Newbie Lessons - All your questions answered

[Jerm]

Hi Sir O, you have an amazing amount of information and are very kind to be sharing it with us.

I wonder how Property cycles relate to Share cycles. Could you explain that for me? Where would you say we are in regards to that cycle too?

Thanks for all of your generosity.

 

[Sir Osisofliver]

Hi Sir O, you have an amazing amount of information and are very kind to be sharing it with us.

I wonder how Property cycles relate to Share cycles. Could you explain that for me? Where would you say we are in regards to that cycle too?

Thanks for all of your generosity.

HI Jerm,

Sorry to dissapoint, but I said I was only going through share cycles because that was the limit of the time I could give. You'll also note if you have a look around the forum that Joe has limited the property discussion to a single thread. Property discussions around here tend to get a bit messy, so I've been staying away from them. My view of property is that unlike the share market, it's not a homogenous market. It is also a weak efficiency market, and a lot of people do not understand the drivers behind property price movements (not that I am an expert in this field). If I get time, (no promises), I'll run by Joe what I think should be covered in terms of the Property cycle and he can give me the thumbs up or down. Don't hold your breath for this though.

Cheers

Sir O

 

[KurwaJegoMac]

I
I've picked up a book about the economic cycle that deals with the concepts that Sir O has presented. I haven't had a chance to read through it yet - but at a quick glance it's on par with what he's written. I'll have a read of it and post up on here if it's worth getting.

I didn't glean anything useful from the book - it was largely a 'long winded' version of what Sir O posted. Moving onto the next book...

Might see if I can tackle the yield curve homework over the next few days

 

[Sir Osisofliver]

Hi All,

As you can probably tell I kinda got extremely busy and have reneged on my promise to do a segment on Dividend Yields as they approach the end of the cycle. I also need to do some prep work in this area. It's easy enough to put this information together and I did have it on my old comp, but I need to rebuild it and it will take me a couple of hours to collate the data....a couple of hours that I just don't have to spare as we approach the end of the financial year.

I'll try and get back to this when things are a bit more normal for me but the next few months are shaping up to be fairly busy.

Alternatively if someone else wants to do the groundwork and post it here we can discuss the implications.

What is required is a data sample of the top stocks by market capitalisation over the recent cycle (mid '03 to end '07). ASX50 would be good ASX100 is better. What you are looking for is the actual dividends paid during this period of time for the constituents of the index, compared to the share price. (To give you the Dividend yields). Alternatively you can use the EPS (earnings per share) figures. Monthly figures are fine for this purpose.

You'll then need to create several things...

1) A chart showing the fluctuations across the whole index
2) A chart showing the fluctuations across industry sectors (Use the GICS clasification)

The reason for the two is that changes in the sectors reveal things that you cannot see when you look at the index as a whole. For example, you'll see interesting things happening to the yields on Utility companies because of the correlation with the Credit cycle and interest rate cycle, and this is expressed in the dividend yield information.

I'll check back in a week or so to see if someone has posted the info. Feel free to discuss it of course if I am not around about what you think is happening across the various sectors. (and perhaps some of the old salts around here can give us their opinions as well).

Cheers

Sir o

 

[davede]

HI Jerm,

Sorry to dissapoint, but I said I was only going through share cycles because that was the limit of the time I could give. You'll also note if you have a look around the forum that Joe has limited the property discussion to a single thread. Property discussions around here tend to get a bit messy, so I've been staying away from them. My view of property is that unlike the share market, it's not a homogenous market. It is also a weak efficiency market, and a lot of people do not understand the drivers behind property price movements (not that I am an expert in this field). If I get time, (no promises), I'll run by Joe what I think should be covered in terms of the Property cycle and he can give me the thumbs up or down. Don't hold your breath for this though.

Cheers

Sir O

Joe also runs a dedicated property investment forum here:

Aussie Property Forums

Wasn't sure if you were aware. If you were at least it may benefit some other members.

As for the property market it certainly is less efficient. Large transaction costs and the fact that as you eloquently stated it is not homogenous (referring to the mix of investors and owner occupiers yes?). There are huge gaps between price information data points making property prices something of a pandora's box that crash advocates and raging bulls love to try and speculate on until the next batch of figures is released.

Regards,

Dave

 

[Monkeyzu]

Hi all.

Thanks for all the info Sir O. You've already saved me money just by making me realise i've got alot to learn before I start putting my money on the line!

I've collecting info over the last couple of days, trying to get my mind around it all. One google search that's reaped a few gems that I recommend to other newbies:

http://www.google.com.au/m/search?s...tradersystem.com/library/&hl=en&start=30&sa=N

I'm not promoting or affiliated with "supertradersystem" (although 12months to millionaire does sound tempting) this just a search of their pdf library which is collection of various other ebooks floating around the interwebs. Some i've seen referred to on this very forum...

 

[kid hustlr]

Fantastic thread guys, I stumbled across this forum a couple of weeks ago and I'm doing as much reading as I can but this thread is by far the most informative.

Ok, Random questions.

Sir O, you talked about a line of credit and also pre-approval, how long does pre-approval last? For example could you have established a long term fixed interest line of credit a couple of years ago just post GFC and be using those funds (and paying a very low IR) to this day? Further, when establishing a line of credit is there an up front cost? or so long as the bank views you as a safe customer you can just have a line of credit sitting in your account charge free and then use the funds at some random time period down the track when you see a strong investment opportunity?

Secondly, I was looking at MQG warrants on ASX:

http://www.asx.com.au/asx/markets/warrantPrices.do?by=underlyingAsxCode&underlyingCode=MQG

MQGKZD confuses me,

It expires in some 20 years time, yet the exercise price + ask price is roughly equal to the shares current market value. I could understand this if the option expired tomorrow but why isn't their a huge time value factored in to the cost of buying this? Is their a feature or something of that nature I'm not aware of?

Finally, Sir O, you fixed interest strategy made bonds look really appealing to purchase, although everything is easy in hindsight, that said, where does one purchase bonds? Is it through a standard broker like equities/derivatives or is slightly more complex?

Cheers in advance guys, great thread.

 

[Sir Osisofliver]

Really busy Kid Hustlr - here's my answers in brief.

Fantastic thread guys, I stumbled across this forum a couple of weeks ago and I'm doing as much reading as I can but this thread is by far the most informative.

Ok, Random questions.

Sir O, you talked about a line of credit and also pre-approval, how long does pre-approval last? For example could you have established a long term fixed interest line of credit a couple of years ago just post GFC and be using those funds (and paying a very low IR) to this day? Further, when establishing a line of credit is there an up front cost? or so long as the bank views you as a safe customer you can just have a line of credit sitting in your account charge free and then use the funds at some random time period down the track when you see a strong investment opportunity?

Pre-approval lasts until you use it.
Yes you could have gone for pre-approval in August '07 and be using the funds now.
Fixing an interest rate incurs a cost. I don't think that any banks offer a fixed LOC. But that doesn't stop you fixing a portion through a standard loan structure and leaving the remaining variable to give yourself flexibility.
Most loans have admin fees. Some LOC (RABO bank for eg) will charge for unused loan funds in a LOC - but most do not, and then yes you will then have capacity to purchase when many others do not.

Secondly, I was looking at MQG warrants on ASX:

http://www.asx.com.au/asx/markets/warrantPrices.do?by=underlyingAsxCode&underlyingCode=MQG

MQGKZD confuses me,

It expires in some 20 years time, yet the exercise price + ask price is roughly equal to the shares current market value. I could understand this if the option expired tomorrow but why isn't their a huge time value factored in to the cost of buying this? Is their a feature or something of that nature I'm not aware of?

I don't do much in warrants. Each warrant can be different so you have to look at the PDS pretty carefully. The only thing I saw through the link you provided was that it was a call warrant...know what this means?

With warrants you are borrowing money (the leveraging effect) and either having to pay interest, or having the interest paid via the dividends produced by the underlying security. (In many cases...as I said there is a great deal of variation within warrants). You should clearly understand what the features of the warrant are and what will drive the price and/or yield considerations you have for purchasing them.

Finally, Sir O, you fixed interest strategy made bonds look really appealing to purchase, although everything is easy in hindsight, that said, where does one purchase bonds? Is it through a standard broker like equities/derivatives or is slightly more complex?

Cheers in advance guys, great thread.

I've mentioned cycles recently in this thread. Since Bonds increase in capital value in a falling interest rate environment, where do you think that occurs in terms of the broader economic cycle? The answer to that question is when times are bad and the RBA and Guvmint are trying to stimulate the economy....the ideal window of opportunity for bonds IMO has been and gone...if your purpose is capital gain. You can still use a bond ladder or similar strategy for yield (not great yield but very secure).

Cheers
Sir O

 

[kid hustlr]

No rush to reply sir O, I'm not going anywhere.

Fixing an interest rate incurs a cost. I don't think that any banks offer a fixed LOC. But that doesn't stop you fixing a portion through a standard loan structure and leaving the remaining variable to give yourself flexibility.

Cheers
Sir O

Could you expand on the bolded section?

Re warrants: A poster sent me a pm explaining that specific series. That said it's clear I need to do some more reading in relation to warrants in general.

Keep the articles coming when possible!

 

[Sir Osisofliver]

that doesn't stop you fixing a portion through a standard loan structure and leaving the remaining variable to give yourself flexibility.


Lets say you have an asset that you had valued in August 2007 at $500,000. You have an existing liability on this asset of $150,000.00. The bank (because they are giving money away like it's water with a use by date), agree to lend to you 90% of the value of the asset, or $450,000 minus your existing liability, a further $300,000 of capacity.

You decide that the market is mature and you will not use your capacity until such time as the market has corrected.

It's now March 2009 and you feel that the market has reached it's bottom and decide to invest your unused capacity.

After making sure you have a risk buffer of unused capacity, you decide to invest $200,000 into the share market, meaning that you have a loan in a LOC facility that is now $350,000 against a $500,000 asset.

Interest rates are really, really low, so you decide to take advantage of these low rates and fix a portion of your loan for five years, using a Principal and Interest Loan. Hence you fix $300,000 of your loan, leaving the LOC with $50,000, and a further $100,000 of unused capacity for risk protection and/or further purchases into the future.

Clear?

Cheers

Sir O

 

[kid hustlr]

Cheers Sir O, will read up and report back here with another bundle of questions.

 

[alexc2005]

What does it mean if a share just doesn't open?

I'm watching one at the moment and it has 0 as its open price?

I could understand this if there was a trading halt, but there isnt?

The share is AXT.

 

[againsthegrain]

The 0 is the amount of trades done today,

Looks like there is a stale mate at the moment with the bid being 9.5 and ask being 10c which means nobody is willing to sell it below 10c but there is no takers at anything higher then 9.5 until either side is willing to accept the others offer no trades will be done

 

[alexc2005]

The 0 is the amount of trades done today,

Looks like there is a stale mate at the moment with the bid being 9.5 and ask being 10c which means nobody is willing to sell it below 10c but there is no takers at anything higher then 9.5 until either side is willing to accept the others offer no trades will be done

Hmm i did think that might be the case.

But why does it show $0 as an open?

Do sales have to be established before it can properly open?

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=AXT

 

[againsthegrain]

Well it shows 0 as open because there was no trades done today so its open as nil, the last trade done was at 9.5 but was not today.

The status is normal so the share is not in a halt or suspension. As soon as a trade is done it will open at that price, until then then open will be nil/0

 

[alexc2005]

Well it shows 0 as open because there was no trades done today so its open as nil, the last trade done was at 9.5 but was not today.

The status is normal so the share is not in a halt or suspension. As soon as a trade is done it will open at that price, until then then open will be nil/0

ok awesome!

Thanks!

 

[economictrader]

Hi Guys,
Just a quick question from a newbie.

When is tax deducted after you sell shares (at a profit)?
Does it get deducted at some pre-set rate (kinda like PAYG I guess) ?
Or do you keep all profit and declare it at tax time?

 

[Garpal Gumnut]

Hi Guys,
Just a quick question from a newbie.

When is tax deducted after you sell shares (at a profit)?
Does it get deducted at some pre-set rate (kinda like PAYG I guess) ?
Or do you keep all profit and declare it at tax time?

It's a capital gain usually, declared at end of year tax.

Occasionally a "company buyback" will advantage you if the company structures it to minimise your capital gain by offering a dividend in lieu of the capital fully franked, i.e. some tax paid on that already.

Generally though it's tax time.

gg

 

[avexdevil]

Sir Osisofliver, I've been following your posts at the beginning of this thread, slowly progressing all the way to the end. What started of as light and digestable reading evolved into lessons structured on technical jargon that became sorta difficult to understand or follow. I appreciate your efforts though and am curious as to whether you actually did economics back in your tertiary education days, or was it all founded on personal interest? (i.e. you were an accountant and decided that looking at the 'bigger picture' was more your thing?)

 

[Sir Osisofliver]

Sir Osisofliver, I've been following your posts at the beginning of this thread, slowly progressing all the way to the end. What started of as light and digestable reading evolved into lessons structured on technical jargon that became sorta difficult to understand or follow. I appreciate your efforts though and am curious as to whether you actually did economics back in your tertiary education days, or was it all founded on personal interest? (i.e. you were an accountant and decided that looking at the 'bigger picture' was more your thing?)

The problem with Jargon is that 1) is second nature to those that use it all the time, and 2) It's hard to get away from. It's jargon for a reason - its the language that is used to explain concepts that are largely unique to that particular field of learning. Let me know what was difficult and I'll try to explain it another way.

As for your question, yes I did economics...and business finance...and accountancy... and a whole bunch of other relevant topics when I did my university degree. Personal experience however forms the greater part of my knowledge...I don't remember much of my uni days when I did my Bachelor.

Cheers

Sir O