Getting Started in Shares For Dummies

Introduction 1 About This Book 2 Foolish Assumptions 4 Icons Used in This Book 4 Where to Go from Here 5 Part 1: Putting The Share In Sharemarket 7 Chapter 1: So, You Want to Invest in Shares 9 Investing Is All about Timing 9 Finding Out What a Share Is 14 Sharing the profit, not the loss 15 Understanding the market in sharemarket 16 Buying Shares to Get a Return 17 Earning a profit 17 Investing carefully to avoid a loss 18 Making the Most of Share Investing 18 Capital growth 19 Dividend income 19 Shareholder discounts 19 Liquidity 20 Divisibility 20 Guarding Against Risk 20 Chapter 2: Watching the market operate 29 Floating: The Primary Market 29 Understanding why companies float 30 Raising money 33 Planning the Prospectus 34 Trading: The Secondary Market 35 Finding the market action at ASX Trade 35 Buying and selling for everyone 37 Working with a go-between 38 Using the Index 38 The All Ordinaries index 40 The S&P/ASX 200 index 40 The Dow Jones 40 The Nasdaq 41 The S&P 42 The Footsie and the rest 42 The mighty MSCI 42 Stepping into the Futures Market 43 Part 2: Investing Strategies For Success 45 Chapter 3: Developing an Investment Strategy 47 Getting Rich Slowly 48 Giving yourself time in the market 48 Compounding magic 50 Starting with Strategy 51 Spreading the risk 51 Setting your goals 53 Setting your time frame 53 Setting your risk tolerance 53 Setting your financial needs 54 Buying and Holding 54 Timing your strategies 57 Trading on your portfolio 57 Timing for the long run 58 Working Out Why Share Prices Change 65 Influences on the price of a share 66 Pricing and liquidity 67 Earnings, earnings, earnings 68 The pull of the P/E 70 The tyranny of expectations 71 Watch out for announcements 72 Profits, expectations and ‘confession season’ 73 Boosting power of takeover bids 76 Chapter 4: Assessing Your Risk 81 Gambling or Investing? 82 The bad news: Risk is inescapable 85 The good news: Risk is manageable 85 Spreading the news: Risk increases your return 87 Assessing Your Risk 87 Market risk 88 Financial risk 89 Commodity risk 93 Liquidity risk 94 Business risk 94 Product risk 96 Legislative risk 98 Technical risk 100 Engineering risk 101 Project risk 101 Valuation risk 103 Political risk 104 Expansion risk 106 Currency risk 108 Specific risk 109 Sector risk 110 Fraud risk 111 Agency risk 112 Non-financial risk 113 Information risk 118 Avoiding the Turkeys 118 Using technical analysis 118 Watching cash flow119 Charting dividend changes 119 Gauging who’s selling — or buying 119 Chapter 5: Eggs and Baskets 123 Spreading the Risk 124 Building a Portfolio 130 Buying growth stocks 130 Finding value stocks 135 Knowing How Many Stocks to Buy 138 Picking your sectors 138 Choosing core stocks 140 Evaluating second-liners 144 Gambling on specs 146 Diversifying through Managed Funds 146 Investing outside Australia 152 Considering Alternative Investments 158 Part 3: Buying, Buying, Sold 161 Chapter 6: Buying and Selling Shares 163 Finding the Market164 Setting the pace — how the ASX trades 165 Getting order depth 167 Getting trade history 167 Paying your way 168 Making a Trade 168 Placing an order 169 Utilising market depth information 171 Finetuning your order 172 Closing an order 174 Working the Trading Day 175 Estimating the costs for trading 178 Making the final settlement 180 Transferring off-market 180 Buying into floats 180 The undemocratic world of allocations 184 Getting the timing right 187 Playing CHESS Isn’t a Game 187 Chapter 7: Knowing When to Buy and Sell Shares 191 Getting Ready for the Action 191 Loving your shares 192 Buying smart193 Selling smart 194 Going into Analysis 198 Using fundamental analysis 198 Working with technical analysis 203 Investing or Trading 205 Buying as an investor 205 Selling as an investor 206 Buying as a trader 209 Selling as a trader 209 Relying on Your Broker 210 Looking and Listening 213 Analysing takeovers 213 Taking note of profit warnings 214 Watching index changes 214 Capitalising on turnaround situations 215 Being a contrarian investor 215 Watching for insider activity 215 Taxing Considerations 216 Minimising capital gains tax 216 Selling to take a tax loss 216 Chapter 8: Buying What You Know 217 Acquiring Ordinary Shares 217 Buying blue chips 218 Looking at Industrial and Resources companies 220 Finding Specialised Stocks 244 Looking at listed investment companies (LICs) 245 Engaging with exchange-traded funds (ETFs) 249 Visiting the Hybrid Part of the ASX Zoo 258 Considering exchange-traded bonds 260 Moving with the mFunds market 261 Deciding What to Buy 262 Buying what you know 262 Retreating behind defensive stocks 266 Cycling your way to recovery 267 Scooping the small-caps 268 Punting on speculative stocks 268 Chapter 9: Working with Brokers 271 What a Broker Does 272 Stockbroking for Everyone 273 Buying full-service 273 Going online – or on the phone 274 Choosing the Best Broker for You 277 Fighting for full-service 278 Doing the research 278 Paying for service 279 Interviewing for a Broker 280 Making the most of full-service 283 Forging a new relationship 283 Using broker sponsorship 284 Locating the ideal broker 284 Chapter 10: Taxing Matters 285 Benefiting from Dividend Imputation 285 Franking credits made easy 286 Franking credit refund 289 Obeying the 45-day rule 291 Watching Your Capital Gains 291 Calculating your liability 291 Reducing the tax office’s take 292 Taxing Tactics 293 Tax-loss selling 293 Using a delisted dog 295 Biting on a buyback 296 Borrowing a tax deduction 297 Keeping tax breaks in perspective 297 Trading as a business 298 Keeping a record 301 Part 4: The Part of Tens 303 Chapter 11: Ten Great Investors and Their Strategies 305 Warren Buffett and Charles Munger 305 John Neff 309 Benjamin Graham 310 Philip Fisher 312 Jim Slater 313 Charles Viertel 315 Peter Lynch 316 John Bogle 317 John Templeton 317 Chapter 12: Ten Things Not To Do, Ever 319 Don’t Think You Can Get Rich Quick 319 Don’t Underestimate Volatility 320 Don’t Be Panicked Out of Your Shares 321 Don’t Ignore Dividends (Especially Franked Ones) 322 Don’t Buy a Share You Know Nothing About 323 Don’t Expect Things to Stay the Same 323 Don’t Delay a Sale to Save Capital Gains Tax 324 Don’t Let Tax Drive Your Investment Decisions 325 Don’t Fret Over Lost Profit 325 Don’t Let Yourself Be Churned 326 Index 327