We get quite a lot of queries at Under the Radar from people who are new to investing in the markets. Often people do not have much capital to invest in and they are not sure where to start when investing in the share market for the first time. So, how much capital do you need to make investing viable? and what do you do?
Where do you begin when investing?
The beauty about investing is that you choose when to do it. Sometimes not doing anything means you beat the market.
The best thing to do is to look at the list of all the stocks we cover.
Login using just your email address/stock research/then download the full excel list of all the small cap stocks our team of analysts research.
Look for companies that you understand and believe in. Then put them in a watch list using one of the discount brokers such as Etrade, Commsec or Bell Direct - they’re all pretty good.
You will gain confidence just by seeing the price action and keeping on top of the news flow.
We love to help our subscribers and please contact us to ask any questions about their fundamentals.
The key thing is that you only invest when you feel that you have a good understanding of what you want from the investment. Some stocks we rate are based on balance sheet strength and dividend paying ability; others have far more risk attached - i.e. we like their potential to make big profits.
How much should you invest at a minimum?
In terms of how much to invest - the cost is about $30 a trade in discount brokers - so i would say a minimum of $1000 a stock and look to invest in at least seven over time.
Don't forget to Diversify
The last point I’d make is that diversification is crucial.
Try to invest in companies that are in different sectors to minimise your risk to one.
Ratios: Understanding some Financial Terms and what they mean for your investments
1. What does Under the Radar considers average PE and EV/EBIT (and any other ratios you use often) for average industrials companies.
PE - price earnings multiple
This a multiple which describes the equity value of a company compared with its earnings per share - it’s share price divided by its EPS.
The EPS is the net profit after tax divided by the shares on issue. Much of the time we are quoting what its prospective or forecast earnings are.
It is the most used measure because it is the easiest to get.
Average PEs for the Market
The average for the industrial market is about 15 or 16 times; for mining companies that produce earnings, it’s around 25 times, because these companies are experiencing very low earnings at this point in the cycle.
2. What does Under the Radar consider are average PE and EV/EBIT (and any other ratios you use often) for average mining companies.
EV/EBIT - this is a multiple which describes the value of a listed company based on the market price and its earnings.
Enterprise value (EV) is simply its market capitalisation plus its debt (or minus its cash). EBIT - is earnings before interest and tax.
Sometime EBITDA is used - which is before depreciation and amortisation.
The average for the industrial market is about 10 times; for mining companies it’s about 14 times.