Beginners Article 4: Stock Market Survival Kit
Stock Market Survival Kit
Fantastic. You’ve made the decision to engage with the market. The investing journey is about to begin. Here’s a few things you need to know and do before you dive in.
Firstly, be humble. If you want to make money in the market don’t think it’s going to happen by placing trades on your phone when you have a bathroom break, or that you’ll turn on the computer and start placing 100 trades a day from day 1. Just because a Ferrari can go 300km/hr, doesn’t mean it always should, especially not when the ‘L’ plates are up. No, you need to be prepared to dedicate time, energy and resources, and gear yourself up with all the tools and knowledge in order to have a fighting chance.
Here is a checklist – check them all off before you make your first buying decision.
Broker – You must have one, whether it be a person or a platform. Depending on your circumstances you might want to deal with a ‘full-service broker’ who will likely also provide research and recommendations, or you might choose to utilize a ‘discount broker’, i.e. online and often attached to a bank. You lose the personal touch and advice but gain transaction speed and the benefit of lower commissions.
Trading Platform – Software used to buy, sell and manage stock holdings. Think ‘Commsec’ and ‘nabtrade’. Platforms vary from very basic order screens right up to layouts with real-time quotes, charting tools, news feeds and research.
Charting Package – If you only want charts then most of the trading platforms will provide them. If you want to get serious, you’re going to need to fork out some cash and get something with a bit of juice that will cover all your technical analysis needs. Bullcharts, Metastock, OmniTrader and Protrader are some of the market leaders.
Newsfeed – Share prices move when the pool of information about the company changes. In order to not get left behind on the latest news and updates you’re going to need to get yourself a newsfeed. An easy way to cover the ground quickly is through subscriptions to publications such as AFR or a financial news network. Online brokers will also tend to have reasonable news and announcement coverage. And of course, the Marcus Today Newsletter covers all the important stories, news and company updates (as well as market research, analysis and ideas) in one convenient place.
Computer – All these programs and software take a little bit of processing power to run, so the 8-year-old acer laptop that’s lying under the bed probably won’t cut the mustard. A relatively modern desktop with up to date processing systems and software should do the trick.
Below is one particular MT analysts desk. You might not need quite as many screens…
Guidance – “If you’re the smartest person in the room, then you’re in the wrong room”. Corny quote but the message holds true. There’s always someone smarter, someone more experienced or specialised. If you can access them you would be remiss to not tap into their knowledge. Professional research will provide insights that you simply cannot gain as an individual retail investor. Not to toot our own horn, but we have 100+ years of combined experience in the Marcus Today team and it is our job to share that experience, knowledge and insight with you. We take a conservative approach, preserving capital and looking for opportunities where the reward outweighs the risk to help make you a better investor.
Quiet Time – Warren Buffett didn’t make his billions investing while surrounded by screaming kids and barking dogs. You’re going to need a space that you can go and put all your attention to the task at hand.
A Network (of people) – When you come up with an idea on your own, it’s the best idea ever. Say it out loud and run it past a few people, who come at it from a different angle, and suddenly the cracks begin to appear. Talking through strategies and ideas with investment minded friends and family will tend to lead you to developing a more robust approach (and occasionally get you unwanted feedback from your dopey uncle). Another great way to cross-check your ideas is to surround yourself with other investors at conferences like the AIA or online on forums such as the Marcus Today Stock Discussion Group.
An Investing Glossary
- All Ordinaries Index (XAO) – The predominant measure of overall Australian sharemarket performance. Made up of weighted average share prices Australia’s 500 largest listed companies, approximately. Established at 500 points at January 1980. More recently called the S&P/All Ordinaries.
- ASX – Australian Stock Exchange– Australia’s national stock exchange for trading equities, government bonds and other fixed interest securities.
- At the market – A term used to describe an order to buy or sell a stock at the best price obtainable at the time.
- Appreciation – Refers to an increase in the value of an asset.
- Ask price – The price at which a holder of an asset is willing to sell that asset (opposite of bid).
- Basis point – One percent of one percent (0.01%).
- Bearish – A view that markets will fall.
- Benchmark – A yardstick used to compare performance of securities.
- Bid price – The price that a prospective buyer is willing to pay for an asset (opposite of ask).
- Broker – The intermediary who acts as the go-between in security transactions.
- Brokerage – The fee charged by a broker for processing a securities transaction.
- Bullish – Belief that prices in markets are going to rise.
- Capitalisation or Market Capitalisation – A company's share price multiplied by the total number of shares issued by that company.
- Commodity – The term covers a wide range of items that can be traded, including metals and agricultural goods.
- Dividend – Distribution of part of the company’s net profit paid out to shareholders, expressed as a number of cents per share. To receive a declared dividend the shares must be purchased before the ex-dividend date.
- Equities – Synonym for shares and represents part-ownership of a company, as distinct from debt securities such as bonds and debentures.
- Ex-dividend – Shares sold ex-dividend entitle the seller to retain the current dividend. Shares are usually quoted ex-dividend five business days before the company's books close.
- Financial year – The period over which a company measures its performance. The most common financial year ends on 30 June every year.
- Institutional Investor – An organisation with large investable funds whose primary purpose is to invest its own assets or those held in trust for others.
- Index – Is a means of measuring returns from and performance of a portfolio of selected investments. The S&P/ASX200 Index acts as a proxy for the overall performance of the larger vehicles in the market or sector.
- IPO – Initial Public Offering – Initial capital raising by public subscription to securities, such as shares offered on the sharemarket for the first time. Also known as a Float.
- Liquidity – This term relates to the speed at which an asset can be converted to cash.
- Market value – The current value of a security.
- Portfolio – A collection of different investments held by an investor.
- Risk – The recognition that outcomes are uncertain. For more detail see credit risk, currency risk, interest rate risk and systematic risk.
- Settlement date – The date, three days after the transaction, by which you must supply cash or documentation for a securities purchase or sale.
- Securities – A financial instrument, which is a claim over an asset or a future income stream. Examples are bonds and shares.
- Target or Price Target – Usually refers to a broker's expected share price in 12 months’ time.
- Yield – The total dividends received over the previous 12-month period expressed as a percentage of the current share price.
There are many more terms and much more you will need to know before you become an expert, but we hope our survival kit has given you the tools you need to help you take the first step.