I know this forum is a property-orientated forum but I thought some of the more experienced forum members might be able to help me with a few questions on shares:
Firstly, does anyone regularly read Financial Review – Smart Investor?
I was reading an old edition (December 2006) which went through 12 cheap shares (less than $1) and with all shares they had a list of four quick facts: Can someone please explain in general how each fact affects the price of the share:
1. Market Cap
2. Dividend yield (well that one is self-explanatory)
3. Hist. price-earnings ratio
4. Hist. earnings per share
(5. share cover (can’t remember the name) but basically I think it works out whether a company is using profits or share/investors money to pay out dividends)
Can someone please explain how you should use these facts to look at how a share is likely to perform.
Interestingly, the 12 shares (all less than $1) that were recommended have gone up by on average 25% in the last 3months!
I’m not an expert in shares but a self paced student. If you are serious about shares investing (although your endeavour sounded more like speculating to me), I’d recommend doing free online courses with the ASX, you’ll have the answers ….. and more. [wink2]
I have actually done quite a bit of research into shares as well as property. In fact, while I was in Adelaide I attended a 6-week course at a company called “Trading School” on Greenhill Rd, however they taught more about trends which don’t suit the cheap “10cent shares” as much as your top 200 bluechip shares. So its a different type of trading.
One is for short-term holding of shares and one is for long-term growth and sometimes dividends for the return.
However, I will look into the free courses through ASX you mentioned. Unfortunately, at the moment I don’t have very much free time, and I don’t have the internet at home so I can’t spend a lot of time on the net – thus the reading of books.
Anyways, did you know the answer to any of my questions or were you just suggesting going online and doing these courses??
I’ve asked myself this very question – shares vs property, about a year ago. Thanks to books and forum contributors, I now know better they are different asset classes worthy in anyone’s portfolio.
This is strictly because of their different characteristics and often complement one another in any business cycle. I don’t hear the stock market and property market in the doldrums simultaneously in any point in time. An exception maybe in the Great Depression.
I think you are on the right track seeking share market terms and definitions and their effects on share prices. It’s what they call a fundamental analysis. Any good share trading book in local library will do the explanation better than I can.
I’m wary of courses offering promises fast returns, chances are theyâ€™re not going to be there when students falter. Itâ€™s just clever marketing preying on the time poor want-it-all instantly …. You don’t have to look far for them, they seek you out. Have you been bombarded with wealth seminars and newsletter lately? I have. [rolleyesanim]
Anyway, I have studied a lot more about share investing and only stepping into property investing, so I thought I might have a crack at this query.
But before I get into it, I’ll give the one proviso – share investing may look “easy” but it requires the same amount of work, education, time, research, etc. as property investing. So definitely do your research. And work out whether you will be a technical or a fundamental follower and or short or long term investor. If you don’t even know what these terms mean, better start looking!
Anyway, to answer your queries as best I can:
1. Market Capitalisation is the current share price on the Australian Stock Exchange multiplied by the total ordinary share capital on issue.
Impact on assessing share price – next to nil (except to work out how “big” a company is)
2. Dividend Yield is the last available dividend amounts for the year divided by the current share price. Notice the mis-match of timing of the dividends (historical) vs. current share price.
Impact – depends on whether you are seeking a high yielding share or not. Can be similar to property investing – high yield, low capital growth vs. low yield, high capital growth. Often difficult to get both high cap and high yield.
3. Historical Price-Earnings Ratio is the current price divided by earnings per share usually expressed like “15.2”. You can work out whether a share is “expensive” by this ratio where a PER less than 10 might be “cheap” or over 20 might be “expensive”.
4. Historial Earnings Per Share is the amount of earnings (usually a measure like profit after tax) divided by the share price expressed like 4 cents. If the current share price was 50c, you’d have a PER (see 3. above) of 12.5.
NB: “earnings” does not always equal “dividends” – this is important!
Now here’s the problem – they are all historical data…..you query on how to work out how the share price will go in the future – for that, you need to use a bit of this but a lot of some other tools like technical or fundamental analysis. In short, technical analysis is put all the historical share price details, volume, etc. on a graph and use fancy maths to see if there’s a trend going in a certain direction in future. Fundamental analysis is check out what the company is actually doing, what the business plan is, etc. and base your evaluation on that.
Lastly, I wouldn’t necessarily say they did a fantastic job in 12 shares going up 25% without some basis as to why – it could be blind luck.
I’m no expert with $$$ but from my own experience, I’ve made some BIG gains after september 11th….i managed to turn $10k into $25k…..BUT capital gain tax took a chunk off it…i thought good times would go on forever…how wrong…took a BIG loss in spec. mining stock…i was back in square one….
I think with shares even if you dedicate your time with research etc…it’s all still a gamble..you can read all the financial reports, graphing but you NEVER EVER know what’s really going on with the company..take AMP for example…who would’ve thought it’d goto $5?? And MUL went from 1 cent to 10cents in a few days a few years back…and this company’s dodgy as hell…
don’t get me wrong, i’m not knocking the share market….it’s just I find property a lot safer…even if i get 0 growth and loss of 400k interest over 30 years, i’ll still get a roof over my head in the end…with shares if you lose you get a piece of paper…heaps of people have made good $$$….but how many of us are as dedicated/smart as Rivkin or Buffet..or Gordon Gekko for that matter….
I’m with Mortgage Hunter, and perhaps you have chosen an inappropriate title for you post “RE vs Shares”.
Firstly I am a RE investor via BRS or BRSS. Secondly I have long term shares (and I thoroughly recommend Invest4Profit for recommendations).
Thirdly I trade CFD’s short to medium term.
That seems to cover it and they all compliment each other.
So, fundamentals cover long term share invsting in my book, techinical covers short term investin and RE covers both short and long term depending on your strategy.
Happy Investing all round!