Investment timing

[mrcleaner]

Hi all,

On a slow afternoon at the office and after reading through the topics I have already learnt alot. There seems to be a general conception about investing 10% of your wage into the market. My question relates to the timing of this investment particularly what minimum amount should you be looking to invest at one time?

 

[Klogg]

Hi all,

On a slow afternoon at the office and after reading through the topics I have already learnt alot. There seems to be a general conception about investing 10% of your wage into the market. My question relates to the timing of this investment particularly what minimum amount should you be looking to invest at one time?

This may vary dependent on your approach, but there is a definite minimum for any approach...
It would definitely have to outweigh the brokerage cost involved. I know ComSec has a flat $20 on anything under $10,000 (from memory - may need verification). With that in mind, investing $100 in one transaction means you're already 20% down if you're using ComSec...

I personally go for a minimum of $4k per transaction (i.e. each time I 'invest'), but that's relative to the size of the portfolio (and was initially smaller).

Before you focus on timing though - do you have an approach in mind that you'd like to use?
(Are you just going to invest in an index?)

 

[So_Cynical]

It would definitely have to outweigh the brokerage cost involved. I know ComSec has a flat $20 on anything under $10,000 (from memory - may need verification). With that in mind, investing $100 in one transaction means you're already 20% down if you're using ComSec...

Stating the obvious but following on this theme .. investing $1000 with $20 brokerage puts you 2% down straight away, $2000 would be 1% and $4000 is 0.5% ~ on the plus side of the equation a 5% move will give you a $50 profit on a $1000 position, less $20 brokerage each way leaves you with a real profit of just 1% ($10) ~ with a $4000 dollar position the brokerage remains the same in $ terms but is far less in % (on the whole investment) terms .. so the % you pocket goes up to 4%

And so on.

 

[mrcleaner]

Thanks for the prompt response. I have signed up with cmc markets to minimise brokerage fees and definitely will wait for a decent amount of money to invest first.

However I have no idea what this means..

Before you focus on timing though - do you have an approach in mind that you'd like to use?
(Are you just going to invest in an index?)

I am planning to so some research in the upcoming months as it takes a while to save something substantial while paying off a homeloan. I know of one stock I want to buy for the relative short term but the rest I want for the long term. Is this what you mean?

 

[Klogg]

I am planning to so some research in the upcoming months as it takes a while to save something substantial while paying off a homeloan. I know of one stock I want to buy for the relative short term but the rest I want for the long term. Is this what you mean?

Sort of.
When I mention approach, I mean how do you determine what you buy and sell? This one stock you have in mind, is it because it's a great business? has low debt? great prospects?

The better you can articulate your reasons for buying stock in any company, the easier it'll be for you to determine when to exit that position.

For example, I bought BRG at an average of $3.10. When I bought it, I wrote down my reasons, which included:
- great exposure to markets outside AUS (some protection against a subdued Australian economy)
- a fairly strong product that many people would know of
- a fairly strong balance sheet
- an onerous lease that was holding back profits (which should expire soon)

With that in mind, the company has almost doubled in price (this is my best pick to date - but I've had some shockers to bring me back to reality), but I still hold it. The reason I hold it is because many of the reasons (if not all) still hold true.

Of course, there are other ways to select stocks, this is just how it makes sense to me.

Are you able to select one of the stocks you have in mind and list your reasons for that particular investment?
(Don't feel like you have to, I'm just making a suggestion).

And then of course, once you can articulate asset selection, it's probably worthwhile determining your particular financial structure (in hindsight, it probably makes sense to do that first).
This would include things like:
- are you buying stocks in your name? a holding company? a trust? your partner's name?
- are you using any leverage? if so, how much? (this can be dangerous!)
- what does your capital allocation look like?
and so on.

But, I'm going off track - that can be handled in another thread.

Hope this helps.

(P.S. This is all just to give you an idea - probably best you get advice from a qualified professional before doing anything I've suggested)

 

[mrcleaner]

Sort of.
When I mention approach, I mean how do you determine what you buy and sell? This one stock you have in mind, is it because it's a great business? has low debt? great prospects?

Are you able to select one of the stocks you have in mind and list your reasons for that particular investment?
(Don't feel like you have to, I'm just making a suggestion).

And then of course, once you can articulate asset selection, it's probably worthwhile determining your particular financial structure (in hindsight, it probably makes sense to do that first).
This would include things like:
- are you buying stocks in your name? a holding company? a trust? your partner's name?
- are you using any leverage? if so, how much? (this can be dangerous!)
- what does your capital allocation look like?
and so on.

I'm still in very early stages so as how to approach this I'm not sure.. I was hoping that trawling through market research on comsec or cmd would be good enough.. is this not the case?

The stock I'm 90% sure of investing in has got a strong international market presence with a range of existing international contracts
There is little public knowledge about this product now however in the short term a medium risk venture will occur which will lift the profile of the company
Not sure if this is a good thing but pre-gfc they had a very strong market value (is this a good thing?)

Since i have no idea what the majority of that stuff means I will definitely be seeking some financial advice. I always assumed I would be investing personally. Is there a reason why I wouldn't?

 

[Klogg]

I'm still in very early stages so as how to approach this I'm not sure.. I was hoping that trawling through market research on comsec or cmd would be good enough.. is this not the case?

This is definitely an option. It all depends on how much time and effort you aim to put in and what you aim to get out of it (in terms of knowledge and money).

The stock I'm 90% sure of investing in has got a strong international market presence with a range of existing international contracts
There is little public knowledge about this product now however in the short term a medium risk venture will occur which will lift the profile of the company
Not sure if this is a good thing but pre-gfc they had a very strong market value (is this a good thing?)

I can't confirm, as I don't know about the company, contracts or product.
I suppose what I could suggest you look at is whether or not other companies fare better or worse in terms of finance and quality of business.

Since i have no idea what the majority of that stuff means I will definitely be seeking some financial advice. I always assumed I would be investing personally. Is there a reason why I wouldn't?

Advice from a good financial advisor can never go astray.
As for investing personally, the reason I ask is mainly around tax reasons, although there are other reasons for different structures.
It's probably not appropriate for me to go through these in detail over a forum, especially since I'm not licensed to give advice.
What I can tell you though is that I hold property and shares in a trust, due to the differences in tax rates that I pay in comparison to other beneficiaries in that trust (one of which is a holding company). I have other reasons also, but that's the main one.

It sounds like you're starting off well - just don't rush into anything without arming yourself with the proper knowledge first

 

[Julia]

Since i have no idea what the majority of that stuff means I will definitely be seeking some financial advice. I always assumed I would be investing personally. Is there a reason why I wouldn't?

You say you have a very limited amount to invest. What sort of 'financial advice' would you be seeking and from whom? What do you anticipate this would cost, i.e. what inroad would it make into your proposed investment capital?

 

[mrcleaner]

You say you have a very limited amount to invest. What sort of 'financial advice' would you be seeking and from whom? What do you anticipate this would cost, i.e. what inroad would it make into your proposed investment capital?

I have a limited amount to invest at the moment..I will be saving an amount probably in the order of 5k. I'm hoping to get financial advice from an uncles friend who is a qualified stock broker. He was always well off and he invested heavily in the trough of the gfc and now has more money than god. Hopefully he will do this out of the kindness of his heart. But who knows.

What the general ball park figure that these kinds of things cost?

 

[mrcleaner]

Thanks for your help klogg

 

[McLovin]

With $5k I'd do my own research, rather than pay to here someone else's opinion.

Then again, I'd do my own research, full stop.

 

[Julia]

I have a limited amount to invest at the moment..I will be saving an amount probably in the order of 5k. I'm hoping to get financial advice from an uncles friend who is a qualified stock broker. He was always well off and he invested heavily in the trough of the gfc and now has more money than god. Hopefully he will do this out of the kindness of his heart. But who knows.

What the general ball park figure that these kinds of things cost?

Highly variable, depending on from whom you seek the advice.
Could be much more than would seem reasonable in your situation if you were to go to some financial planners because (I think) they are required to formulate some sort of financial plan before giving you any advice which could even absorb most of your capital.

I wouldn't wish to impugn stockbrokers, but perhaps consider that they may not necessarily be as wise or objective in your interests as you might expect.

It's much cheaper and not as difficult as you might imagine to find a couple of companies to start out with, perhaps avoiding the speculative ones.

 

[Wysiwyg]

Investment timing can mean buying quality stocks at undervalue. Undervalue can mean GFC prices or a heavy emotional sell off for example. You don't have to wait for under value though. You can jump on a quality company that is rising in price and enjoy the up trend. For me, dividends are a bonus if a trend lasts for years. Unrealised profits and realised cash along the way is very rewarding. Remember, investment is about increasing capital over time. You may not want to be sitting on losses for long periods of time because opportunities are missed all the while. The market cares not for anyone's time so saying I will hold for 2, 5 or 10 years is nonsense because there is no way you can see at what stage that company will be at in its life cycle let alone what cycle the overall market will be in.

Time is precious to most people so you want your bottom line appreciating in some way or another with your capital working for you and not against you. Define that boundary between patience and missed opportunity. Nothing is more frustrating in a bull market than holding depreciating stocks.

Stock selection is important. I'm sure I am not the only one who has held depreciating stocks for a long time in hope (not religious belief which would suggest I think I know how a company will fare in the future) only to have wasted time and in the end money on a bad investment. You learn and get better at stock selection.

Finally, buy from Mr. Value, not Mr. Market 'cause Mr. Market will eat your lunch if you don't know what you're doing.