A constant flow of investing ideas is always fodder for useful research, even if many notions you have about future winners won’t pan out.
You can actively seek out investing inspiration, or it might strike while you are shopping, watching the news or chatting with family and friends.
Social media is a popular place for investors to exchange ideas, but as we saw with the rapid rise and fall of GameStop, following other posters’ tips is a risky business.
With the help of money experts, we look at sources of investing inspiration, the ways to use them effectively, and how to avoid the pitfalls.
Inspiration: Not every notion you have about future winners will work out, but some might
Scuttlebutt: Observant investors can reap rewards
This is about keeping your eyes open and ears to the ground as you go about life, not following tipsters on internet forums, explains Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.
She says social sites like Reddit might be a good place to meet fellow stock market enthusiasts, but your own personal observations and foresight can find you stock market winners.
By way of example, Lund-Yates says: ‘A perceptive investor will have noticed early on that Next was fast to react to the shift to online shopping.
‘Its history as a mail-order catalogue company meant it had a lot of the infrastructure in place already.
‘Those that were already ordering clothes from the group’s directory could have put two and two together, to realise Next was in a perfect position to beat its peers to the worldwide web.’
However, she warns: ‘Large-scale change brings about huge opportunity, but also potential risks.
‘Events that change how the world and economies operate, like a pandemic, result in a lot of hype, and it’s crucial investors take a breath and cut through the noise – and invest in things they truly understand.’
Adrian Lowcock, head of personal investing at Willis Owen, says think about what you and your friends do – how you shop, eat and are entertained – and try to link this to investment opportunities.
‘The classic example is when Apple launched the iPod – millions bought it but few linked that success with the company share price.
‘Look at recent changes in trends and think is that an investment opportunity. Kids can be great for this as they often engage with new trends and fashions much faster than others.’
Economic cycles: How bullish are you about the future?
Sophie Lund-Yates: Share sales and purchases by directors can be a sign of confidence or lack of it in a company’s future
Defensive stocks tend to better withstand an economic shock, while cyclical ones are more likely to benefit from an economic recovery.
Coronavirus is a good example of this approach to thinking about investing, says Lund-Yates.
‘The strength of strong “stay at home” stocks, like the grocers, has really been proven. It’s always worth considering what the world will always need – food and medicine come top of that list.
‘And while exactly where we are on the economic cycle is up for some debate, it’s fair to assume there are going to be some ups and downs as the world continues to climb out of lockdowns.
‘Investors need to make sure they have at least some exposure to defensive stocks.’
She adds: ‘It’s important to remember that the stock market and economy work in different ways. The market looks to the future, but economic data is historical.’
Big themes: What will change the world for the better, or threaten existing businesses?
Thinking about which cutting edge ideas and trends will make lasting change in the world and backing them is one of the most exciting ways to invest.
What big theme opportunities are on the horizon right now?
Lund-Yates says: ‘The shift to digital has been rumbling on for years. But those first lockdown orders lit the fire underneath this shift.
‘A third of all retail sales now take place online. And while some of that might temper as we being to emerge from lockdowns, an increased demand for online shopping will be here to stay.’
When it comes to which businesses stand to benefit, she says: ‘Online retail powerhouse ASOS could be one – it’s also recently snapped up TopShop and Miss Selfridge, benefiting from the demise of less nimble bricks and mortar rivals.
‘The supermarkets are also worth considering. Demand for delivery slots has outweighed supply by some margin during the pandemic.
‘Most of the big players are ramping up investment in online capacity, with the belief demand will remain elevated post lockdown. This is a big growth opportunity.’
Lund-Yates believes cloud computing is another area worth exploring, saying: ‘A world working from home means digital storage and computer power have never been more valuable.
‘A bit like online shopping, our new working from home habits are something we’re unlikely to give up once normality resumes. Tech giants like Microsoft, Alphabet and Amazon all have a hand in cloud computing.’
Watch the experts: But check if their goals match yours
Jason Hollands: ‘Investors now have access to a vast amount of information readily available on their phone or desktop around the clock. Much of this is free’
Most really skilled investors are probably doing it for a living and running a fund, according to Jason Hollands, managing director at Tilney Investment Management Services.
‘You will usually be able to see their top 10 holdings on their fact sheets, which can provide some inspiration, but they will be reticent to show the world all of their ideas, especially their latest thinking, when they are building new positions in a company.’
Lund-Yates points out that a fund manager’s job is to try and find stock market winners, and they do the hard work so you don’t have to, so it’s worth having a look at what they hold.
‘Fund manager Baillie Gifford has benefited from holding Tesla in several of its funds, including the Scottish Mortgage investment trust. Tesla has more than quadrupled in value over the last year,’ she says.
‘Consider that fund managers invest depending on their style. Some will focus on companies in geographic regions they think hold potential. Others will go after stocks they think are undervalued.
‘Some will focus on those likely to generate an income through the payment of dividends, others will focus on capital growth over the long term.
‘The list of different approaches is long, so it’s worth having a think about what’s most important to you before you home in on a particular fund.’
Lowcock says: ‘Professional investors are looking for new ideas all day every day and have the resources and tools to look into stocks and identify trends.
‘It is important however, to understand what the expert is trying to do. Are they looking for income or growth?’
Director share deals: Check them out but beware PR spin
Adrian Lowcock: ‘Professional investors are looking for new ideas all day every day’
‘When a company’s directors are buying or selling shares they must disclose this to the stock market, so seemingly this gives a great insight as to whether those “in-the-know” are confident in the outlook of a company or otherwise,’ says Hollands.
‘It may, but it might not. They may be selling shares for personal reasons such as to pay a tax bill, because of a divorce, schools fees or any other reason that has nothing to do with their view on the outlook for the company.
‘And of course, when a company is in a tough patch, it is a shrewd PR for the senior management to be seen to buy a few shares.’
Lund-Yates says share sales and purchases by directors can be a sign of confidence or lack of it in a company’s future, and although sometimes they will do this for normal reasons like retirement or buying a house, it is worth keeping an eye on this activity.
‘If you see a number of directors buying or selling at the same time – particularly if it’s the finance director – they could have a long-term view of the company that the market doesn’t know.’
Breaking news: Free round-the-clock noise
‘When I began my investment career in the earlier 1990s, many people would rely on thumbing through the pages of the Financial Times to check up on fund and share prices, as well as news about company results,’ says Hollands.
‘Of course the internet has changed all that. Investors now have access to a vast amount of information readily available on their phone or desktop around the clock. Much of this is free.’
You can check investing platforms, the feed of recent stock exchange announcements, stockbroker views on whether companies are a buy or a sell, and specialist financial news sites and apps, he says.
Lowcock says: ‘Looking at the business pages and money sections of newspapers can help you identify investment opportunities and trends that may be driving markets.
‘However, this needs to be balanced as sometimes when the news has broken it may be too late, so check the share prices before investing.’
Do be sceptical: Pub tips, online forums and self-styled gurus
The huge amount of information now available in the digital age has been accompanied by the spread of disinformation, warns Hollands.
He advises investors to exercise a healthy degree of caution about ‘stock tips’ that are not grounded in genuine research, particularly after recent headlines about incredible moves in the share price of US firm GameStop.
Are you dealing with a REAL financial firm?
Watchdogs raise alarm over rise of ‘clone’ investment scams, and expose the new ruses to fool savers. Read more here.
‘This might give the wrong impression that investing in shares is an opportunity to get-rich-quick like a game of roulette. Genuine investing however is about buying shares in sound companies for the long-term.’
Hollands says anyone is entitled to an opinion on an investment, and you can find them shared freely on online discussion boards.
But he cautions: ‘Following a tip from a complete stranger – whether online or in a pub – whose expertise you know nothing about and financial circumstances or attitude to risk may be very different from your own, isn’t very wise as they may be playing you.
‘They could just be an enthusiastic hobbiest, keen to share their views in the interest of genuine debate, but they could also be a charlatan looking to ramp up a share they already own in the hope that others will push the share price up so they can get out.
‘Ultimately, this can result in lemming like behaviour, where you jump on a bandwagon started by others which might end in tears.
‘Many of those late in to GameStop have now found they paid a very high price for shares in a pretty pedestrian company, with the shares losing over 80 per cent of their value last week.’
Hollands adds that talented investors do not charge people to attend courses to learn ‘the secrets of their success’.
‘Be very wary of people trying to make a living by claiming to be financial gurus as they might just turn out to be the modern equivalent of a snake oil salesman.’
Lowcock says: ‘It is very hard to know how good a tip is and if it is an investment tip or just a speculative punt.
‘The quality of the tip is very hard to verify and often tipsters are not investors but speculators.’
He says investors should also be on the alert against ideas that sound too good to be true.
‘If you ever come across an idea or investment that just sounds so good, then you really need to consider it in more detail, before considering it as an investment.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.