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
