How much money do you need to start investing in stocks? Probably not as much as you’d assume.
In 1942, Warren Buffett bought his first stock by investing $114 in three shares of a company that no longer exists.
Adjusted for inflation, $114 in 1942 is equal to $2,256 (or about £1,790) today. While that sounds like a lot of money for a schoolboy — Buffett was just 11 back then — it was money he’d been saving since he was six.
He’s still investing at 93 years old today and is the sixth richest person in the world.
It’s not how much one starts out with, but how soon that money can be put to work. And even £500 is enough.
Invest in what you know
One source that I found helpful when I first started investing was the classic book One Up on Wall Street (1989) by Peter Lynch. He was the former manager of the Fidelity Magellan Fund, which thrashed the market for years.
Written in an easy-to-understand style, the book is packed with common-sense stock advice. One timeless lesson that I believe can help new investors is investing in what you know.
This approach involves finding public companies whose products or services you understand and are familiar with due to personal experience. The idea here is that we can leverage our everyday observations to identify investment opportunities.
Lynch stressed that it would then be crucial to combine this knowledge with careful analysis of the company’s financials to make an informed investment decision.
Eyes open
So what might this look like in practice?
Well, let’s say an investor 20 years ago was spending (along with friends) increasing amounts of money in JD Sports Fashion.
They found the store’s product selection and customer service second-to-none. So they dug into the financial statements, liked the growth story unfolding, and bought some shares.
This would have been a powerful example of boots-on-the-ground research leading to a very rewarding investment.
The stock’s return over 20 years is 6,177% (not including dividends).
Ears open too
It doesn’t even have to be one’s own experience. For example, my friend did a paid clinical trial in London’s FluCamp a while back. Based on his positive impression, he said the underlying firm was worth researching.
He was right. The company is called hVIVO (LSE: HVO) and runs human challenge clinical trials on behalf of global pharma clients.
This is a very niche space in which the firm has been growing profits nicely. It possesses an immaculate balance sheet and generates plenty of cash. Encouragingly, hVIVO has just started paying its first ever dividends.
Management is targeting revenue of £100m by 2028, up from £48.5m in 2022. To support this growth, it’s opening a new state-of-the-art facility this year to meet rising demand for its specialised services.
Now, this is a small-cap stock, which means it can be volatile and potentially not suitable for novice investors. But this was one of my best-performing investments last year, highlighting how powerful the Peter Lynch approach remains.
So, perhaps you’re impressed with your dog’s grooming or vet service (Pets at Home?). Or notice how your busy local pub attracts both students and pensioners (Wetherspoons?).
These types of observations can sometimes lead to fruitful investment opportunities.
The post Here’s how I’d start investing in UK stocks with just £500 appeared first on The Motley Fool UK.
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Ben McPoland has positions in hVIVO Plc. The Motley Fool UK has recommended Pets At Home Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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