Newbie Lessons - All your questions answered

[Cobweb]

thanks for that Sir O, i will be in the market for a house by July so i will be sure to quiz my bank manager about amotisation.

 

[TMR0412]

Hi all,

Thanks for all the good info. in this thread so far.

Excuse my ignorance for this simple question, but do listed companies have a finite numbers of shares? I'm pretty sure they don't, but I've heard people say that every time you buy a share there has to be a seller (and vice versa). I'm not sure what this means.

Many Thanks

 

[cutz]

Excuse my ignorance for this simple question, but do listed companies have a finite numbers of shares? I'm pretty sure they don't, but I've heard people say that every time you buy a share there has to be a seller (and vice versa). I'm not sure what this means.
Many Thanks

G'Day,

A listed company has a fixed amount of shares unless an issue / buyback occurs, when you buy a stock there is a seller on the other side of the transaction with compelling reasons to sell, these are not new shares just part of the current float.

 

[brty]

TMR,

All companies have a set number of shares that are listed, this number can change when the company issues new shares.

When you buy shares on the stockmarket, you are purchasing off other holders of shares in the company. Hence for every buyer there is a seller.

When the company issues new shares, it does so off market, usually to existing shareholders and also to institutions via placements.

brty

 

[jaydebono]

Thanks brty,

how does it work when a company runs an employee share plan? do they create new shares for employee's or purchase existing ones from the market?

 

[brty]

jaydebono,

They will be new shares issued from the company. The same with options granted to execs. They are options over new shares to be issued.

When a company buys back shares on the market, they are retired. The company does not turn around and re-sell them.

brty

 

[akkopower]

What do u mean by retired?

Can they sell them at a future time?

 

[Edwood]

Probably more one for the newbie day traders

------------------------------------

[FONT=Calibri,sans-serif][FONT=Times New Roman,serif]The life of a newbie trader[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
1. Notice a website from a broker, this looks easy, download demo[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
2. Fumble around until you hit a couple of big trades, thinking how easy it really is, and not noticing that your demo account balance is actually going DOWN[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
3. Open live mini account[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
4. Trash Account[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
5. Add more to account, thinking that it's just bad luck[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
6. Notice that this account is trashing too.[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
7. Read BabyPips, and think Oh! now Ive got it![/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
8. Continue to trash account while telling all your friends how much money you are making[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
9. Start exploring forex factory in a desparate attempt to make this easy[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
10. Have a little success[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
11. Get over confident[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
12. Lose your new found profits[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
13. Start drinking and smoking[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
14. Give up[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
15. Start thinking about it some more[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
16. Tell yourself you really weren't that bad at it, and in a burst of optimism, find yourself opening an new demo[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
17. Have some success at demo, open another live account[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
18. Get the idea that if you throw some REAL money at it, that what it takes to be successful[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
19. Begin the process of trashing yet another account[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
20. Catch hell from your wife for spending hour after hour in front of the screen while your house is falling down around your ears. Even the dog is bored with you.[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
21. In a drunken fog, you use a fly crawling across the screen as a technical indicator[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
22. Get a divorce[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
23. Get a girl friend half your age, whose name ends with an "i" (Kandi, or Brandi)[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
24. (if you are lucky) Finally get a clue that it isn't the system that is bad, but it is your own trading habits and discipline. Perhaps you begin making a little money. Finally realize you are not gonna get rich overnight.[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
25. Find out that your girlfriend has run up a $500 bill texting a middle aged country club golf pro on the new Iphone you gave her.[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
26. Dump her[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
27. Go through re-hab[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
28. Get wife back[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
29. And maybe . . . Just maybe . . . you successfully begin growing your account balance.[/FONT][FONT=Times New Roman,serif][/FONT][FONT=Times New Roman,serif]
Alas, this is the learning curve of the newbie trader[/FONT][/FONT]

 

[TMR0412]

Many thanks guys, that makes sense.

Could I also ask, what determines the price of a share? Obviously the more demand the higher the price, but is a company trading at $20 simply worth ten times more than a company trading at $2?

Thanks

 

[Trembling Hand]

Many thanks guys, that makes sense.

Could I also ask, what determines the price of a share? Obviously the more demand the higher the price, but is a company trading at $20 simply worth ten times more than a company trading at $2?

Thanks

The value of the company is share price X shares issued.

So a $3 share like Telstra with 12,443,074,357 issued (market cap 37 bil) is worth a lot more than a company like $20 Flight Center with 99,755,858 shares issued (Market cap 2 bil).

 

[Trembling Hand]

What do u mean by retired?

Can they sell them at a future time?

No they are cancelled. That is the point of the company buying them. To reduce the amount of shares on issue and therefore, in theory, increase the value of the remaining shares.

 

[Cobweb]

Great thread Sir O, I have read every single post from everyone and although i have learnt before much of what you have written, your insights have reinforced my understanding and filled many gaps in my learning. I cant wait for the next instalment in the series, especially on the TA stuff its been gold. Are you continuing? and when do you think it might be?

 

[Sir Osisofliver]

Great thread Sir O, I have read every single post from everyone and although i have learnt before much of what you have written, your insights have reinforced my understanding and filled many gaps in my learning. I cant wait for the next instalment in the series, especially on the TA stuff its been gold. Are you continuing? and when do you think it might be?

Hi Cobweb - glad the info has been helpful.

Work has been crazy busy - and I mostly give up my lunch hour to write this stuff. Writing the technical stuff in an easy to understand format takes time - generally more than a hour given that I'm not the worlds fastest typer. The stuff I do personally with technical analysis is a bit more complex than basic price action, so I'm finding it hard to summon the enthusiasm to write about it. It's easier for me to comment on what others have written (not that I seem to be doing much of that with help from other posters like Trembling Hand, brty, cutz and others). Thanks Guys.

If you want, you could pose a question on something specific and I'll do my best to answer it.

Cheers

Sir O

 

[Cobweb]

Hi Cobweb - glad the info has been helpful.

Work has been crazy busy - and I mostly give up my lunch hour to write this stuff. Writing the technical stuff in an easy to understand format takes time - generally more than a hour given that I'm not the worlds fastest typer. The stuff I do personally with technical analysis is a bit more complex than basic price action, so I'm finding it hard to summon the enthusiasm to write about it. It's easier for me to comment on what others have written (not that I seem to be doing much of that with help from other posters like Trembling Hand, brty, cutz and others). Thanks Guys.

If you want, you could pose a question on something specific and I'll do my best to answer it.

Cheers

Sir O

Of course Sir O! - I was just enjoying it so much and got to the end of the thread. I look forward to it when it does come.

I don't have any questions at the minute about T/A although I'm sure i will very soon as i am reading up on it all the time.

However I do have a question regarding my girlfriends out of control credit card and personal loan. I thought with your underground banking intelligence you may be able to throw some advice my way, albeit general.

My girlfriend has a credit card that has a credit limit of $8,000 which is maxed out. Interest on purchases is about 12% and interest on cash advances is about 21%. The GF also has a personal loan with the same institution for $9,500 at a rate of 14%.

The personal loan repayment cycle is set at monthly however she is usually making payments weekly.

The credit card has a total of $X for debits on purchases and $X on cash advances. Not until recently were we aware that the cash advance and the interest that goes with it at 21% was not paid off when she made her next payment on the card, instead the interest on these cash advances (and the cash advance fee + the interest attached to this fee) remains until the total balance of the purchases is paid in full.

On her last statement she was charged $94 in interest on her cash advances and $24 interest on purchases. So the $94 will remain each month until the balance on purchases is repaid (she cant afford to do this at the moment).

We have made an appointment with the bank for this Tuesday. At the moment I see my only option being to refinance the credit card balance onto the personal loan, so she will be paying off a total of $17,000 @ 14.75% over 5 years @ $102 per week. Interest is only charged on the balance.

So she will be paying $20 more in repayments per week than she was but she will have no debt in 5 years (although she will probably find a way to rack up some more for me) and wont be paying just the interest off on her credit card each month.

What i would like to know is:

- Can you see another option for her?

- given this is over 5 years and where the interest rate cycle is, is it right to go fixed.

- Does what you discussed at the beginning of the thread regarding amortisation apply with personal loans. This is what the bank has said:

One year is assumed to contain approximately 52 weeks or 26 fortnights. Fortnightly repayments are calculated based on 24 (2 x 12 months) fortnights, weekly calculations as based on 48 (4 x 12 months) weeks. Over each calendar year, the equivalent of one extra month’s repayment is made hence resulting in the loan being paid off sooner than the original loan term entered.

However the bank then indicated on one of their calculators that the loan would be paid off in roughly about 4.5 years but there is no mention about any interest saved from the 6 month reduction on the loan term. So what have they done here? Have they factored in the interest they would lose from the reduction of the loan term into the monthly repayments over 4.5 years.

Is there anything i can do here - is this a case of them amortising the weekly and fortnightly payments over the year so the term is reduced but i still pay the same amount of interest? Can i ask them to not amortise my repayments in this case.

- Is there anything else I should consider.


Thanks so much for anyone's assistance. ( my appointments in 2 days, sorry for the short notice

 

[Edwood]

errrr - sounds like a depreciating asset to me, time for a trade in?

fundamental rule - not just in 'trading / investing', but in life in general - is to cut the losers early, move on, & focus on the winners.

 

[Edwood]

unless her dad owns a brewery

 

[Sir Osisofliver]

Oops! I had a long weekend - hope this gets to you in time Cobweb.

Of course Sir O! - I was just enjoying it so much and got to the end of the thread. I look forward to it when it does come.

I don't have any questions at the minute about T/A although I'm sure i will very soon as i am reading up on it all the time.

However I do have a question regarding my girlfriends out of control credit card and personal loan. I thought with your underground banking intelligence you may be able to throw some advice my way, albeit general.

My girlfriend has a credit card that has a credit limit of $8,000 which is maxed out. Interest on purchases is about 12% and interest on cash advances is about 21%. The GF also has a personal loan with the same institution for $9,500 at a rate of 14%.

The personal loan repayment cycle is set at monthly however she is usually making payments weekly.

The credit card has a total of $X for debits on purchases and $X on cash advances. Not until recently were we aware that the cash advance and the interest that goes with it at 21% was not paid off when she made her next payment on the card, instead the interest on these cash advances (and the cash advance fee + the interest attached to this fee) remains until the total balance of the purchases is paid in full.

On her last statement she was charged $94 in interest on her cash advances and $24 interest on purchases. So the $94 will remain each month until the balance on purchases is repaid (she cant afford to do this at the moment).

We have made an appointment with the bank for this Tuesday. At the moment I see my only option being to refinance the credit card balance onto the personal loan, so she will be paying off a total of $17,000 @ 14.75% over 5 years @ $102 per week. Interest is only charged on the balance.

Don't fall into the trap that by "clearing" the credit card, you now have $8,000.00 available. Banks are quite willing to let you get into a situation where you are working to pay them interest and never clearing the principle.

So she will be paying $20 more in repayments per week than she was but she will have no debt in 5 years (although she will probably find a way to rack up some more for me) and wont be paying just the interest off on her credit card each month.

What i would like to know is:

- Can you see another option for her?

Plenty of banks are willing to compete for credit card debt. For them it's a fantastic revenue spinner and a chance to cut the other guys lawn. Look at the below link for comparison rates - you will find some that are below the rates she is currently being charged on her interest.

http://www.canstar.com.au/interest-rate-comparison/compare-credit-card-rates.html

Plenty of banks also offer introductory rates on transfer of credit debt from other banks, so if you don't mind the hassle of changing your credit card every few months you can pay significantly lower than you currently are.

- given this is over 5 years and where the interest rate cycle is, is it right to go fixed.

I cannot provide advice as far as this is concerned. I will tell you however that I think it is likely that rates will continue to go up over the next few years. [/quote]

- Does what you discussed at the beginning of the thread regarding amortisation apply with personal loans.

Of course

This is what the bank has said:

One year is assumed to contain approximately 52 weeks or 26 fortnights. Fortnightly repayments are calculated based on 24 (2 x 12 months) fortnights, weekly calculations as based on 48 (4 x 12 months) weeks. Over each calendar year, the equivalent of one extra month’s repayment is made hence resulting in the loan being paid off sooner than the original loan term entered.

However the bank then indicated on one of their calculators that the loan would be paid off in roughly about 4.5 years but there is no mention about any interest saved from the 6 month reduction on the loan term. So what have they done here? Have they factored in the interest they would lose from the reduction of the loan term into the monthly repayments over 4.5 years.

Is there anything i can do here - is this a case of them amortising the weekly and fortnightly payments over the year so the term is reduced but i still pay the same amount of interest? Can i ask them to not amortise my repayments in this case.

[/quote] I doubt there is anything you can do it that specific situation (without looking at the loan documents myself). Personal loans are unsecured loans (no asset behind them that the bank can sell and get its' money back). As such they tend to be more militant about the conditions of the loan.

- Is there anything else I should consider.


Thanks so much for anyone's assistance. ( my appointments in 2 days, sorry for the short notice

Hope that helps

Cheers

Sir O

 

[goponcho]

Just a quick ty for ur time & effort Sir O, it is appreciated!

 

[grim61]

Hi Guys,

I have been curious about something for some time (and forgive me if it sounds stupid): If I hold a portfolio of xyz as a longterm investment through a stock standard online broker like commsec, is there anyway I can rent these shares out to short sellers to gain a little extra income from the stocks? - I have only ever really bought and held shares in the past and am interested in finding ways to squeeze more income out of them.

Thanks.

 

[Sir Osisofliver]

Hi Guys,

I have been curious about something for some time (and forgive me if it sounds stupid): If I hold a portfolio of xyz as a longterm investment through a stock standard online broker like commsec, is there anyway I can rent these shares out to short sellers to gain a little extra income from the stocks? - I have only ever really bought and held shares in the past and am interested in finding ways to squeeze more income out of them.

Thanks.

Grim61,

To be able to do so (at one of the companies I worked at - I'm not clear if it is industry standard) you would need the following: -

1) Sophisticated Investor Status
2) A decent sized Holding
3) A full service broker (who also shorts)

It may be worth your time in looking at Option strategies for income generation (but using leveraged products in this way is fraught with danger so I would strongly suggest you become very educated about the process).

Cheers

Sir O