That is why beginners should focus first on protecting their capital rather than chasing big gains. As Warren Buffett famously said, the first rule of investing is not to lose money, and the second rule is to remember the first.
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A sensible approach is to start with modest expectations and a clear focus on risk management. As experience grows, investors can adjust their strategy to suit their own goals and tolerance for risk.
A share worth watching
With thousands of shares available on the London market, choosing where to begin can feel overwhelming.
One company new investors may want to look at is J Sainsbury. The grocery market is large and resilient, and Sainsbury has a long track record, a strong brand, and a sizeable customer base. It has also expanded its digital business, including through Argos.
Of course, a strong business is not automatically a good investment — valuation matters too. One commonly used measure is the price-to-earnings ratio. On that basis, Sainsbury trades at 16 times earnings, which does not look especially cheap, but it does appear reasonable.
A possible risk is that household budgets remain tight, pushing some shoppers toward discount retailers such as Tesco and other low-cost rivals.
Sainsbury also pays dividends. Dividends are never guaranteed, but its current yield of 4.6% means that a £100 investment would currently be expected to generate £4.60 a year in dividends.
