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How to invest in shares

Discover how to buy shares with our in-depth guide. From the meaning of stocks and shares to where to invest, and the potential advantages of shares, we’ll cover everything you need to know. But remember investments carry risk and can go down as well as up.

The romance around buying and selling shares is arguably the reason why most people become investors. They’ve seen high-powered movies like Wall Street where glamorous dealers, juggling one, two, three phones at a time, make split-second decisions to land a couple of fortunes before they hit the mid-afternoon champagne bars.

Reality is, of course, somewhat different. But investing in shares still calls for a great deal of nous, knowledge, experience and passion.

How to buy shares for beginners

Stocks and shares give you the chance to branch out beyond cash savings accounts. They offer the potential for higher returns, provided you’re willing to accept a degree of risk.

What are shares?

Companies issue shares in their business to investors primarily to raise money. This is known as equity financing (rather than debt financing eg, getting a bank loan).

Just say a company is valued at £200 million and there are 50 million shares on issue (available to buy). In that case, each share would be worth £4 (or 400p as it’s usually displayed in newspaper share listings).

When an investor buys shares in a company listed on a stock exchange, for example Marks & Spencer, it means they own part of it.

Of course, you’re not responsible for hiring the next chief executive or finding a pair of yellow trousers with a 50-inch waist. But you can still benefit from the company’s growth.

How can you make money from shares?

If a company is doing well, it will be reflected in a rise in its share price. So, if you decide to sell those shares, you’re likely to make a profit on your initial investment.

However, if the company does not perform well or if – keeping our M&S analogy – the retail sector suffers in an economic downturn, so will the value of the shares. That means you might lose money if you decide to sell your shares at the reduced price.

You can also invest in listed companies through managed funds and investment trusts. With these, however, you hand over the responsibility and decision-making to professional fund managers.

This has obvious benefits, given you are tapping into the knowledge of highly experienced people. But in this article, we’re focused on those going it alone.

What are the main advantages of shares?

From investment gains to dividends, there are plenty of potential advantages of shares to consider…

Opportunity to make investment gains

As we’ve mentioned, one of the main shares benefits arises when the share price of the company you are invested in begins to climb above your purchase price.

It’s then up to you whether you hold on to those shares, and see if the price will go even higher, or decide to sell and pocket the profit.

Because you are doing this on your own, you have the freedom to act upon your own research, hunches, knowledge and eye for an opportunity. It is up to you, and only you, which shares you buy, where and how many – and whether to hold or sell.


Public stock markets, especially large ones like the London Stock Exchange, tend to have good liquidity. This means it’s easier to buy and sell shares from and to other investors when you choose, without a negative impact on the share price.

You can spend all day doing your trading from the early hours of the UK morning when Asian markets are open, through to mid-afternoon in London and then the US markets in the evening. You can buy shares around the globe.

Dividend income

One of the other huge shares benefits is dividends. These are regular payments many listed companies give to their shareholders. Not all companies pay dividends and these, like the shares themselves, go up and down. Shares carry varying levels of risk depending on the geographical region and industry sector in which they invest and you should make yourself aware of these specific risks prior to investing.

You will also be invited along to the company’s Annual General Meeting, where you can vote on a variety of issues, such as the chief executive’s pay packet and bonuses. You’ll likely get a free lunch too – which is never a bad thing.

The value of shares may go down as well as up and you may get back less than you originally invested.

The amount of dividends paid can also go up and down. Not all companies pay dividends.

Shares carry varying levels of risk depending on the geographical region and industry sector in which they invest.  You should make yourself aware of these specific risks prior to investing.

Who buys stocks and shares?

Back in swinging 1963, some 54% of UK shares on the London stock market were owned by UK residents. At the end of 2020, according to the Office for National Statistics (ONS), this proportion had slumped to just 12%.

Over the same period the ONS reported unit trusts climbed from a meagre 1.3% to 7.4%. But this isn’t a story of more people handing over their stock-picking powers to flamboyant and all-knowing investment managers.

Share trading is still wildly popular. Shares aren't just owned by people from Burnley, Bognor or Berwick, but also from Bangalore, Brisbane and Boston. Again, according to the ONS, the proportion of UK shares owned by investors outside the UK surged from 11.8% in 1990 to 56.3% in 2020.

That’s down to the greater internationalisation of the UK stock market, and overseas residents finding it easier to invest in UK-quoted shares.

What are the main stocks and shares strategies?

There are several share trading (buying and selling) strategies you could follow. Many of these depend on your risk appetite.

Buy and hold

You could play the ‘buy and hold’ game long championed by legendary investor Warren Buffett. This does what it says on the tin – you buy a share and hold it for the long term, no matter the direction of its price in times of economic or company trouble. You don’t get too excited by the highs, and you don’t get too downcast about the lows.

The idea is that if you believe in the stock and its long-term growth prospects, when you do eventually come to sell, you are more likely to make some money over the long term.

Become a dividend investor

You could also become a dividend investor, by seeking out the shares of companies who pay regular, beefy dividends. If they’re doing this, they will tend to be performing consistently well, helping the share price grow. But remember, the value of dividends can go up and down.

Become a growth investor

Or perhaps you’re interested in becoming a growth investor. This is where you try to find those companies either in the early stages of their development or benefiting from the growth of a new economic trend, and whose price keeps benefitting from high returns. Growth investors need to take extra care though as smaller companies’ shares can be more volatile and less liquid than larger companies’ shares and can carry more risk.

Alternatively, you could seek out more defensive stocks – those like consumer goods firms which grow more slowly but can weather tough economic periods.

Other strategies

Of course, you could try to mix the above approaches to add more diversification to your portfolio. You can carry out these strategies at your own pace and tempo too. So, if you are like Warren and like to sit back and relax in an armchair with your buy and hold strategy, then that’s fine.

But some investors want to have a bit more excitement and trade more frequently. Alternative approaches include:

  • Position trading. This is like buy and hold, but you try to determine the starting and finishing price of a trend
  • Swing trading. These traders look to buy shares when they think the market will rise and sell when they believe the market will fall
  • Day trading. Where you look to benefit from the daily fluctuations in a share price. These traders will open their positions at the beginning of a day and then look to close just before the market shuts up shop
  • Scalp trading. If you’re feeling particularly daring after too many Coco-Pops, you could try a bit of scalp trading, where you hold positions for only a few minutes or even seconds to capitalise on price movements

How do I choose where to buy shares?

Investing in shares isn’t like the Grand National. It is not a case of closing your eyes and sticking a pin in the share listing pages to find your favourite. It’s also not about choosing the company with the lucky or funny name and cool logo either.

There is a lot to be said for buying shares in companies you like or are familiar with – such as a supermarket or train company. Yet even with these decisions, you have to base them not on emotion but on detailed research and analysis.

There are two main methods when deciding how to buy shares in the UK: technical analysis and fundamental analysis.

Technical analysis

Anyone who likes a chart and an extravagant phrase or name will love technical analysis. This involves spotting historical trends and patterns in price and volume movements of individual shares and markets, in daily and weekly charts. The aim is to work out which direction the share price or market will go next, prompting you to sell or buy.

One example is candlestick analysis. It displays the highest price, opening price, closing price and lowest price of a share during a day, hour or even minute in the shape of a candlestick.

Investors can look at the shape and how it changes during the day or over time to find a pattern.

According to Investopedia, a bullish hammer candlestick shape is created when the share price moves significantly lower after the market opens, then rallies to close the day near a high. A bearish candlestick, known as a ‘hanging man’, is obviously the less rosy alternative.

Fundamental analysis

This involves investors taking a top-down or bottom-up stock selection approach. Some investors focus solely on just one, but others look to combine the two to give them a clearer picture.

Top-down approach

A top-down approach focuses on the impact the domestic or global economy is having or will have on a share price or market.

Top-downers look at economic growth patterns and government policies, such as interest rates or upcoming investment in certain sectors like energy or infrastructure, which might give them a boost.

Bottom-up approach

A bottom-up approach looks more closely at the company fundamentals – what makes it work or is keeping it low.

This is split into qualitative analysis, looking at company news, financial events at the firm and personnel changes.

Then there’s quantitative analysis. This scours a company’s earnings releases, balance sheet, dividend ratios, cashflow statement, and the strengths, longevity and vision of its management team.

As an example, the balance sheet will show the company’s assets, such as cash, property and accounts receivable, and liabilities like long-term debt and accounts payable. The sweet spot are companies with more assets than liabilities.

Earnings releases over each quarter, as well as half-year and annual reports, will show profit or loss trends, as well as revenue growth or a slump. They also tend to have forward-looking forecasts, plus commentary from the chief executive and others on company performance, direction and challenges.

Investors should also look at:

  • The company’s existing and upcoming products and services
  • Customer trends in the sector
  • Market share
  • Whether it has high barriers to entry like strong intellectual property to beat off the competition

The aim of fundamental analysis is to determine the intrinsic value of a firm. This will make it clearer whether the market is currently under or over-valuing it and its share price. This gives you more clarity on whether to buy or sell that stock.

Say a retail company’s share price is struggling because the whole sector is down as consumer confidence has slumped. But after your fundamental analysis, you determine that this company has a niche – say red mini-drones – which is now wildly popular in Asia, and you buy.

You then wait for the market to catch up with the fundamentals, which will send the share price higher.

Getting the basics right

Investors tend to have their favourite sectors, be it retail, manufacturing or technology. So long as you understand the company, what it does, what its products and services are, why it is doing well or not, and where it is likely to go in the future, then you should be fine to invest.

If you don’t understand a company’s services or technology, steer clear.

Challenges of investing in shares

It’s important to weigh up both the pros and cons when working out how to invest in shares in the UK. Here are some of the potential challenges to consider.

Failing to diversify

Shares don’t always go in one direction. If you have failed to diversify, then your investments could be concentrated in too few companies. If they all struggle at the same time and their share prices fall, you could end up losing money.

Time commitments

If you are self-investing in shares, you really need to commit a lot of time to the process. It takes many an hour to properly research companies and sectors, reading earnings reports and judging future economic trends. It can be physically and emotionally demanding but, at the same time, as those wolves of Wall Street will tell you, thrilling and exciting.

Just remember that feeling emotional or stressed can make it harder to always stay true to your investment philosophy and goals.

Investing costs

Finally, you also need to consider the cost of trading fees associated with the buying and selling of shares and any broker commissions.

How to buy and sell shares

It’s very straightforward to make trades if the shares have been issued by a publicly listed company on a stock market, particularly if it features in a major index.

You can buy or sell whenever the stock markets are open, with most people doing so through an online stockbroker or share-dealing platform.

You can invest through Bestinvest and buy shares in an Investment Account, or add to a tax-efficient ISA, Junior ISA or SIPP. And, if you do this, you can take advantage of our cheap share-trading fees - just £4.95 a trade.

Important information

This article does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

The value of an investment, and any income from it, may go down as well as up and you may get back less than you originally invested.

Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest.  You should make yourself aware of these specific risks prior to investing.

Past performance is not a guide to future performance.

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