Posts Tagged ‘lehman brothers’

The Stock Market from a New Player’s Perspective

October 24, 2008

Economic cycle

Economic cycle

Warren Buffett says “Buy” and one of my favourite bloggers, Tim Ferriss,  is blogging on investments… so here are some of my thoughts as a newbie to the stock market this year. There are many misconceptions, so hopefully this will dispel some of them. I am just off the starting line in this area, so forgive my simplistic approach!

  • You don’t have to be a day trader to be into the stock market. You can buy and hold for the long term, although at some point you will sell in order to realise the gain. Or you will sell when the stock is a loser. The point is that you don’t have to be frantically watching the stock market all the time, jumping in and out. It does not have to be that stressful. 
     
  • You can do it yourself with an online broker and you don’t have to be on the phone to someone shouting “Sell..Buy” etc. You can decide on a particular stock, research it, put in your order online for spot price (price at whatever they can get it at) or at a particular limit . The broker at the other end then buys the stock and you get an email with your new purchase. You will have set up an account for the funds to be taken from and the money goes out of your account. Dividends are also paid into this account (from income making shares where companies pay out dividends). 
     
  • You do not have to be leveraged i.e. you can just buy your stocks with cash you have in your bank account. Leveraged means you borrow in order to invest, then if (or when) your stock crashes, you may get a margin call which is for a particular amount to cover the outstanding debt. This is what has happened with the current markets where people have borrowed far more than they actually had in assets e.g. Lehman Brothers. I currently buy small packets of shares in companies with 100% of my own money that is saved for this purpose. Some would say this is silly and I could buy more if I borrowed. But I have friends who have done that and if the shares go down, then they are servicing debt on assets worth less than that debt. I don’t have to worry as I am investing for the longer term and am not servicing any debt. Of course, if the shares go up, then I don’t make as much money, but hey, I am just starting out! 
     
  • You do not have to know everything about the company, you can listen to experts. You may not be passionate about a particular industry, or have the time to spend (or the knowledge) to pore over their financial statements. But if you want to play the game, you can pay for advice and then take the information you want for your own investments. I belong to a couple of newsletters for Australian shares, I read them and then make investment decisions based on their articles. I find this a great way to get information and tips on companies I would never even have heard of. 
     
  • It is surprisingly fun! and you end up enjoying the financial press as you can actually understand some of it. Paying a percentage into a superannuation fund that someone else manages is no fun (but Australian legal requirement), but making my own decisions and buying into companies is brilliant! I was never one to read the business pages but now I am getting addicted to them. 

So have I made any money yet? 

Of course not! I jumped in just before the crash, but hey, I am at an age that will see the next boom (and maybe the next one). So I am doing what Warren Buffett says and getting into the market now, with my own savings, and we will see what happens. I am certainly getting an education!