Questions from a stock market beginner

[joehann]

Re: Questions from a beginner

Thanks Pnut and Matty77 for your insights.

They are helping me understand what it is to be a trader.

Everything else i've read is about the market, but i want to know about the people in the market.

 

[YMI]

A question regarding Funds.

Hi, I am looking for an investment product for a beginner, one that doesn’t require me to watch the stock market all day. I came across funds and I understand that their disadvantage is the higher fees and that is where it gets cloudy, how/where do I find the actual fees?

I am interested in funds that can be traded like common stocks, I think they are called ETF’s. When I request a quote, there is a difference between Ask and Bid – some have 5ct difference, some 30ct and maybe even more. Is that the fees (diff. between Ask and Bid) or are there additional fees on top of that?

I try to find the pros and cons. Perhaps somebody wants to tell me their opinion. I’d love to invest in company shares later but I thought it could be better to start with funds

One dumb thing that I admit, first I thought I could invest for example in the S&P/ASX 200 directly, like 3 shares at 4800ea

 

[WilkensOne]

A question regarding Funds.

Hi, I am looking for an investment product for a beginner, one that doesn’t require me to watch the stock market all day. I came across funds and I understand that their disadvantage is the higher fees and that is where it gets cloudy, how/where do I find the actual fees?

I am interested in funds that can be traded like common stocks, I think they are called ETF’s. When I request a quote, there is a difference between Ask and Bid – some have 5ct difference, some 30ct and maybe even more. Is that the fees (diff. between Ask and Bid) or are there additional fees on top of that?

I try to find the pros and cons. Perhaps somebody wants to tell me their opinion. I’d love to invest in company shares later but I thought it could be better to start with funds

One dumb thing that I admit, first I thought I could invest for example in the S&P/ASX 200 directly, like 3 shares at 4800ea

Hey YMI,

An example with be an investment company such as AFI or ARG who trade on the ASX, their companies invest in other companies allowing you to essentially invest in many companies at once with the knowledge they will manage it. I personally invest in AFI as they have low fees and reflect the ASX market quite well so that gives me some good exposure to the market without constantly watching everything.

Someone correct me if I am wrong but ask is the price a seller is selling at while bid is the price buyers are buying at?

Just remember we can't give you specific advice but if you are looking at an LIC you want consistent returns over longterm and low management fees.

Good luck!
Wilkens

 

[YMI]

Thanks for your answer Wilkens. I am aware of what Ask and Bid means, I just wanted to know if the difference between the two is the extra fees for the fund because if you look at company shares, you’ll find a diff. of perhaps 1ct between Ask and Bid and funds, as I said 5 to 30ct and more...

 

[WilkensOne]

Thanks for your answer Wilkens. I am aware of what Ask and Bid means, I just wanted to know if the difference between the two is the extra fees for the fund because if you look at company shares, you’ll find a diff. of perhaps 1ct between Ask and Bid and funds, as I said 5 to 30ct and more...

Sorry YMI, must have misunderstood, I am not really sure what you are asking then. Maybe it is over my head

 

[YMI]

Sorry YMI, must have misunderstood, I am not really sure what you are asking then. Maybe it is over my head

Funds are managed by somebody and they want to earn money for doing that. The question is, do they earn just the difference between ask and bid or could there be additional entry and exit fees or annual fees perhaps?

If you invest in AFI, there is just 1ct diff. between ask and bid, if that is an investment company, how do they earn money? That I don’t understand.

 

[WilkensOne]

Funds are managed by somebody and they want to earn money for doing that. The question is, do they earn just the difference between ask and bid or could there be additional entry and exit fees or annual fees perhaps?

If you invest in AFI, there is just 1ct diff. between ask and bid, if that is an investment company, how do they earn money? That I don’t understand.

Oh okay got you.

Companies such as AFI from what I know take their profits and expenses from the trades they make as a company. Probably a % of any profits plus some flat fees maybe. The ask and bid is not linked to the money the LIC receives. So when they generate an annual report for example it should show the profit they made less any fees and performance fees AFI charge then you would see the net profit they generated.

Just to be clear.. you do not receive a cheque or anything from LIC's when they make profits as you would with a managed fund. The income you receive is like any other share, dividends and capital growth.

 

[Bill M]

A question regarding Funds.

Hi, I am looking for an investment product for a beginner, one that doesn’t require me to watch the stock market all day. I came across funds and I understand that their disadvantage is the higher fees and that is where it gets cloudy, how/where do I find the actual fees?

I am interested in funds that can be traded like common stocks, I think they are called ETF’s. When I request a quote, there is a difference between Ask and Bid – some have 5ct difference, some 30ct and maybe even more. Is that the fees (diff. between Ask and Bid) or are there additional fees on top of that?

I try to find the pros and cons. Perhaps somebody wants to tell me their opinion. I’d love to invest in company shares later but I thought it could be better to start with funds

One dumb thing that I admit, first I thought I could invest for example in the S&P/ASX 200 directly, like 3 shares at 4800ea

Hello YMI, there are LIC's and ETF's that run funds that are listed. The LIC's tend to pick the companies they think suit their investment strategies. ETF's on the other hand tend to buy the market as a whole.

LIC's trade as normal stocks on the market. The way the LIC's "make money" is the through the MER (management expense ratio). It, in my view isn't that large considering they do all that work for you. The only negatives I can see with them is that they pick what they deem as appropriate whether you like it or not.

ETF's on the other hand are a bit different. For example an ASX 200 fund will cover the top 200 companies regardless of whether they are any good or not. If they're in the top 200 they get in the fund. Some ETF's are also sector specific. For example SYI targets only high dividend yield stocks. That can be both positive and negative. On one hand you get the dividends but companies like BHP don't get in because their dividend isn't high enough. They make money the same way as LIC's through their MER's. I invest in SYI and from memory I think the MER is .35%.

Then there are the market makers. ETF's sometimes employ market makers (usually a bank) to simply make a market for you and I as punters to buy and sell the ETF. For example (no real names used) Super Doopers ASX 200 ETF will employ ABC Bank as the market makers. This bank will have those buy and spread orders you see on the screen that you mentioned. If they did not have these market makers then there might not be stocks available to buy or sell. The market makers make their money through these spreads you mentioned.

You might think, who are these greedy market makers? That is not the case, they need to be there so you can buy and sell when you want. To be honest, I wouldn't invest in an ETF if they didn't have one. The main reason for market makers is that sometimes there are no buyers or sellers and if people can't buy or sell the stock then they probably wouldn't invest in them in the first place.

I hope that helps.

 

[YMI]

...They make money the same way as LIC's through their MER's. ... I think the MER is .35%.

Thanks Bill, that explains it pretty well.
So if the MER is .35%p.a. they subtract that from the performance. In other words if the ASX200 rose 12% in the past year, an ASX fund, that follows the ASX200 exactly, would have risen 12-0.35=11.65% Is that correct?

And how do they subtract that amount? Is that once or a few times a year on special dates like a dividend just that they pay that to themselves and not to the investors?

I assume the MER doesn’t stay the same for ever but is calculated every year or so and also, different funds may have different expenses and therefore higher or lower MER’s. Where do I find these numbers?

You might think, who are these greedy market makers? That is not the case, they need to be there so you can buy and sell when you want. To be honest, I wouldn't invest in an ETF if they didn't have one. The main reason for market makers is that sometimes there are no buyers or sellers and if people can't buy or sell the stock then they probably wouldn't invest in them in the first place.

I hope that helps.

I understand the importance of liquidity, just one thing that pops up in my mind; it may apply to regular stocks only but in the extended trading hours, there are no market makers as far as I know but I don’t think that makes trading any cheaper in this time.

Thanks again!

 

[Bill M]

Thanks Bill, that explains it pretty well.
So if the MER is .35%p.a. they subtract that from the performance. In other words if the ASX200 rose 12% in the past year, an ASX fund, that follows the ASX200 exactly, would have risen 12-0.35=11.65% Is that correct?

It would be pretty close to that figure, yes. Generally in their reports they will quote something like ASX 200 6% gain, ABC ASX 200 fund return 5.65%, give or take a few minor points.

And how do they subtract that amount? Is that once or a few times a year on special dates like a dividend just that they pay that to themselves and not to the investors?

You don't even notice it happening. The quoted distributions that they announce are usually after the fees have been taken out. I don't know exactly when they are taken out but rest assured they are. For example they don't say that they will deduct the .35% on a certain date, it doesn't work like that. The only thing you need to know is, what is the mer, what is your entry price and what is your exit price. Add a bit of brokerage and that's it, those are your costs.

I assume the MER doesn’t stay the same for ever but is calculated every year or so and also, different funds may have different expenses and therefore higher or lower MER’s. Where do I find these numbers?

Now a days there is big competition and funds are getting cheaper. Some funds have come down in price over the last couple of years. The MER's are always mentioned on Fund Managers website, here is that fund I mentioned. The MER is clearly listed. LINK HERE: http://www.spdr.com.au/etf/fund/fund_detail_SYI.html

I understand the importance of liquidity, just one thing that pops up in my mind; it may apply to regular stocks only but in the extended trading hours, there are no market makers as far as I know but I don’t think that makes trading any cheaper in this time.

Not sure what you mean here, I only buy and sell during the market hours of 10AM to 4PM. I have no interest in any other times, cheers.

 

[Bill M]

It would be pretty close to that figure, yes. Generally in their reports they will quote something like ASX 200 6% gain, ABC ASX 200 fund return 5.65%, give or take a few minor points.

I thought about this a bit more after I posted it and I realise that I wasn't quite correct. If the fund charges a .35% MER then it isn't a simple percentage difference. Here is an actual difference in the following table, you will see that those fees they charge even though they are .35% only slightly effect the end performance of the fund. I hope that clears it up a bit better.

Same link as before: http://www.spdr.com.au/etf/fund/fund_detail_SYI.html

 

[theinvestorguru]

Hi all, I m posting new question about software g

I called Asx to ask about good software Abd broker they gave me commsec and etrade contacts
In the forum( that I m reading in last month or so) they reccomend interactive broker as better platform and cheap brokage cost.

My main q : can I open account with IB and trade asx in Australia( as IB is USA base software)
2 question: is IB good software to trade options and shares ( ang guys I m beginner )

Thanks for help

 

[tech/a]

Hi all, I m posting new question about software g

I called Asx to ask about good software Abd broker they gave me commsec and etrade contacts
In the forum( that I m reading in last month or so) they reccomend interactive broker as better platform and cheap brokage cost.

My main q : can I open account with IB and trade asx in Australia( as IB is USA base software)
2 question: is IB good software to trade options and shares ( ang guys I m beginner )

Thanks for help

Yes to both.
I don't use the IB charting package but
Believe ok for a beginner.
I couple Tradeguider R/T with it but
There are many options.

IB is a challenge opening an account but
Well worth it.

 

[Garpal Gumnut]

I thought about this a bit more after I posted it and I realise that I wasn't quite correct. If the fund charges a .35% MER then it isn't a simple percentage difference. Here is an actual difference in the following table, you will see that those fees they charge even though they are .35% only slightly effect the end performance of the fund. I hope that clears it up a bit better.

Same link as before: http://www.spdr.com.au/etf/fund/fund_detail_SYI.html

With respect Bill M,

The table you post only compares a fixed date to the past.

When I visited one of the Apres-Storm Financial Adviser offices in Townsville to requisition a new gold tap from the dunny, the principal was absent from his room for a few moments.

I managed to requisition a recent book written by Nick Radge, from the financial adviser's voluminous library which, in detail, explains the fallacy of your table.

I'm not that smart that I can argue it.

Basically you need to compare your point of entry to performance.

You only quote end of year.

The results of Sept to Sept going back would be interesting, as would Nov to Nov.

gg

 

[Bill M]

The table you post only compares a fixed date to the past.

Basically you need to compare your point of entry to performance.

You only quote end of year.

The results of Sept to Sept going back would be interesting, as would Nov to Nov.

gg

I was only posting the tables to show the outcomes after the MER fees were charged, that way YMI could see that the fees charged didn't really affect the outcome so much.

As for entry and exit dates, that's another story. Fair to say about any fund, buying at the wrong time could show S&P ASX 200 -40% and ABC ASX 200 Fund -41%. Probably something a new player should be well aware off, markets don't always go up, cheers.

 

[Garpal Gumnut]

I was only posting the tables to show the outcomes after the MER fees were charged, that way YMI could see that the fees charged didn't really affect the outcome so much.

As for entry and exit dates, that's another story. Fair to say about any fund, buying at the wrong time could show S&P ASX 200 -40% and ABC ASX 200 Fund -41%. Probably something a new player should be well aware off, markets don't always go up, cheers.

Thanks Bill for posting the tables.

gg

 

[theinvestorguru]

Yes to both.
I don't use the IB charting package but
Believe ok for a beginner.
I couple Tradeguider R/T with it but
There are many options.

IB is a challenge opening an account but
Well worth it.

Thanks tech

 

[theinvestorguru]

Hi all,

Part of my studying stocks, I came cross either full service advisor( with more cost) or cheap online/ phone brokers.
As bigenner I think I will need bit mentorship and adv to start with.
I m wondering what is your opinion about that ? Do u think it is waists of money and keep studying and applying it to real world.
Do u recommend any company course or broker , I m after your general adv and experience , I m based in Geelong/ Melbourne but happy to travel to Sydney or other main city for good full service brokers

Thanks

 

[YMI]

I thought about this a bit more after I posted it and I realise that I wasn't quite correct. If the fund charges a .35% MER then it isn't a simple percentage difference. Here is an actual difference in the following table, you will see that those fees they charge even though they are .35% only slightly effect the end performance of the fund. I hope that clears it up a bit better.

Same link as before: http://www.spdr.com.au/etf/fund/fund_detail_SYI.html

Fantastic, that’s the info I was looking for

On this site it says the performance is calculated before fund management fees and expenses. In other words the .35% MER will weaken the gain even further.

Sorry for rising the extended trading hours topic. I don’t think Australia has that. At some point I was looking at US equities but I don’t think there are any major advantages compared to OZ and I don’t like their trading hours. They can also trade before and after trading hours but as I understand without market makers. So basically if I want to buy shares during that time, I need somebody else who is willing to sell at the same time.

 

[YMI]

Hi all,

Part of my studying stocks, I came cross either full service advisor( with more cost) or cheap online/ phone brokers.
As bigenner I think I will need bit mentorship and adv to start with.
I m wondering what is your opinion about that ? Do u think it is waists of money and keep studying and applying it to real world.
Do u recommend any company course or broker , I m after your general adv and experience , I m based in Geelong/ Melbourne but happy to travel to Sydney or other main city for good full service brokers

Thanks

Eight years ago or so I was asking my bank and an independent agent for investment advice. Both sold me products that return less profit than a standard savings bank account and I can’t get out of that before I’m 45. The only different to the independent agent, banks tend to recommend their own products in my opinion.
I will never ask these guys again, rather spend an hour each day teaching and informing myself.

To get to your question, I would choose the cheap online broker despite I’m a beginner as well but am not sure what is best for you.
Good luck!