Sharetrading

[kingkarl 136]

I'm wanting to hear from people who have experience/knowledge in share trading and/or portfolio investment. I've read a few great books on it, but want to hear a few peoples personal experiences. What tools have you used to do it? Internet, share brokers, stock exchange?

Being a student I don't have a lot of cash to throw around, but I can get several thousand in interest free overdrafts from several different banks as soon as I turn 18. My main goal is to learn at this stage as I'm 90% certain I'm going to be pursuing a career in this industry.

Any other misc. advice is also greatly appreciated to help a beginner avoid being kicked out onto the street.

I hope for a medium return with a corresponding medium risk (obviously) over a couple of years. Any less than this and the volatility and uncertainty at the moment just isn't worth the risk and stress for me.

I've had a look at ASB online trading, but couldn't stomach the $30 fee for each buy/sell trade. I'm wanting to avoid that load of bollocks if all possible.

Thanks for any and all help, you're bloody legends.

[antony 0]

but I can get several thousand in interest free overdrafts from several different banks as soon as I turn 18.

DONT DO THIS!!!

I think the contract you sign when you get your teritiary account states you cant have one with another bank???

And being in debt whilst trading shares is....? .....BAD!

Work hard, and dont spend anything, and save.

Except for this, I dont know much, but my uncle had like 10k in shares when he was at uni in the 80's, and has been into it in a big way since then, has had some massive ups and downs, there is always going to be risk.

Good luck

[CamB 48]

What he said ^ (don't borrow to invest in shares*) and pretty sure ASB is relatively cheap.

* I'll give you two "whys" 1) presumably you can't afford to lose it (given you have to borrow it), and 2) shares are already leveraged investments (to the extent that **most** companies carry debt), you don't need to add more debt.

Edited March 2, 2010 by CamB

[bravo 34]

And being in debt whilst trading shares is....? .....BAD!

Good advice for an inexperienced trader looking to take some risks. If you play it fairly safe, then negative gearing (borrowing) can work.

Best advice I have is spread your money around in different industries, and markets. Don't just buy shares - aim for a balanced portfolio (hard with only limited funds), invest in things that interest you as you're more likely to keep an eye on it, and have fun.

1) presumably you can't afford to lose it

Oh, and this^^^ If you can't afford to lose it, then don't invest it in shares.

[dubman 39]

Borrowing money to invest is a bad road to travel down. You need a good amount of seed money. My aunt in China started out with 5k ( which is like 1k nz) and now she's puling 50k ( which is 10k nz) a month now. She said after a couple of months of studying the market, she sorta had hunches, and more importantly, noticed trends in the market.

Whilst saving up your money, it pays to study what you're investing in, especially the particular fields you want to invest in.

Scrap metal is another good market to look into. The recent tragedy in Chile brought s**tloads of profits to people who bought copper before the tragedy. Its a fairly "safe" place to invest, as you can always keep what you got, and hope the prices rise up again, which it will...in time.

[Cale 36]

I'm doing a finance/economics degree at the moment, and looking to go into this industry once I graduate.

With the help of the generous NZ taxpayer, student allowances and my family, I was gifted some Microsoft shares and I bought shares in WBC, AIA and couple of others..

Basically, you need to read, read, read and read some more. And ensure all the information you are reading is reliable and credible, remembering that it could be (and most likely is) wrong.

[Docile 64]

your only turning 18. you need more experience before you get into share trading. highly dangerous share trading even when you know what you are doing. like that finance company that turned over. shares only worth 8.5c now.

[Cale 36]

highly dangerous share trading even when you know what you are doing.

A low risk, low return investment is not highly dangerous. So long as you read and get daily updates on sites like sharechat.co.nz, newspapers, research through ASB securities/NZX, get annual reports from databases etc., not much is highly dangerous.

And as Breaden said, nor is borrowing to invest always dangerous. As well as equity trading, debt securities trading produces fixed, regular coupons or payments over a fixed time. You are guaranteed those payments. Take an interest free loan, buy some bonds and you could end up with a nice steady income over a certain period.

For some people, now is not a good time to invest, for some it is. Buy in the low times, sell in the high. Where you think the cycle lies is your (educated, of course) opinion.

[RvT 9]

Don't listen to the doom slayers

It is never to early to buy shares - I bought my first PDL shares when I was 14 at school. You should buy a small parcel for the experience and learnings that go with it. While it is easy to read stuff, actually playing in a small trade is a fantastic way to understand the market, learn the jargon plus follow a share.

I was looking at the Allied Farmers share today dropping to 8.5c and my view was that is lowest ever price so perhaps it is a good time to buy ....

I hate sharebrokers as they talk me into shares I don't want and usually they have a 50/50 chance of going up (from experience). The best share to buy is one that is not flavour of the month as it will be cheaper.

My current favourite share to buy / watch would be .... PGC Pyne Gould Company currently at 45c. Low downside risk and high upside over the next 12 months.

Broker fees will get you regardless what you trade - $30 is not too bad and they are a business not a charity. For the record I use Direct Broking - good info on the site and history of share prices etc

https://www.directbroking.co.nz/DirectTrade/static/home.aspx

[kerrynzl 3]

Give it a go mate, you're only 18 so if you borrow millions and trip yourself up you have the rest of your life ahead of you.

You need knowledge thats all.

Forget all the well meaning cliche advice [ spread your risk, balanced portfolio blah blah etc ]

I was a share trader and a broker in 1987-88 and made [ & LOST ] a fortune but had a ton of fun doing it.

Forget all the Gee Whizz graphs and other forms of future predicting, work out risk to reward ratios [ and retracements ] then go looking for movement [ or volume ]

There is a good book called " Zurich Axioms " by Max Gunther which teaches the psychology of investing in any comodity . READ IT

I think it is now available free as an E-Book [ it's the best advice for anybody to have ]

[kingkarl 136]

Give it a go mate, you're only 18 so if you borrow millions and trip yourself up you have the rest of your life ahead of you.

You need knowledge thats all.

Forget all the well meaning cliche advice [ spread your risk, balanced portfolio blah blah etc ]

I was a share trader and a broker in 1987-88 and made [ & LOST ] a fortune but had a ton of fun doing it.

Forget all the Gee Whizz graphs and other forms of future predicting, work out risk to reward ratios [ and retracements ] then go looking for movement [ or volume ]

There is a good book called " Zurich Axioms " by Max Gunther which teaches the psychology of investing in any comodity . READ IT

I think it is now available free as an E-Book [ it's the best advice for anybody to have ]

Cheers thanks. Yeah that's my philosophy. I don't want to lose big, but if I do it's really not the end of the world and I have family that I'm sure will bail me out if the sh*t hits the fan. I do not want it to come to that, and it's the definite last resort.

I'm young, so I can afford to take a hit and easily bounce back. And yeah, I personally think that age isn't really a factor. Better to start learning at an early age.

Thanks for all the comments, keep em coming.

[CamB 48]

And as Breaden said, nor is borrowing to invest always dangerous. As well as equity trading, debt securities trading produces fixed, regular coupons or payments over a fixed time. You are guaranteed those payments. Take an interest free loan, buy some bonds and you could end up with a nice steady income over a certain period.

No offence, but this fundamentally underestimates the risk associated with corporate bonds and capital notes (essentially subordinated bonds) / preference shares. They are not "guaranteed" (ok, certain ones are under the govt guarantee, but very few). You receive the income every quarter/semi-annually, but neither the interest payment or principal is guaranteed in the conventional sense of the word. I'm not saying its a bad idea to invest in them, but don't just look at the name and the interest rate.

I was looking at the Allied Farmers share today dropping to 8.5c and my view was that is lowest ever price so perhaps it is a good time to buy ....

That 100% depends on the quality of the rest of the Hanover loan book and the ability to realise value from it. I'd be nervous, personally, given how much value that book lost this week. Having said that, I personally think there is a point where there's a good speculative investment, but how you figure that out without being able to properly understand the Hanover loan book, I don't know.

My current favourite share to buy / watch would be .... PGC Pyne Gould Company currently at 45c. Low downside risk and high upside over the next 12 months.

Why does it have low downside risk and why does it have a high upside? Its major asset, Marac, only has a BB+ (Negative) rating. That's sub-investment grade and an indication from the ratings agency that it thinks life may not be that rosy. It might have a high upside risk but that is, in my opinion, matched by a downside risk.

I'm young, so I can afford to take a hit and easily bounce back. And yeah, I personally think that age isn't really a factor. Better to start learning at an early age.

Sorry for the moralizing, but do you really have to do it with taxpayer-subsidised money?

[kingkarl 136]

Sorry for the moralizing, but do you really have to do it with taxpayer-subsidised money?

That's ok. There's no rule to stop me doing it, and I'm going to pay it back obviously, and I see it as a productive use of taxpayers funds, as it increases the capital pool for NZ companies. I'm sure Big John would prefer I did this then spend it all on speights and drugs.

[CamB 48]

Don't get me wrong - I wouldn't mind if it was interest bearing. I agree there's nothing to stop you doing it and its your liability, so you can/should make your own decisions.

[martyyyn 102]

That's ok. There's no rule to stop me doing it, and I'm going to pay it back obviously, and I see it as a productive use of taxpayers funds, as it increases the capital pool for NZ companies. I'm sure Big John would prefer I did this then spend it all on speights and drugs.

A productive use of my tax would be for it to go to people who need it. The police, paramedics, nurses, schools etc rather than for you to learn how to play Donald Trump.

As someone who had to pay 13% compounding interest as one of the first people to use student loans Id rather you used it for what it was intended and thats to pay for your education. If you dont need it, dont use it and let someone who does need it take advantage of it.

But thats not the Kiwi way anymore is it. You get as many hand outs as you can and expect someone else to bail you out when it all goes wrong. If you expect your parents to bail you out if you get into trouble get them to lend you the money in the first place.

[bravo 34]

Borrowing money to invest is a bad road to travel down.

I still disagree. Most of my investments are leveraged to some degree and there are some fantastic tax incentives to do things this way. It's about risk management and not borrowing outside your means to repay if everything turns to sh*t (ie - don't rely on return on investment to repay the loan, make sure you have a guaranteed income source from somewhere else to service it). People are scared to borrow to invest based on what happend with the Wall Street crash, but that was like the prime housing crash - people were ovver leveraged on investments that were selling for inflated prices due to the high demand created by easy finance. If you manage your borrowing to safe levels and buy wisely there should be no problem.

your only turning 18. you need more experience before you get into share trading. highly dangerous share trading even when you know what you are doing. like that finance company that turned over. shares only worth 8.5c now.

I disagree. I bought my first shares at school at age 15 similar to Ron (RvT) $1000 worth of a nz transport infrastructure company. Blue chip, minimal risk, and I paid cash, so could afford to lose it. The younger you are the more risk you should take on (within your own financial limits). you have the rest of your life to rebuild if you make a mistake. You should reduce your risk as you approach retirement and your earning potential declines. There are less risky share investments too - buy an index or a series of indexes if you are worried about choosing the wrong companies. There are plenty of good investment products out there for the cautious-moderate risk investor.

Don't listen to the doom slayers

It is never to early to buy shares - I bought my first PDL shares when I was 14 at school. You should buy a small parcel for the experience and learnings that go with it. While it is easy to read stuff, actually playing in a small trade is a fantastic way to understand the market, learn the jargon plus follow a share.

^^^^This.

Give it a go mate, you're only 18 so if you borrow millions and trip yourself up you have the rest of your life ahead of you.

You need knowledge thats all.

Forget all the well meaning cliche advice [ spread your risk, balanced portfolio blah blah etc ]

I was a share trader and a broker in 1987-88 and made [ & LOST ] a fortune but had a ton of fun doing it.

Forget all the Gee Whizz graphs and other forms of future predicting, work out risk to reward ratios [ and retracements ] then go looking for movement [ or volume ]

There is a good book called " Zurich Axioms " by Max Gunther which teaches the psychology of investing in any comodity . READ IT

I think it is now available free as an E-Book [ it's the best advice for anybody to have ]

And this ^^^ except the part about not worrying about balancing risk. You can still make a packet on some movers and shakers, whilst retaining some more low or moderately risk investments as a backstop and as funding source for more risky investment. Balanced does not necessarily equal boring or low return.

Some of the wealthiest people I know have lost their shirts several times. I have a family member who goes boom to bust on about a 5 year cycle. I don't like that lifestyle but he has a ball. The busts suck, but during the boom's its Lambos and his and her Mercedes and the like. And all legitimate (but fairly risky) business ventures.

[kingkarl 136]

A productive use of my tax would be for it to go to people who need it. The police, paramedics, nurses, schools etc rather than for you to learn how to play Donald Trump.

As someone who had to pay 13% compounding interest as one of the first people to use student loans Id rather you used it for what it was intended and thats to pay for your education. If you dont need it, dont use it and let someone who does need it take advantage of it.

But thats not the Kiwi way anymore is it. You get as many hand outs as you can and expect someone else to bail you out when it all goes wrong. If you expect your parents to bail you out if you get into trouble get them to lend you the money in the first place.

Yes you're correct, I didn't word my post very well. I can totally see where you're coming from, and if I was in your situation and had to do it a LOT harder as it was way back when, I'd have the exact same attitude. I still don't see anything that wrong with using money you're entitled to though. And to an extent it is an investment in my future. I hope to get a very high paying job in time, and can you imagine the taxes I'm going to be paying? So it should even out... in time.

Maybe you should be a bit tougher on the people who go to uni because their mates are and do a BA (no offence intended to anyone, BA's are very respectable degrees in most instances) because they can't be bothered doing anything else. And I do actually need the money. My parents are definitely not millionaires (no where near) and it's been a tough year for them. At the same time, I am extremely privileged and am extremely satisfied with my life and how lucky I am.

Consider my mate (no hate towards him) who's parents are extremely wealthy and retired sub 50. He got a $12,000 dollar scholarship last year (even though I was dux... not bragging, I pretty much fluked it) and yet he still gets $200 dollars a week from Mr Key because his folks are retired and technically have no income... His 2 older sisters also get this $200 a week allowance.

Completely agree that police/health (especially)/schools are far too short funded. But surely you'd rather $160 bucks a week went to me (paid back in 5 years) rather then some obese douchebag who can't be bothered getting off the couch and finding some legitimate work.

Thanks for your very informative post also Graham.

Can we please get back on the subject of actual share trading, and not a ethical debate.

[dickhead 0]

Whats this talk of government subsidy? aren't you talking about the student overdraft? (which i pissed against the wall in o week)

[RvT 9]

That 100% depends on the quality of the rest of the Hanover loan book and the ability to realise value from it. I'd be nervous, personally, given how much value that book lost this week. Having said that, I personally think there is a point where there's a good speculative investment, but how you figure that out without being able to properly understand the Hanover loan book, I don't know.

Why does it have low downside risk and why does it have a high upside? Its major asset, Marac, only has a BB+ (Negative) rating. That's sub-investment grade and an indication from the ratings agency that it thinks life may not be that rosy. It might have a high upside risk but that is, in my opinion, matched by a downside risk.

Hi CamB

Good to see you know your homework

My logic is suggesting these shares is they are a higher risk share but also finance shares are definately not flavour of the month / year BUT that is the time to buy shares in sectors when everyone else has dumped them and they are cheap script. For a 1st timer, they want some excitement plus a lower script value will transpire into a quicker capital increase when they move upwards rather than a Bluechip share that doesn't move much at all - boring for 1st timers.

PGC would be a reasonable medium term share. Since most of us got on at 40c when they offered rights, there is a good logic that most current holders won't unload below this figure so that should offer a reasonable base line. At Xmas when the Press did a survey on sharebrokers picks for 2010, 2 or 3 out of the 5 asked, had PGC in their picks.

Any other share suggestions for our budding entrepeneur ...

[Cale 36]

No offence, but this fundamentally underestimates the risk associated with corporate bonds and capital notes (essentially subordinated bonds) / preference shares. They are not "guaranteed" (ok, certain ones are under the govt guarantee, but very few). You receive the income every quarter/semi-annually, but neither the interest payment or principal is guaranteed in the conventional sense of the word. I'm not saying its a bad idea to invest in them, but don't just look at the name and the interest rate.

So perhaps 'guaranteed' was the wrong word. Debt security holders are more secure than ordinary shareholders - even unsecured debentures for that matter. Debenture holders almost always have first ranking security over the company's assets, so if the company is liquidated, the debenture holders will likely get most, if not all, of their initial investment back.

Someone also mentioned to ignore cliche advice. If you are looking at going in for low-med risk investments, the good old putting your eggs in many baskets rings true. Instead of putting all your money (cash, hopefully haha) into one industry, or different companies, and having something unforeseen and negative happen in the media, politics, economic cycle or anything for that matter (as finance is a lot about psychology), meaning that the industry will depress, and so will your share price, and probably your dividend payout.

Whereas, if you diversify your portfolio, the idea is that if one of the two industries/companies you invested in under-performs, and the other out-performs, they will cancel each other out - sort of like a [not so] perfect negative correlation. Perhaps your capital investment isn't increasing, but you will still be earning dividends on those equity securities. NZ companies well known for are some of the highest dividend payouts in the world when compared to market share prices.

If you only have a small amount of capital to begin with it might not be beneficial to diversify, instead to invest in a single company take the risk that the share price may decline.

[CamB 48]

Ron - fair points. Just providing a counter view. Maybe exporters to favourable (good growth) markets, if you think the dollar will weaken.

So perhaps 'guaranteed' was the wrong word. Debt security holders are more secure than ordinary shareholders - even unsecured debentures for that matter. Debenture holders almost always have first ranking security over the company's assets, so if the company is liquidated, the debenture holders will likely get most, if not all, of their initial investment back.

Most of the finance company debentures were first ranking and secured. There are two issues with this:

1) it says nothing about the quality of the assets (although the new S&P ratings do); and

2) most of them had other debt ranking ahead of the debentures to some extent, as permitted by the Trust Deeds.