Buying shares

Selecting shares may be difficult, knowing when to buy even more so. Books have been written on the subject.  

When should I buy shares?

Far too many investors are attracted only by a bull market. They exit later when they can’t bear the market going any lower.

Here are some pointers on when you should consider buying: 

1. Look for confirming signals like directors buying, companies buying back their shares, institutional shareholders topping up.  
2. If you can’t pick the highs and lows (and nobody can, at least not consistently), one view is there is no better time to buy than now; and ride out the corrections and short term dips.
3.   Another view is to buy when the general market is in an uptrend; but there again watch for signs of overheating. 
4. Be particularly wary of the old adage, “buy low, sell high”. Don’t buy just because a share is down a lot from its peak. Often what seems to be cheap goes lower (even to zero!) and what seems to be expensive, goes higher (into the stratosphere). 
5.   Platinum Asset Management’s Kerr Neilson believes a good company doesn’t necessarily make a good investment. He says it’s all about the price you pay and tells would-be investors they should ask themselves two questions before they hit the buy button: Am I sure the company is worth more than its current price? And what do I see in this stock that everyone else has failed to notice?
6.   Of the market as a whole, Warren Buffett says be fearful when others are greedy and be greedy when others are fearful.
7.   Reading widely about the international economy and markets should help.  

Further Reading:   Within a bull's roar it's all buy, buy, good buy (Marcus Padley, SMH)

Even the experts get it badly wrong:

On 1 July 2008, when the All Ords had closed the previous day on 5333, the chief equities economist at one of Australia’s most prominent brokers picked the index to reach 6100 by end year 2008 (it was actually 3659) and the Aussie dollar to be at US 96 cents (it was actually 69 cents). (The writer vividly remembers both forecasts because he placed some reliance on them!!)

If the experts can be so far out only six months in advance, how can us lesser mortals pick the market? Forget it. Trying to pick the bottom will probably lead to missing it altogether. Focus rather on selecting the right investment. While shares are obviously cheaper when the All Ords is 4500 rather than 5500, don’t take any less care in selecting the right companies. In tough times concentrate on healthy cash reserves and strong balance sheets.

While we are on the subject of forecasts, here is a book that reveals why "experts" are so often wrong with their predictions and why our need to have certainty in our lives means we will go on believing them despite consistent failures.

How to buy shares

Fortunately the actual act of buying shares is relatively simple these days.

One approach is to utilise the services of your bank. All the big banks for example have broking subsidiaries. One advantage here is that you can link existing savings accounts for use in the buying or selling of shares. In alphabetic sequence, here are the links:

  ANZ has E*Trade

  CBA has CommSec

  NAB has National On-line Trading

  WBC has Westpac Securities

The other options you should also consider are:

A full service broker

If you are not sure what to buy, then at least consider using a full-service broker. But first satisfy yourself in relation to the following questions before committing:

•   How much you are going to pay to buy and to sell shares? 
•   Do they make recommendations? If so, how often? 
•   Will they send a newsletter, if so how often? Ask for a sample. 
•   Will they review your portfolio, if so how often? 
•   Will they need an account opened? 
  1. (If so how much is needed and what interest is paid?)
•  

An internet based non-advisory broker

This is the best way to buy shares if you have decided what to buy and you are happy to use the internet. Most of them also offer the facility to place orders by telephone.

Do we recommend any particular internet brokers? No, but you won’t go far wrong with either CommSec which is the largest, E*Trade which is also popular or Bell Direct which is about the cheapest of the major brokers.

Chess or Issuer?

There are two ways in which you may have your shareholding registered. You may become Issuer Sponsored by each company in which you hold shares or, as a client of a broker you can be sponsored on to the CHESS system. To do the latter you need to complete a CHESS Sponsorship Agreement.

As a general rule we recommend CHESS because of the following:

  It is free and it is easier to view and manage a portfolio.

  Instead of having different Issuer Sponsored Holder Reference Numbers (SRNs) for each company in which the shares are held, one CHESS Holder Identification Number (HIN) covers all your shareholdings registered with CHESS.

  If you change your address or wish to have your tax file number registered with a company, it is sufficient to advise your broker in writing, who will notify all companies in which you have broker sponsored holdings and all companies in which you may later acquire shares. Generally you can also now do this yourself at registry sites.

  Sellers not on CHESS must advise their broker of their issuer Sponsored Share Reference number(s) when instructing them to sell. The ASX imposes penalties on sellers who are late in providing these numbers. Sellers on CHESS need do nothing.

  If you have a bank account accessible by your broker you can complete sales and purchases easily over the Internet or with just one phone call to your broker.

  Brokerage is usually cheaper and you can sell shares immediately you have bought them.