I was recently speaking to one of the directors of ShareSoc, the private investor group (a worthwhile membership if you are a keen investor) and learned that just under half their members have a portfolio worth over £1m. Yet UK private investors are, in my experience, not nearly willing enough to invest in tools and education to improve the performance of their portfolios. It made me wonder how much it might cost to equip yourself to be an effective private investor.
In my view, a private investor needs several inputs to be effective and to maximise efficiency:
1. Price data: some form of software that will give share prices and past trends.
2. News: subscriptions to investing news services.
3. Analysis: subscriptions to services that analyse company information and educational tools, for example investing books and courses.
4. Community: many keen investors enjoy being a member of an investing community and attending virtual and in-person shows.
As a professional investor, I enjoyed access to a comprehensive suite of tools – Bloomberg, every periodical published, hot and cold running analysts etc. This has probably made me more dependent than the average reader, but everything I mention here will assist your research and I think the cost/benefit equation is favourable, although I know not everyone will agree.
I use Sentieo, which is a tool for professionals and is relatively expensive, but the private investor can use a selection of services – for example SharePad, Stockopedia and VectorVest. Prices depend on the markets in which you are interested, but for new investors I found that Stockopedia comes in at £245 for the UK, with additional markets for an extra cost (US £130, Europe £180). Sharepad covers UK, US and European markets and costs £324 for the basic version (15-minute delayed prices are fine – when you trade you can simply log on to IG or Hargreaves Lansdown or similar), while VectorVest is £49 a month for the desktop version. US investors are better served by several newcomers, for example Koyfin, whose basic service is still free and is an excellent tool, albeit US-centric.
Stockopedia looks dearer than SharePad at £555 vs £324 on my sums. Both have good screening tools. In my view SharePad appears to have more sophisticated charting facilities. Before choosing, it would be sensible for investors to take a free trial of each. I shall be sticking with Sentieo, even though it is much dearer, because it has some additional tools that I need for my bespoke research business.
I take a range of journals as I cover global markets and feel the need to have the option of dipping into several. Not everyone needs the Financial Times and the Wall Street Journal plus several periodicals. But no UK investor should consider themselves well-informed without the FT, The Economist and Investors’ Chronicle. Many will be tempted to forego the printed editions and opt for the digital versions. I prefer the printed copy for two reasons:
- I can read the printed version faster and, frankly, if you don’t value the cost of your time as greater than the saving, nobody else will. Ever. Tech guru Naval Ravikantused to value his time at a ridiculous price, even before he became successful – it’s not a stupid strategy.
- I can place the importance of the article in context from its positioning in the paper, whereas in the digital app, I find that much more difficult.
Looking at the FT website, I appear to have the most expensive option (the FT delivered and the premium digital service) which is just over £2 per day. There are several cheaper alternatives, for example digital-only, but I prefer the print edition and need the ability to search back issues.
I pay £65 per quarter for The Economist and it is offering a £215-a-year subscription on its website – I should really cancel and resubscribe! It irritates me when companies take advantage of their most loyal customers. Investors’ Chronicle, of course, is £175 a year while the popular Alpha subscription brings the total up to £295 a year.
This is where you could spend a huge amount of money if you were not careful, but it’s also the area where most investors, particularly those in the UK, tend to make false savings. To be an effective investor, you need to have what US investor and writer Howard Marks terms second-level thinking. Of course, you can do this on your own, but I find it easier to have some input from smarter people to provoke thought; you don’t need to adopt their ideas, but the stimulus helps me.
An Australian study in 2014 found that 46 per cent of investors seek continuous learning. The problem is that there is an overwhelming volume of advice and its quality varies widely. How to pick and which format to pick are difficult questions as there are many alternatives. I think there are three main sub-categories:
Books are a great way of improving your investing skills, and they don’t cost much. A good book should enable an investor, even a starting investor, to get a 10x return on that investment very quickly. My own book retails at £20 and there are many books much better than mine, and they offer even better returns on investment. I would recommend a minimum budget of £100 a year; I spend a multiple of that.
There are hundreds of newsletters and they vary drastically in quality. There are some great free newsletters and there are some highly priced newsletters which give lots of recommendations of dubious quality. This is a difficult area as there is a proliferation of providers and trying to sort the good from the bad is tricky, a problem exacerbated by the recent trend for analysts to set up newsletter ‘shops’ on their own. Good ones generally cost c$250 (£190) a year for a weekly email.
Somewhat surprisingly, there are few good courses for investors. There are hundreds of courses that purport to teach you how to trade, and the quality inevitably varies dramatically. I offer my own Behind the Balance Sheet courses but they are not cheap. There are lots of cheaper courses available on platforms such as Udemy, but it’s not easy to ascertain the quality. Inbetween, there are only a few providers. One I looked at was provided by a former sellside analyst turned academic; it sounded promising, but closer inspection showed that the course was very theoretical.
I think education is a necessary and worthwhile investment for most investors, but the proliferation of offers and the limited experience of many teachers is a difficult barrier to overcome. Experimentation is not only expensive, it’s very time consuming and of course time is a major constraint for most investors.
Investment clubs, online webinars, in-person shows, chatrooms and communities are all popular. In the UK, the best investor clubs are ShareSoc and Signet, which offer a joint membership at £60 a year or respectively cost £45 and £25 a year. I am a member of ShareSoc.
Mello’s physical events will restart in May 2022 while Mello Monday is totally online. It costs £125 a year for 20-plus events with a wide selection of companies and individuals presenting, plus a stock tips panel. I make a fairly regular appearance and it’s an enjoyable and worthwhile evening.
I tend to be wary of investing chatrooms as there are a lot of scams where investors will puff up a stock to innocent victims who get sucked in, then the promoter sells and the new investors lose out.
In-person shows are coming back – I recently spoke at the London Investor Show and the IX Show, while Master Investor also puts on regular events. These are often cheap or free to attend, and there are usually some interesting panels, some good speakers and the opportunity to meet like-minded investors, which I think is really valuable. Investing is difficult and can be a lonely endeavour and I find that sharing experiences and discussing stock opportunities is helpful in grading my own conviction.
So what am I left with as a cost to the keen investor? It’s not an insignificant commitment, as you will see, but worthwhile for those with a valuable portfolio – almost half of ShareSoc members have a portfolio of over £1m; my rule of thumb is that 1 per cent is a reasonable performance improvement to aim for which would be £10,000 a year. But of course you don’t need to spend that; and 1 per cent is a tough objective.
|Two investing shows incl travel
All in, I recommend spending around £3,000 a year to keep yourself informed. That’s £60 a week or £12 a day, the cost of lunch in London. I know this sounds a lot but I don’t think that’s a large amount to spend if you have a portfolio of, say, £500,000. If you had 25 positions of £20,000 each, that represents a 15 per cent gain on one stock. That is achievable if you are armed with the right data and inputs.
My services are not cheap, but I have multiple clients who pay for coaching. One is a young fund manager in his 30s who has paid me several thousands for a programme to help him improve his skills and perhaps enable him to get a better job one day. If he is right, this will be an investment with a multiple return on investment. Similarly, if that £3,000 investment allows you to improve performance by 1 per cent on a £500,000 portfolio, that £2,000 difference will be compounding; at 8 per cent a year, that’s nearly £27,000 after 10 years.
I understand that many investors, particularly those with a value bias, prefer to keep this budget small. But I wanted to point out why this might be a false economy. How much do you spend? We would love to hear (please email your views to firstname.lastname@example.org).
Stephen Clapham is founder of Behind the Balance Sheet and author of The Smart Money Method.