Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
The clues in everyday life that give you an investing edge
It’s easy to fall into a trap of seeing your shareholdings as numbers on a screen rather than part-ownership of a real business.
However, this would be a mistake and one way which can help you stay in touch with the tangible nature of your investments is to look out for things you can spot yourself.
And while you should never invest on anecdotal evidence alone, keeping your ears to the ground can help give you clues on what to look for in a company’s performance.
For example, both this author and a colleague had conversations with the people cutting our hair (after long overdue trips to the barbers) and we essentially had the same conversation – i.e. they were really busy just after non-essential shops were allowed to reopen in April but have subsequently had a quiet spell.
While this lull probably reflected the three or four weeks for people to need another trim, there could be a takeaway on the nature of the pent-up consumer demand we’re currently seeing.
Perhaps appetite for dining and drinking out will also wane after the initial frenzy. It’s worth at least thinking about what this might mean for any hospitality stocks in your portfolio, should you hold any, and monitoring upcoming trading statements for any signs the recovery in demand is slowing.
Alternatively, let’s say you hold shares in a retailer and you went to visit one of their stores. If you saw that there was limited stock on the shelves and the shop floor was both deathly quiet and looking tired and shabby, next time they updated on trading you would be switched on to the possibility of a weak performance.
You could scrutinise the annual report to see how much they were investing in the business and look for commentary on the level of footfall and issues with getting fresh products ordered in.
Any visitors to a Halfords (HFD) store last spring would probably already have been aware that the unprecedented levels of demand for bikes in the initial stages of the pandemic had created supply pressures which the company itself acknowledged in July 2020.
More recently anyone who has received a quote for home renovations would have some idea of the squeeze on the supply of a range of different types of building material and the implications this has for the costs of a project.
While housebuilders have more purchasing power than your local joiner, it would be fair to assume they are having to assume at least some of this extra cost as they look to maintain the volume of new homes being built.
When the next round of updates from the sector comes out it will certainly be worth looking for comment on the level of cost inflation.
Finally, let’s assume you both subscribe to Netflix and own its shares, and you recently spent a fruitless half hour looking for something appealing to watch as the platform seems to have more focus on quantity over quality of content. Chances are others might be feeling the same and this could be a good signal to reassess the investment case.