to see a new power source (I am backing Hydrogen Power) the way to achieve the goal is not to attack an Oil company for selling Oil but rather to try and change the way consumers think, it is after all a case of supply and demand, as long as we are all consuming oil they will keep digging for it, and in harder and harder places meaning that a repeat of this years disaster is inevitable. Change needs to come but it needs to come from the car manufacturers and purchasers

Finally some good Gulf News

There is finally some good news from the Gulf of Mexico as BP have announced that they have stopped, at least temporarily, the oil leaking into the Gulf.

Whilst this is very early in the process of stopping this environmental disaster but if BP can keep the oil from pumping into the Gulf then although it is obviously going to cost them a lot in clean up and compensation, but they will be able to more than cover the financial liabilities, and despite what the author of Boycott BP on Facebook seems to think I am sure that unlike Exxon they will carry on living up to their commitments until it is all cleared up. They have no choice, the US market is too important to them even if their sense of right and wrong isn't enough.

Hopefully some good news for the environment (and BP)

BP, or British Petroleum as Mr. Obama likes to call them, today announced that they had succeeded in capping off the leak in the gulf of Mexico. This will hopefully be a great bit of news for what is a very important eco-system and for the UK's premier company. it will take a couple of days to know if it has worked but hopefully we are on the way to a solution. It appears that as the leak is around a mile deep (deeper than any human can operate.) they had to use small remote control robots to do the work, which leads to the question, was this inevitable? we have increased our demand to such a high extent and exhausted all easily retrievable supplies that we are forcing these countries to operate at the very limits of scientific possibility, maybe in fact it the consumers fault.

I have to admit however that I feel Barak Obama and other Americans have been very unfair to BP on this one, obviously this is an issue that needs prompt, swift and decisive action but I have not seen anything from Tony Haywood (CEO of BP) that suggests that they haven't provided exactly this. Mr. Haywood and his team have relocated to the US to ensure that they are on hand to deal with this disaster and BP have attempted a great deal of solutions for this problem, which seems to be at odds with the impressions the Americans want for this "greedy oil" company. I am sure this is in no way lead by America's own "caring, sharing" oil companies who donate so much each year to various politicians.

Anyway, there is a question to if this will destroy BP, personally my uninformed view is that they should be ok, It is predicted to have cost the firm £1bn so far, when you consider they had profits last year of £13bn and gave £10bn in dividends to share holders, they should be alright. A bigger risk could be from a take over bid, most likely run by the aforementioned American Oil Companies.