There are a whole host of factors to consider before investing in shares, which are only touched on briefly here:

Rates of commission
Different rates of commission are charged on the various types of stocks and shares which are dealt in the market. Basically, ordinary shares, convertibles and foreign stocks attract the highest rates of commission, and government securities, permanent interest-bearing shares (PIBS), and loan stocks, the lowest rates. Commission rates are also lower on larger transactions, with investors able to negotiate terms on large transactions.

Dealing arrangements
Most stockbrokers offer a range of services from corporate finance to dealing on an execution-only basis. Investors should decide which service they require and contact the relevant department. It is usual for stockbrokers’ clients to be allocated an individual within the firm who will deal with their account and to whom any orders or questions should be directed. This individual has to be suitably qualified to give investment advice and to carry out Stock Exchange business.

Timing and Market Conditions
Although share price trends have been on a general downward trend since the turn of the millennium, within the overall movement they have been very volatile at times. The timing of sales and purchases of stocks or shares can make very substantial differences to investment returns, particularly in the short term.

Economic Cycles
The stock market basically follows economic cycles so that there are periods of upward movement (bull markets or phases) followed by periods of decline (bear markets or phases). Ideal timing involves buying shares in bull phases and selling when the evidence suggests that a long bear phase is about to set in. However, this is much easier said than done, as the future is extremely unpredictable.

Other factors affecting volatility
The volatility of individual shares relates not only to the state of the market generally, but also to significant events directly affecting the company. The most obvious is the announcement of results. The share price may move up or down before the announcement in anticipation of good or bad results. If the results are in line with expectations there should be little subsequent movement in the share price. If they are worse than expected, the share price will fall, and if better, the share price will rise.

Other significant events are bids for the company, changes in the capital structure, acquisitions of other businesses and so on.

It is important to appreciate that in the short term the market frequently over-reacts to information and rumour. While it is usually right in direction, it is often wrong in extent, and so corrections take place. Therefore, if a share price rises substantially, it may well fall back. Investors who do not take this into account run the risk of buying ‘at the top’ of the movement and miss the opportunity to buy lower down on the reaction. Similarly, when shares fall, investors should be wary of selling ‘at the bottom’ before the upward reaction sets in.

It can be difficult, time consuming and sometimes costly for most private individuals to keep in touch with matters affecting the timing of purchases and sales. However, professional investors are rarely consistently successful at timing either.