Professional shares/equities/stock investments require a great skill of understanding of both the nature of the share market and the underlying performance of each stock.

I meet many clients who have investments in shares and when I ask them how they chose the shares, I get one of three responses:

1. Someone gave me a hot tip.
2. I wanted to have a little dabble, so I made a random choice.
3. I wanted to make a safe investment, so I went for blue chip stock.

I rarely get quantitative responses such as:

1. The P/E ratio is at its lowest point in history.
2. The industry is trending upward and these particular shares appear undervalued
3. The underlying net assets are worth way more than the share value.

Unless you are a share trader or a technical analyst, it is probable that you may belong to the first group.

In my experience, the share market rarely follows the rational rules of the universe. Instead, bad news can prompt share price hikes, and good news can sometimes bring share prices down – go figure?

We take the position that shares are an important part of a well balanced portfolio, and if you think you are good enough to determine the good ones from the bad ones, then you are better than us.

We tend to rely on the research houses and fund managers, because they are the people who are attending the annual general meetings and pouring over balance sheets and profit and loss statements.

Don’t get me wrong, many of our clients are invested in direct shares, and it is also an appropriate strategy when it is a diversified portfolio.  The potential for capital gain and the dividends can provide a powerful return on investment in a rising market.

If you are looking to speculate, however, and you want to act on a hot tip from one of your friends – we say proceed with caution, and only speculate with what you can afford to lose.