Newbie Lessons - All your questions answered

[RipnRun]

Hey guys,
New to the forum and just thought id say hello and thank you for threads like this one.
Im a complete newb to the sharemarket and finance in general and stumbled across ASF while looking for a place to begin my education, looks like the perfect place to start!
Im completely blown away at the level of knowledge shown and shared freely here.

Like alot of other people here i too have a background in poker both online and live and am hoping i can eventually transfer some of the skills learned at the tables to my investing.
I say eventually because even though i cannot wait to start investing im not opening an account until i at least have a decent knowledge base about what im getting myself into, like poker im definatley not looking to gamble and am taking a disciplined path.

So, for the past few weeks i have been completing education modules from the ASX website and have purchased The Intelligent Investor revised edition, and am looking to buy The Universal Principles of Successful Trading by Brett Penfold very soon.
What im asking i guess is am i getting to far ahead of myself with these books and should just focus on using online resources such the ASX modules for the time being?

Id also love to hear some other suggestions to further my learning.

Anyways the purpose of this was to say hi and thank members like Sir-O for taking time out their days (and lunch breaks) to educate the uneducated, so again thank you.

 

[Jako]

Hi Sir O,

I have read through every page of this thread & have found it Fantastic to increase my knowledge of investing broadly & the stockmarket in particular.

A brief history of me.

About 7 yrs ago I took out a stock standard Com Sec account.

I did some dumb things for a couple of yrs & luckily did not lose much money, mind you I didnt start with very much to begin with.

I realised I was not the worlds best stock picker, so I began following someone who invested the way that suited me & that I trusted.
I started following on the coat tails of Robert Millner from WH Soul Pattinson.
If I liked their stock holdings or new picks all I did was to do was obtain a reasonable entry price for the existing stocks or a cheaper one than them for the new investments & I was set.

I invested in SOL initially & began running my ruler over their other investments, some of which I invested in, like NHC TPM CBD etc. others I did not.

While this has served me well, however it's a bit boring & I felt I could/should do more.

About a year ago I started building a stock valuing tool on excell (using FA), it started out very basic, but has developed into quite an ongoing project.
I just about had to get a masters degree in maths to complete it, I have put in more & more things & deleted others, & it's mostly complete now.

So far my small investments havnt done so well, I bought into OKN (have a client taking them to court) so I sold out for a small loss of $36 (incl. brokerage). I also bought into NWH ( henry tax review have killed them & CEO has resigned ) & I still hold them.

I do not have any risk management in place, although I know I should, I dont understand how to go about it, when to use it, or how ??
I look forward to your covering this in the future.

Now for some questions.

How much money should someone have, before you can go to a Full Broker Service with out them laughing at you after you leave ??

Is there a "Part Broker Service" available ??, to run idea's past them before you invest.

How much does a Full Broker Service cost (round about) ??

No matter how much reasearch I do, Brokers seem to know more than I do. (like other listed investments, land holdings or property holdings etc.) Is this because they can speak to company liaison people and I cant ??

Can I do "stop loss" on my basic Comm Sec account ?? or do I need to change over to another Broker ??

I've got a few more questions, but this will do for now.

Thanks again for your time & effort on this thread. ..

 

[Sir Osisofliver]

Hey guys,
New to the forum and just thought id say hello and thank you for threads like this one.
Im a complete newb to the sharemarket and finance in general and stumbled across ASF while looking for a place to begin my education, looks like the perfect place to start!
Im completely blown away at the level of knowledge shown and shared freely here.

You are welcome I hope you have an enjoyable and successful time here at ASF.

Like alot of other people here i too have a background in poker both online and live and am hoping i can eventually transfer some of the skills learned at the tables to my investing.
I say eventually because even though i cannot wait to start investing im not opening an account until i at least have a decent knowledge base about what im getting myself into, like poker im definatley not looking to gamble and am taking a disciplined path.

So, for the past few weeks i have been completing education modules from the ASX website and have purchased The Intelligent Investor revised edition, and am looking to buy The Universal Principles of Successful Trading by Brett Penfold very soon.
What im asking i guess is am i getting to far ahead of myself with these books and should just focus on using online resources such the ASX modules for the time being?

Id also love to hear some other suggestions to further my learning.

Anyways the purpose of this was to say hi and thank members like Sir-O for taking time out their days (and lunch breaks) to educate the uneducated, so again thank you.

RipnRun - all Learning is self paced. Do whatever you feel comfortable in doing. I would suggest a couple of books to add to what you have.

The (Mis) behaviour of Markets by Benoit Mandlebrot
Against the Gods by Peter Bernstein

Both of the above can be a bit dry but there are some excellent lessons in there that will challenge what you think you know.

I would also suggest that you learn by doing - just don't use real dollars for now. I trade using systems and most of my successful systems have taken years to refine. The earlier you start the better you will get at it.

Cheers

Sir O

 

[prawn_86]

No matter how much reasearch I do, Brokers seem to know more than I do. (like other listed investments, land holdings or property holdings etc.) Is this because they can speak to company liaison people and I cant ??

This is because they spend a lot of time, and have access like you suggest. But also its a sales pitch. They seem to know more because they are confident with their analysis. A lot of finance is just bluff and bluster.

 

[Julia]

How much money should someone have, before you can go to a Full Broker Service with out them laughing at you after you leave ??

Hello Jako, maybe don't have so much confidence that a so called full service broker (who will charge an arm and a leg in commission) is necessarily going to offer you good advice.
Many years ago, I was in a similar position to that which you appear to be in now and made the naive assumption that a full service broker would (a) have my best interests at heart, (b) be competent, and (c) give me advice that would actually make me money.
They made 14 stock suggestions. In the belief that they had good reason to advise these stocks would rise I accepted all of them. At the end of 12 months, (and in a strong bull market at the time) 12 of the 14 had lost ground, some considerably.
I know my experience is far from unique.

Have you considered, in addition to your FA approach, learning something about price movement/charting?

How much does a Full Broker Service cost (round about) ??

Best to phone a few and ask.
I was paying around $400 on a $15,000 trade.

No matter how much reasearch I do, Brokers seem to know more than I do.

What is the basis of your belief here?
What evidence do you have?

I also look forward to Sir O's response to these questions.

 

[Sir Osisofliver]

Hi Sir O,

I have read through every page of this thread & have found it Fantastic to increase my knowledge of investing broadly & the stockmarket in particular.

A brief history of me.

About 7 yrs ago I took out a stock standard Com Sec account.

I did some dumb things for a couple of yrs & luckily did not lose much money, mind you I didnt start with very much to begin with.

I realised I was not the worlds best stock picker, so I began following someone who invested the way that suited me & that I trusted.
I started following on the coat tails of Robert Millner from WH Soul Pattinson.
If I liked their stock holdings or new picks all I did was to do was obtain a reasonable entry price for the existing stocks or a cheaper one than them for the new investments & I was set.

I invested in SOL initially & began running my ruler over their other investments, some of which I invested in, like NHC TPM CBD etc. others I did not.

While this has served me well, however it's a bit boring & I felt I could/should do more.

About a year ago I started building a stock valuing tool on excell (using FA), it started out very basic, but has developed into quite an ongoing project.
I just about had to get a masters degree in maths to complete it, I have put in more & more things & deleted others, & it's mostly complete now.

So far my small investments havnt done so well, I bought into OKN (have a client taking them to court) so I sold out for a small loss of $36 (incl. brokerage). I also bought into NWH ( henry tax review have killed them & CEO has resigned ) & I still hold them.

I do not have any risk management in place, although I know I should, I dont understand how to go about it, when to use it, or how ??
I look forward to your covering this in the future.

That is somewhat of a broad topic to cover Jako. There are quite a few threads on here already that do discuss risk management and it would be worth your time to investigate some of them. It really depends however on what sort of investor you are. Something that suits me dealing with a couple of weeks timeframe would not suit you if you had a timeframe of a couple of months.

Now for some questions.

How much money should someone have, before you can go to a Full Broker Service with out them laughing at you after you leave ??

Just curious but why the interest in going to a full service broker?

To be brutally honest, unless you have a couple of mill behind you, you will most likely end up with a broker who doesn't have a great deal of experience. New clients to a firm generally go to new (and younger) advisers. Whilst the firms make sure that advisers are compliant at least, this does not mean that the broker you are placed with will know what they are doing. You don't want to end up being someone's churn and burn or learning experience when they are still finding their feet.

Remember however that many full service brokers are essentially sales people. One individual cannot maintain a good level of fundamental knowledge across every stock in the exchange. They will therefore rely heavily upon the research department of the firm - and you don't want to be some analysts learning experience either.

I don't wish to speak ill of some of the companies I have worked at and I will mention no names - but I have seen full services brokers comb their client bases for trades, not that are for the benefit of the client, but rather simply to generate revenue for the adviser.

Don't get me wrong, there are good full service brokers out there - but finding them is the trick.

Is there a "Part Broker Service" available ??, to run idea's past them before you invest.

No why would you buy the cow if you get the milk for free? If you wanted to ring me up and kick my tires to see if I was any good, the amount of time I would have spent on you would mean I would have lost revenue by not dealing with my other clients who I don't have to convince. You would therefore if you were a small client be wasting my precious time and time wasters get booted pretty quickly.

How much does a Full Broker Service cost (round about) ??

As in most things in life this is negotiable. If you bring a sizable account to a broker expect to pay 1% or less on each trade. If you bring a smaller account expect to pay industry standard rates of around 2.5% or a $70-$90 minimum charge.

No matter how much reasearch I do, Brokers seem to know more than I do. (like other listed investments, land holdings or property holdings etc.) Is this because they can speak to company liaison people and I cant ??

Brokers are immersed in this stuff for a large proportion of their working lives. The generally arrive at work at 7am and have research meetings, read the paper and any new research before the market opens. They are then on the phone whilst the market is open or having meetings with clients and company management. You will frequently see brokers at their desk at 7pm at night. Unless you are prepared to spend the same amount of time - of course they will be aware of a lot of stuff you probably won't be.....but remember - most brokers are salespeople - so the depth of knowledge that they have may seem impressive to a layperson, but in reality may be just enough to sell you into a position.

Can I do "stop loss" on my basic Comm Sec account ?? or do I need to change over to another Broker ??

Sorry I don't use Commsec I don't know the answer to this question

I've got a few more questions, but this will do for now.

Thanks again for your time & effort on this thread. ..

No Worries

Cheers

Sir O

 

[Jako]

Hello Jako, maybe don't have so much confidence that a so called full service broker (who will charge an arm and a leg in commission) is necessarily going to offer you good advice.
Many years ago, I was in a similar position to that which you appear to be in now and made the naive assumption that a full service broker would (a) have my best interests at heart, (b) be competent, and (c) give me advice that would actually make me money.
They made 14 stock suggestions. In the belief that they had good reason to advise these stocks would rise I accepted all of them. At the end of 12 months, (and in a strong bull market at the time) 12 of the 14 had lost ground, some considerably.
I know my experience is far from unique.

Have you considered, in addition to your FA approach, learning something about price movement/charting?


Best to phone a few and ask.
I was paying around $400 on a $15,000 trade.


What is the basis of your belief here?
What evidence do you have?
I also look forward to Sir O's response to these questions.

Julia,

I am a holder of NHC and recieved a letter from Ord Minnett saying that they have a full report on the company and it is available to shareholders free of charge (just trying to drum up some extra business no doubt), anyway as a shareholder and someone who has just built a tool on excell to value stocks I was interested in what they would have to say & what value they have on the company compared to mine.

I was sent about 10 pages of company info & how the RSPT may affect the business.

A paragraph in the report talked about their substantial land holdings (which I did not know about) and place a value on them.

I have tryed very hard to know as much about my holdings and any stocks I'm interested in as possible, but I didnt know this.

Interestingly the Ord Minnett report placed a current value & a future value very close to the value the excell tool I built.(within .20 cents), so atleast I'm sort of on the right track.

Finally, yes I am looking into charting and trends, both for sectors & individual stocks.

Thanks for your reply

 

[Sir Osisofliver]

Julia,

I am a holder of NHC and recieved a letter from Ord Minnett saying that they have a full report on the company and it is available to shareholders free of charge (just trying to drum up some extra business no doubt), anyway as a shareholder and someone who has just built a tool on excell to value stocks I was interested in what they would have to say & what value they have on the company compared to mine.

Jako,

The share registry of NHC is able to be viewed by anyone, including those people who would want to market to the shareholders on that list. (This means you).

Broking houses can therefore pay a fee (and with the permission of the company in question) and can take the full shareholder list with which to engage in marketing activities. Usually if they provide something free of charge (such as the reseach report you describe) such permission is willingly granted. (especially if it is a complementay research report)

You see full service brokers in Australia are not allowed to cold call or directly solicit (yes that is the correct word) for clientele. What they can do however is market in the above fashion. Once you have contacted them (yes I would like your research) they then have your details on file and can now contact you. You must request to be removed from their computer systems via their compliance officer in accordance with the privacy policy of the firm. (which is generally in writing).

You are correct that broking houses do this to drum up business, guess which type of adviser deals with queries? Yup new advisers still trying to build their client bases.

I was sent about 10 pages of company info & how the RSPT may affect the business.

A paragraph in the report talked about their substantial land holdings (which I did not know about) and place a value on them.

I have tryed very hard to know as much about my holdings and any stocks I'm interested in as possible, but I didnt know this.

Interestingly the Ord Minnett report placed a current value & a future value very close to the value the excell tool I built.(within .20 cents), so atleast I'm sort of on the right track.

Finally, yes I am looking into charting and trends, both for sectors & individual stocks.

Thanks for your reply

Don't be too concerned that you didn't know a particular fact about a stock you hold. Everyone makes decisions in the absence of perfect infomormation.


Cheers

Sir O

 

[JimBob]

Can I do "stop loss" on my basic Comm Sec account ?? or do I need to change over to another Broker ??

You can do Stop Loss order on Comsec, they have Conditional Trading that you have to complete a short quiz on in order to have it activated on your account. It can cost between an extra $10-$15 depending on what type of order you do. I cant recall how to get it activated but you should be able to find a 'Conditional Trading' tab somewhere when you log in to your account which should help you out.

 

[bullet21]

hey guys,

first question im ever posting and thanks for the wealth of information in the past.

Ive been looking into trading Index futures and have been reading lots of the books recommended on this forum as well as other web sites.

what i dont understand is how does short selling of Index futures work. With a stock, you anticipate decline, sell the borrowed stock then buy it back once it bottoms out. The differance is your profit.

So if you anticipate the DAX is going to fall, how does one short sell it? what are you borrowing and where is the money come from.

sorry for the newbiness but i cant get my head around it.

 

[brty]

bullet,

When you open a sale of a futures contract, it is just that, a contract. If you wish to open to go short, all that happens is a new contract is opened with a buyer, an agreement about a time in the future that you will deliver $xxx worth of the DAX. (futures contracts are set sizes) There are always plenty of both buyers and sellers available in a liquid market. In an illiquid market your spread will be wider.

You will have to deposit a margin for opening the trade, your broker will tell you how much as it can vary depending upon the volatility of the index. You will also have to monitor the trade because if it goes against you, you can be asked for more deposit to make up to a level called the maintenance margin.

When you close out the contract, buying in your case, the contract is effectively canceled and disappears off the 'open interest'.

brty

 

[Albi]

I am currently holding MST. They have announced share purchase plan with existing share one share and three options. They have different catagory of options. As I have never traded options, I dont know what it is. I am thinking to take offer, but confused with options and what would I do with options. As like shares, I can sell options also or options are just right, that i cannot sell. Can anyone explain this. Thanks in advance

 

[Sir Osisofliver]

I am currently holding MST. They have announced share purchase plan with existing share one share and three options. They have different catagory of options. As I have never traded options, I dont know what it is. I am thinking to take offer, but confused with options and what would I do with options. As like shares, I can sell options also or options are just right, that i cannot sell. Can anyone explain this. Thanks in advance

Many of your answers are contained in the announcement from the 15th of July http://www.asx.com.au/asxpdf/20100715/pdf/31rbr4k82ly3sv.pdf

I cannot provide advice to you as to whether this is something you should do.

Be aware however that the issuance will be a listed company option. As such the option will be traded on the exchange in the form of a four letter code. EG MSTO

Go here to learn more

http://www.asx.com.au/resources/education/audio_visual/clips.htm


Cheers

Sir O

 

[5424577]

I thank you sir osiso - you have changed my point of view and will continue to improve and serve this soceity well.

 

[Nayte]

Just wanted to say thanks to everyone that's posted in this thread, really informative stuff!

 

[Albi]

Hi Guys, I have started trading in in september 2009 with 10k. I sold just one stock in profit and rest I am still holding, bought for long term for my kid. I have to fill the tax return. Could you please advice me- do I need to pay tax on whole ammount or just the profit. Currently i am in loss. My 10 k is now 7 k. I am confused how to fill. Any advice will be highly appreciated. Thanks in advance.

 

[trainspotter]

Hi Albi ..... get an accountant to explain it to you. FWIW ..... the loss you have suffered "could" be tax deductible offsetting your "profit" you have made. (10k is now 7k) Depends also on which stock you sold ? Was it an Australian company? Were there any dividends paid during the holding of the stock?

Get an accountant to look at it with a neutral point of view. IMO.

 

[Julia]

Hi Guys, I have started trading in in september 2009 with 10k. I sold just one stock in profit and rest I am still holding, bought for long term for my kid. I have to fill the tax return. Could you please advice me- do I need to pay tax on whole ammount or just the profit. Currently i am in loss. My 10 k is now 7 k. I am confused how to fill. Any advice will be highly appreciated. Thanks in advance.

I'm not sure whether females are allowed to reply to your post addressed to 'Guys"?

You can offset capital gains against capital losses. You do not take into account any profits which are at present unrealised.

So if you have a realised capital gain (a sold stock) of, say, $1000, you can offset this against $1000 of any capital loss.
Any remaining capital loss can be carried forward for use in future years against future capital gains.

May I make a couple of suggestions?
1. You do some reading about how shares are taxed including the use of franking credits.

2. If you're down to $7000 from your original $10,000 in less than a year, you consider standing aside from the market until you've found a more successful approach.
Sorry if that sounds unkind, but in this market if you maintain your current strategy, whatever that is, you could end up doing your entire $10K pretty quickly.

 

[Tysonboss1]

Hi Guys, I have started trading in in september 2009 with 10k. I sold just one stock in profit and rest I am still holding, bought for long term for my kid. I have to fill the tax return. Could you please advice me- do I need to pay tax on whole ammount or just the profit. Currently i am in loss. My 10 k is now 7 k. I am confused how to fill. Any advice will be highly appreciated. Thanks in advance.

You only have to pay tax on your profit, for example.

If you bought some shares for $1000+$30 brokerage and later sold them for $1300 - $30 brokerage you have made a capital gain(profit) of $240.

you have to pay tax on the $240 so it will be added to you income for that year.

One thing that will change this is if you have held for more than 12 months. If you have held for more than 12 months you will get a 50% capital gains discount. Meaning only half your gain is taxable so only $120 will be added to your taxable income.

 

[Sir Osisofliver]

Hi Albi,

You should speak to your accountant. If you do not have an accountant you should investigate yourself using the ATO website and call lines as your guide. website is http://www.ato.gov.au/ the search function is quite efficient and will answer all your questions.

If you get something you are not sure of feel free to ring them on http://www.ato.gov.au/corporate/content.asp?doc=/content/15754.htm&mnu=4084&mfp=001

Regards

Sir O