Should a beginner invest in mining stocks? Are biotech companies "hot" right now? What about ASX tech shares? The share market can be perplexing if you are new to investing.
Investors are faced with the greatest investing opportunity in my lifetime. As the global economy comes to a grinding halt, many of the greatest companies on the S&P/ASX 200 Index (ASX: XJO) are trading at good prices.
The magic of compounding can turn even a small investment into a life-changing sum of money. Buy good companies at a reasonable price and hold them for the long term.
My experience has led me to believe that intelligent active management can outperform passive investing.
What should a beginner invest in?
If you are new to the market, then do not try to be an expert in fields you know nothing about. High technology medical shares or internet shares require a level of understanding and research. Most of us don't have that.
Similarly, don't invest in cyclical businesses. Investing in mining shares requires a lot of attention, a lot of research and the resilience to see your company hit the wall every 5 or so years. For example, if the gold price drops, gold miners lose money and their share prices go down. There's nothing they can do about that.
Lastly, as a general rule – don't shoot for the moon. Trying to bag that share that is going to multiply in value 100 times is always very easy in hindsight. It also takes a lot of research and is an easy way to lose money. This is definitely not an area for a beginner to invest in.
World-class ASX 200 shares
It isn't until you start to research that you realise we have truly world-class companies in the ASX 200. Here are two examples that meet the criteria above.
Woolworths Group Ltd (ASX: WOW) is twice the size of Coles Group Ltd (ASX: COL). It is a defensive share. That means it will likely do well in a bull market and continue to perform well in a bear market. Everyone needs to eat no matter what else is going on. During the coronavirus pandemic, Woolworths is going to continue to perform.
Austal Limited (ASX: ASB) is a shipbuilder from Western Australia. From humble origins, it has successfully built a global brand. Its defence vessels are a big hit with the US military and the company builds ferries that have sold worldwide with a very strong take-up in Asia.
Austal is one of Australia's 200 largest companies and has a $4.9 billion order book. It will make money regardless of whether we are in a bear market and/or a recession. In addition, Austal has delivered nothing but good news for several years. The Austal share price is down 28.9% since the start of the year.
