Newbie Lessons - All your questions answered

[leyy]

Hi Sir O,

Just wanted to thank you for all the time and wealth of knowledge you have invested with us.

I have learnt so much reading this thread and I am sure everyone else has also.

You are an asset to the ASF community.

Albert

 

[kid hustlr]

As a general guideline I’ve found it takes about 5 years for a quality property to move from negative to positive gearing.

Could you expand on this? Is this through timing the economic cycle? Increasing rent payments? Other?

Also you mentioned a positively geared share investment account, I assume this is quite difficult to achieve and relies on a combination of super low I/R and excellent dividend returns??

Secondly and this questions may seem obvious,

I have an IB account, how do you guys get up to the minute prices? For example I was looking to buy an option and the only way to find a price list was to go to the search feature within the web trader application, search the stock and then it gave me a listing of the closing prices from the previous day. Is this an ok method or is their an easier way I should use.

Also, with a reg t-margin account is every purchase bought on margin? If I wished to just buy something with cash is that possible?

 

[Julia]

Also you mentioned a positively geared share investment account, I assume this is quite difficult to achieve

Why would you make this assumption?

 

[kid hustlr]

Why would you make this assumption?

I'm not sure, I guess intuition? Looking at margin rates on CBA right now, interest costs are at 9.6%. Obtaining a portfolio of dividends achieving a greater return than that seems difficult?? (unless im missing something??)

 

[kid hustlr]

Quick question relating to options:

what does the multiplier mean?

example:

in regards to index options on the asx 200 they have a multiplier of 10.

i understand that for every 1 point change in the index, this results in a 10 dollar movement but does the multiplier also relate to the premium? for example if the premium's last sale price was 1.0 does this mean someone paid 10$ for this contract or only $1 ?

 

[KurwaJegoMac]

I'm not sure, I guess intuition? Looking at margin rates on CBA right now, interest costs are at 9.6%. Obtaining a portfolio of dividends achieving a greater return than that seems difficult?? (unless im missing something??)

If you have equity you get a Line of Credit against that, giving you a loan at a 7-7.5% interest rate. In addition, you could invest a portion of your own capital to bring the LVR down on the stocks you buy to make the purchase positively geared overall.

 

[kid hustlr]

If you have equity you get a Line of Credit against that, giving you a loan at a 7-7.5% interest rate. In addition, you could invest a portion of your own capital to bring the LVR down on the stocks you buy to make the purchase positively geared overall.

Wow, interesting.

Could you expand on the bolded?

Does a bank look more favorably on someone who already has a large sum of equity with them?

 

[KurwaJegoMac]

A bank will look favourably on someone with equity because it gives them a security (a property) to which they can loan against, and use as collateral in the event of you being unable to pay your debts.

Let's say you own your house, and it's worth $500,000. You want some credit and go to the bank for a Line Of Credit. Say you need want to borrow $200,000. The bank lends you $200,000 against your house which is worth $500,000. So they hold a $500,000 asset for a $200,000 credit - as the asset is worth so much more than your loan, they're willing to give you a nice low rate to entice you to take the line of credit with them. They're not scared about you not paying back your debt because they can always just sell your $500,000 house to pay off your $200,000 debt. So the bank's position is more secure.

A credit card works much in the same way except that it's unsecured (i.e. no asset is held as collateral) therefore the bank charges you a much higher interest rate (17-20%) due to the heightened risk for the bank (they don't have a house to sell to pay off your debt).

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Regarding the comment in the bottom of your post - you can 'bombard' this thread all that you want, it was raised by Sir O to help raise financial literacy. If you have any questions, keep em coming!

 

[Julia]

kid hustlr, 'intuition' is probably not the best way to approach any aspect of the market.
It sounds as though you're fairly inexperienced. If that's the case, why would you be considering a margin loan which - as I'm sure you know - can magnify your losses as well as your gains.

What paper trading have you done thus far, and what is your success rate like?

 

[kid hustlr]

kid hustlr, 'intuition' is probably not the best way to approach any aspect of the market.
It sounds as though you're fairly inexperienced. If that's the case, why would you be considering a margin loan which - as I'm sure you know - can magnify your losses as well as your gains.

What paper trading have you done thus far, and what is your success rate like?

I have a basic commsec account with a small balanced portfolio of blue chips which I have developed over a number of years. I'm not looking to make any changes, nor take on much risk, moreso gather information as i can and learn so i can 'pull the trigger' so to speak on opportunities which might come down the road when i have more knowledge and understanding of the markets.

 

[YouAgainstMe]

Hey all,

I am just wondering what sort of strategy people use when buying their shares. For example if you want to invest X amount a year do you save that entire amount and then spread it across a bunch of shares or do you buy shares in a company each time you get to a percent of X amount. So maybe 10% and buy shares 10 times a year or each time you save 20% and buy 5 times a year. I hope that makes sense!

 

[Tysonboss1]

Hey all,

I am just wondering what sort of strategy people use when buying their shares. For example if you want to invest X amount a year do you save that entire amount and then spread it across a bunch of shares or do you buy shares in a company each time you get to a percent of X amount. So maybe 10% and buy shares 10 times a year or each time you save 20% and buy 5 times a year. I hope that makes sense!

I generally spend less than I earn so am always building up capital, I then deploy it when I have the opportunity to buy assets at prices that will make them good investments over time.

 

[Jerm]

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

Thanks so much Sir O. I only bring it up because you suggest earlier in the thread that starting out with 2 Investment Properties would be a good idea before buying your own home.

Also I will check out that property forum, thanks very much guys.

 

[addison]

is there a thread or subforum in asf specifically for discussion of IPOs ??? thanks

 

[YouAgainstMe]

I generally spend less than I earn so am always building up capital, I then deploy it when I have the opportunity to buy assets at prices that will make them good investments over time.

So for example you save $10k/year. Do you buy shares every time you get to $2k? or wait til you save the full $10k and then spread that across 5 different shares? or some other variation?

Cheers,

 

[Tysonboss1]

So for example you save $10k/year. Do you buy shares every time you get to $2k? or wait til you save the full $10k and then spread that across 5 different shares? or some other variation?

Cheers,

When I first started I did it that way, but there is not always bargain issues to be had. So now I invest only when there are bargins

 

[Starcraftmazter]

Finished reading "Shares made simple" by Roger Kinsky. Really didn't like it It's more for people who want to put the least humanly possible amount of effort into investing and expect to magically get a lot out of it.

I am wondering if anyone can suggest any books which satisfy any (the more the better) of these points;

- For people who want to take a very active role and spend considerable time analysing local and global economic circumstances, and do extensive research on companies
- For investing in tough and/or volatile economic conditions
- More for short-term investments (trying to pick a winner for the next one year or less)
- Doesn't centre around the modern portfolio theory (are there any books which reject it?)


Currently the only thing on my shortlist is "Stan Weinstein's Secrets For Profiting in Bull and Bear Markets", though I've noted down some others from various threads, but I'm not sure how well they satisfy the above criteria.


Thanks

 

[jun1031]

Hi all,

I dont know if im suppose to ask this question here, but it says newbies and i am a newbie. I am planning to do CPA and take rg 146 before i do cpa. Would that be useful??? i dont really know what you can do with both CPA and rg 146??? is there a job that requires accountant on investment side???

Regards,

Jun

 

[Coops82]

Big thanks to Sir O and all the other contributors to this thread. Learned a whole lot in 48 hours. Can't stop reading!

 

[FelixLazard7]

Hello Sir O. I have a question regarding property strategies

Say Mr. X bought 2 investment properties. take into account that he has no PPR.

Is it legal for him to live in one of his own investment properties and use " negative gearing" strategy for taxation purpose?