Starting to invest

Hi all,

I am after a bit of advice.

Basically, I am on a fairly average salary (I am only 21) but I am wanting to get into buying shares early so that by the time I hit 30 even if I do make a few hiccups my overall return should be good, rather then wasting money on depreciating assets like cars when I'm young.

I guess because I am young, I don't mind taking a bit more risk because if I continue to trade shares even if I did make a big loss - it will at least be offset against my capital gains in the future. Though, I don't want to take stupid risks and lose lots of money either.

What type of advice would you give me in terms of the type of investing that would be best for my situation? I am currently leaning towards margin lending and just buying and holding a mixture of mostly blue chip shares but also some slightly more risky shares too.

I guess my plan would be to (in 6 months time) put in $5,000 capital initially and loan $10,000. Then about 6 months later do the same again and then after a year or so I would look at selling the shares I brought (so it's a discount capital gain) and possibly doing the same again by loaning double the amount of capital I start with.

Three more things, firstly should I look at investing in commodity, options or index's rather then shares? Secondly, is margin lending a good way to go for my situation? And thirdly, is dividend reinvestment a good idea when your margin lending or should you just focus on repaying the loan?

Just a bit more further information, I just started working as a tax accountant so if I did use a DRP for instance I won't be forking out tons for an accountant to work out my net CGT or anything. I did do financial risk management at university (though because it was my 2nd finance subject ever a lot of it I didn't understand fully). I know a bit about types of hedging strategies but I don't think i'm confident enough in my knowledge to apply them without guidance (initially anyway).

Good luck to you mate, i hope it all works out.
I'm 23 i started about 6 months ago, I've had ups and downs fortunatly more ups.

If i could make one suggestion, that is there is plenty of good info on this forum but there is also alot of crap. Do your own research and be wary of stocks that are traded mostly by day traders (if you dont want to be a day trader yourself).

The way i see it day traders simply swap money between each other by gambling big bucks on low margins

Let us know how you go, I'm at +23% holding value ATM hopefully thats about to go up soon.

How exactly do you do your research?

Do you just look at the ASX website for good or bad news? Do you view the companies financial reports and look at certain ratios, if so which ones?

I find it very hard to know what shares are "cheap" and what companies will grow in the next year or 2. Is there any tutorials that give a run down on how to do this?

I'm in no way an expert, my research comes from many places.

I find the best places to simply find out about companies you don't know of is forums like this, or sites such as mining news sites, biomed news sites etc.

Once I know a company exists I look into their projects.
I base the chance of their projects working by thinking how how they relate to the world today.

EG. commodities are high so there is likly to be good demand/growth ATM in that sector. Iron, copper etc are mainly building materials so since I think the building industry may quiet down I steer away from companies dedicated to those two metals only.

I like to put money into companies that have a broad range of projects and preferably have a source of income already.

But in saying this I still have a small proportion of my money in highly speculative shares simply for the potential gains. Keep your eye on business news to even ninemsn business news is better than nothing.

I base a companies growth prospects on what they do compared to where I think the world is heading.

one eg.
I read in a news article on ninemsn that the Gas pipeline from PNG to Queensland had been canned because of political etc reasons. I thought well QLD wants gas where are they goin to get it now. A company call QLD gas of course, I bought at about 65c about 4-6 weeks they were increasing reserves and santos made a take over offer $1.40.

PS that was my best gamble so far.

ATM i hold INL , MAE , POH, VMS and looking to get into into BNM.

Ah Ok.

There is so much information around, pretty hard to know what companies will go well over the next few years. I see what you mean about that gas one though, I guess when you see information like that about a company then you would look at their P&L and Balance sheet to see how they are going.

How do you handle valueing a stock, or don't you bother? I mean, you wouldn't want to buy into stocks that are at all time highs unless your very very sure that your speculation is correct. However, if the stock is fairly low and you hear the news then maybe it's a risk worth taking as it might drive the price up.

yeah i dont do super calculations to figure out values as such, to be honest mate i think most of these speculative mining comanies are overpriced.

A companies share price can be effected as much by its potential as it can by its proven reserves. I've been using graphs alot more lately to look at support for a stock etc but im still only learning to. Perhapes look at some other thread with charts to get an idea.

I like using the candlestick charts.

Basically i try to stay away from companies that seems to be going up on wild speculation rather than real potential. I just get worried that the stocks driven by speculation can fall over very quickly when either the next big speccie comes along and everyone jumps ship or before everyone relises they aint that good.

Plus the stocks which have the best more consistant gains seem to be the ones where large investor get on board rather that only day/short term traders.

Anyways good luck im off for the weekend hopefully catch you round next week for some big gains

POH had a trading holt on friday im waiting for the news next week to see what happens, finger crossed

Hi sirk,

I was probably in a similar situation as you a few years ago. I'm now 23 and have been in the market for 3 years. Starting out with around 5K, my portfolio is now 6-digits (with help from a graduate-sort-of salary) so I've done quite well over that period.

I hold medium-long term fundamental positions in small cap companies. My portfolio is concentrated and are picked bottom-up (ie more based on micro than macro). But that's enough of what I do.

Everyone is different and is suited for different ways of trading/investing. You have to determine how serious you are with it, how much time you can dedicate to it, and what strategies suit you best. I recommend reading books to get a better understanding. There are plenty of great books out there and I would have read 30-odd investment related books in the past 3 years.

After all this reading I discovered that although the ultra-successful traders/investors have what seems to be hugely different methods, most have a few characteristics in common. Just from observations, most:

• Seek concentration rather than diversification (although some struggle due to the massive capital they manage)
• Have capital perservation very high on their list (ie. risk adverse)

Which leads me onto your plans... I personally don't think leveraging is a good idea starting out. The sharemarket has done extremely well recently and has done well over the long term but it's no neverending pyramid scheme. A portfolio with 10K borrowings on 5K capital is a very highly leveraged one. If the market has a little correction and you're in 300% long, it's going to be extremely painful and a position that is hard to recover from.

Time is on your side... best of luck!

Good point drworm.

I guess although I don't want to lose 15k, if I stuck to blue chips (like CBA, WOW, BHP, or similar) with a long position then even if the market crashed causing a huge loss, I would be able to just pay out the loan from my salary and wage over the next 6months and then in the future (maybe 2, 5, 10, 15 years) the stock would rise back up and recover.

Hopefully though I would get enough gain/dividends to cover the loan interest and then some. If not, at least I get a tax deduction for the interest paid

Hi Sirk,

I am in a similar situation, 23 years old and been investing for about 1 year. Usually my research includes watch forums like this one, reading stock magazines, signing up for trial stock newletters, and watching annoucements such as directors buying. The more positive news I find the more tempted i am to buy.

I hope all goes well for you.

Hi Sirk

I am just about to start paper trading on options (mostly technical but some fundamentals) after about 12 months of research....

Some good sites that have helped me are....
http://www.quotetracker.com/ (select asx delayed data for free)
http://www.incrediblecharts.com/ (free end of day charting and a lot of technical analysis info)
http://bigcharts.marketwatch.com/ (free charts, ASX share search is "AU:BHP" etc)
http://www.afraccess.com/ (free charts, news quotes etc)
ABC radio monday 5:35pm Some guy gives some helpful tips on fundamental values of shares etc.

Hope some of this helps

HI Sirk

Beware this share trading is very time consuming. I started in about May I only trade in very small amounts which is frustrating however I am learning a lot and have been quite successful. I have made money on two floats which has boosted my small capital UTO and USA I watch the announcements (asx or Bell Potter if you are a client)each morning and throughout the day to see if anything of interest is happening. I also watch this and other share sites but I must like what the Company is doing before I will buy. Go slowly.


Thank you to the knowledgable people who contribute to this forum it is fantastic and you are all very kind.

Don't rush into things, depending on what you are doing as a tax accountant you will learn a lot from your work. When I first started a lot of my work was with smsf's and you pick up a lot from them about shares. The latest thing I have picked up is that A lot of people bought amc and ppx shares that have performed very badly over the last few years and have eventually sold for hefty losses. Having stop losses to prevent this would have saved them a lot of money, even if the stop loss is at 20% below the purchase price they would have saved a fair bit.

The people also buying these shares did so on the recommendation of brokers (who they paid a much larger brokerage fee for them to lose money) so be wary of broker reports just as you should be when it comes to any information you read.

DRP is still a pain in the **** regardless of what your job is, the idea of it is great but I stay away from it now...for example if you want to sell the share for some reason after the dividend, you pretty much have to wait till the new shares are credited to your account before you can do that, otherwise you will have to sell a small parcel with a comparatively large brokerage fee

I took much longer than I had hoped to get into the stock market, and when I did, I didn't perform well for the first few months (started in April/ May this year) but stuck at it and am finally starting to make some profits, I started with a lot of large caps and some small caps and ended up with quite a few losses, I have done much better since I moved into some growth/ small cap stocks, but who knows what the future will hold.

Hi folks,

..... one way to narrow the field down a bit ... trade in
sectors that you already have an interest in and
some knowledge about, already.

That is, use your own past experience and knowledge
to focus on areas, that you find really interesting .....

..... God only knows, that fundamental research for
good stocks is tedious enough, but it can be made
a whole lot more enjoyable, if it happens to be in
an industry, that you enjoy reading about !~!

have a great weekend

yogi

Uranium is the way to go! If you need help the famous james dines will help you. I personally dont think you could do better on your own. I am 27, sold my house almost a year ago and put my proceeds into the stocks JD has recommended after watching my fathers account grow from listening to his advice over the last few years. I am 35% up now and its about to get a lot better. I understand being young and wanting to be a little riskier. You really should check him out.

Lance

How exactly do stops work? and are they only useful for day traders? (Because i'd assume that someone with a longer position would recover in the future)

I think that if I were to trade in a few riskier stocks, I better know a bit about stopping ths loss getting to big.

Sirk,

The kinds of questions you are asking indicate that you are a real beginner and there is nothing wrong with that, - we were all there once. As others have already recommended, READ READ READ! Trouble is there is a lot to read these days and you have to learn to sift the gold from the crap - and there is a lot of crap. Personally I would start reading the financial press daily (if you aren't already) particularly the AFR just to get a feel for things and some basic books "One up on Wall street" "The Warren Buffet Way" and Benjamin Graham's classic "Security Analysis". These books take you through the basics of fundamental analysis and will answer questions such as what are the most important ratios to look for etc.

If you really want to do thorough fundamental research it takes time - a lot of time and that's going to be tough given your job and I presume you'll probably be embarking on your CPA or PY in the near future? You need access to company historical data which you can easily get from the ASX website. You'll also need forecast earnings estimates - for example like those provided by Huntleys on the Commsec website but which are also easily obtainable in the money section of ninemsn.com. However analyst estimates shouldn't be taken as gospel and they get it wrong as often as they get it right. Forecast estimates may differ wildly from broker to broker on some stocks as do their recommmedations. So to repeat again what has already been said - do your OWN research.

Personally I have background in equities research so I don't expect many people go to the trouble I do when research listed companies but this a basic rundown of what I do. I start out by finding a company I'm interested in - that could be something I read in the financial press or something I read on a forum such this one for example. I then go and look at the P&L, BS and CF and ask basic questions such as: Do they make money? Is the balance sheet in good shape?, are they cashflow positive? do they generate enough cash to fund their operations? If I can answer yes to all these I dig a little deeper, what kind of gross margin do they have? (EBITDA margin) What kind of industry do they operate in and what is the outlook for that industry? These are by no means all the questions I ask but just to give you an idea. If I come away still interested in that company I'll build a model of that company, that means I go back and put in all the historical data for P&L, Balance Sheet and Cashflow for however long is relevant and then I do my own forecasts for future earnings. I read all the directors statements in the annual reports and relevant company announcements, I compare them to competitors and read what I can findd in the financial press about them. That's what equity research analysts do, although in addition they have access top level management and can pepper them with questions that may or may not give them a better insight. I have a full time job (not in the financial industry) so I do my research in the evenings or at weekends. It might take me about a month to model one company properly and I still could have it wrong. But again you don't need to do all that to do some solid fundamental reasearch.

Also there is another dimension that you may not have considered which is technical analysis. There are quite a few traders on this site who use technical analysis to trade stocks and some do it for a living. Fortunately there is a very experienced and successful trader who contributes to this forum from time to time called Nick Radge so you might want to do a search for his posts or check out his website.

Also I know you are willing to take risk but gearing 200% into a market that is at its peak is risky. On the other hand you are right in your belief that if you hold blue chips over the long term there is a good chance that you'll make back your short term losses and then some. I don't trade and I don't gear but that's not to say I won't in the future. People make money out of doing both. Anyway that's about enough from me, last words - choose your own path.

Good luck

Hi Sirk,

I too am new to this forum and going to start investing in shares. I have had some experience in it before but was really fairly minimal.

I haven’t bought any shares recently. I am still in the process of figuring out how I want to go about it. However I still think I’m qualified to give you some “common sense” advice, that for whatever reason, many people seem to lose all sight when there is talk of making lot’s of money.

DO NOT think trading is a get rich scheme. It is very hard work. Whilst the actual buy and sell of a share may only take seconds…there should be plenty of time spent in research of it first. Sure you can get lucky a few times and buy a share on impulse and make a lot of money, but more often then not that is a losing style.

At the risk of offending the long standing quality people on this forum…I apologise in advance. But DO NOT believe every thing you read on a forum. Whilst I can’t say I’ve seen it yet on this forum…I’ve only been reading it a few weeks now, but there are people in this world who would not think twice of doing the old “pump&dump”. In any given environment, there are quality people and the not so quality people. It’s up to you to decide what advice to take or not to take.

May I point you to the following thread, https://www.aussiestockforums.com/forums/showthread.php?t=719
There is a very good line in there that I personally think should be reread several times.

“Ive seem whole rooms Bug Eyed singing Praise the Lord the holy grail is found!

They have absolutely no idea what they were looking at their desire to push a button to riches turned normal rational men and women into moronic sheep.”

That was posted by someone on this forum named tech/a. It is the third response written on that thread. I highly recommend reading it.

But basically the best advice I can give anyone…is use common sense. By all means I am an optimist…but I am also a realist. Make sure this is really what you want to do before you commit yourself to it. Do plenty of research on the pluses and minuses of trading. Do you have the guts to have a bad day or week? Do you have the discipline to cut losses? To me those type of question need to ask by you to yourself.

I actually had, in my own little world, a much better response written yesterday but just as I was about to send it I hit the wrong key on my keyboard and deleted the whole bloody response. Bugga. Oh well.


Nevertheless…good luck to your future trading days. Perhaps we can learn and grow in our experience together and help each other out. BTW…if anyone is from the Adelaide area and had monthly get to togethers or anything I’d be interested in hearing about them or attending.

Cheers,
Gordon

I will be starting my CPA next year so I won't have time for much trading apart from maybe just checking to see how my stocks are going and once every so often researching about the next batch of shares i might buy (in the coming months).

I see a lot of people say the share market is at it's peak. Is there reasoning behind thinking that it will drop? I can see how perhaps high petrol prices and interest rate rises could lead to poor performance of some sales orientated companies like Myer.

What do people do when they see the market is going to drop? Do they pull out all their money, wait for a crash (maybe waiting months or years) and then buy in when the going is tough for others?

Lismore said:

Hi Sirk

I am just about to start paper trading on options (mostly technical but some fundamentals) after about 12 months of research....

Some good sites that have helped me are....
http://www.quotetracker.com/ (select asx delayed data for free)
http://www.incrediblecharts.com/ (free end of day charting and a lot of technical analysis info)
http://bigcharts.marketwatch.com/ (free charts, ASX share search is "AU:BHP" etc)
http://www.afraccess.com/ (free charts, news quotes etc)
ABC radio monday 5:35pm Some guy gives some helpful tips on fundamental values of shares etc.

Hope some of this helps

Click to expand...

Hi Lismore , you look very intelligent and I'm very interested in your trading knowledge, but only if that is a real picture of you

and by the way I've just had a few beers with some of the lads and they seem to think you have good assets as well, useful investing knowledge that is!.