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Elizabeth Kerr says you don’t have to be Gordon Gekko to make money from shares

Elizabeth Kerr says you don’t have to be Gordon Gekko to make money from shares

By Elizabeth Kerr

I know what you’re thinking... Property investments you understand.

‘Bricks and mortar’ - you buy and people pay you rent and in it’s simplest form it’s win-win for everyone.

 But shares? They give you the heebie-jeebies. 

There are no reality TV shows about the NZX. You can’t touch them and show them off to your friends. And everyone seems to know someone who knows someone who lost their life savings (cue 1987 stock market crash, tech wreck, GFC, etc). 

Raise your hand if you are too scared to invest in shares for fear you make the wrong investment decision and be left with nothing.

Right, I thought so – let’s get into it then! 

I apologise up front if you personally feel I’m giving swimming lessons to fish; congratulations you are obviously not my target audience this week.  

Now where was I?... aahh yes….

Where is the NZ Stock Exchange and What are shares?

As a topic you might think this is a bit dry, but don’t worry the New Zealand Stock Exchange (known officially these days as NZX) have thought of everything and located an office right next to the St Johns Bar on Cable St in Wellington and another on Queen Street in Auckland.  Both are easily visible given the neon numbers that dance around the outside of the buildings. (Those numbers do have a purpose).

Basically the NZX is a trading place where companies can list in order to raise money for themselves. In doing so the owners of those companies are giving up a portion of the company, which they call shares, in exchange for your money.

For example, let’s say I own a paleo pizza company, with stores dotted all throughout the South Island, worth $10 million (yes my cooking is that good!) and I want to expand into the North Island.

To do that I think I need $2.5 million, so, I agree to list 25% of my company on the NZX for you, Joe Public to purchase. Each share is worth $1.50, which means I only need people to buy about 1.6 million shares in order to have the money I need for my expansion plans. Let’s pretend you like my pizza so much, and you’re sure my company will succeed, so you exchange $105 of your hard earned money for 70 shares. ($105 / $1.50 = 70 shares).

In summary the NZX is a place for companies to raise money in the form of shares, which means a share in the company, in exchange for your money. Sometimes the word “equity” is used in place of “share” and the share market may be referred to as the ’equity market’. This is not intended to trip you up – they essentially mean the same thing.

How do you make money from shares?

If a company can increase its profits, then in theory the value of the shares also increases. Following my hypothetical example above, now that my paleo pizza company has several stores in the North Island, the company now earns an extra 30% in profits, which means the value of my company has increased, and so does the values of the shares you brought – awesome, eh?!  Your 70 shares are now worth $1.95 each.   If you sold those shares you could walk away with $136.50 (before brokerage etc).  Not bad for no real effort huh?

Of course what goes up can come down. If a company has some poor performance, no one wants to buy its products anymore, a competitor comes out with something better, maybe even a rumour starts going around about how bad the company is doing, then it might have difficulty making money and thus the value of its shares will go down.

Taking the example above, lets say everyone jumps off the paleo bandwagon and decides to embrace veganism instead, then chances are my pizza company, flush with all it’s animal products for ingredients, will go down in value... and so too will your share. What was once a $10 million company might have to close down stores that aren’t getting enough customers, and then before we know it, it’s just an $8 million company and your share went from $1.50 down to $1.13.

Man that sucks!!! You invested $105 at the start and now you only have $79.10 to show for it. ($1.50 buy -$1.13 sell x 70 shares = $79.10)

What is a speculative share bubble?

When someone speculates in the share market they are making a prediction on what the value of a company will be in the future. No one can tell for certain if a company is going to do well or totally tank and I think you should be mindful of anyone who says they can.

Sometimes a new company will list on the share market with a new idea  that people think is going to be amazing and totally revolutionise the world, so heaps of people want to buy shares in that company, pushing the demand for them up, and consequently the value. This gives the owners of that company plenty of cash to expand their business and hopefully the business will live up to the hype surrounding it. But if it doesn’t, and people start to realise this, then the value of that company will drop and so will that share price. 

So how does the share market help my money machine?

Well I’m so glad you asked.

A money machine is something that spits cash out, which you can use to fund your incredibly well designed lifestyle without having to go to work each day (unless you wanted to). You could sit back and watch re-runs of Oprah while imagining that your dollars are working their butts off in a variety of productive companies.

When you own a share in a company you are entitled to a piece of its profits as well.

Some of the company profits are distributed to investors in the form of a dividend. When a company pays a dividend you can request that these dividends be deposited into your bank account for you to spend. Some companies provide a dividend reinvestment plan (DRP) as an alternative to receiving the cash, so you can keep reinvesting your free cash back into the company’s shares.

"But I’m no Wolf of Wall Street..."

If you’re thinking that this might be something you’d like to explore, don’t think that you have to have humungous sums of money to afford it.

Depending on how you buy the shares will depend on how much money initially you will need to have.  (I will go into this more next week).

Shares can be brought for as little as $1 (sometimes even less) and sometimes you can buy them directly from the company selling them (but this is rare).

Most of the times you need to work with an NZX Market Participant, who you can find here. Just call them up, tell them what your goals are and they can help you from there.

Expect to be charged a fee, which can vary depending on what you buy and who you use.

A popular (and often cheaper) way to buy and sell shares is by using an online platform such as ANZ or ASB Securities. ASB have put together some 'how to' videos on YouTube to help you get started.

With the online trading option you may save a few dollars in fees, but you are on your own... So, you either need to be A) well educated on your chosen companies and thus what their shares will do, B) be slightly narcissistic or C) prepared to lose the lot.

In my opinion, one of the biggest advantages of starting off in shares in the first place is the cheap education you get as you figure your way through the jargon and company reports you will have access to.

As an investor you may be invited to attend a company AGM (yearly meeting where all matters of interesting business things and corporate egos are thrown about) and may even be able to vote on particular ideas being proposed for the company. At the very least there might be some decent sausage-rolls, club sandwiches and a decent cuppa tea on offer.

Being able to peek into NZ’s largest companies by owning just a few shares I think is incredibly educational, fun and really interesting. As a company owner you have the right to be there - no one at these meetings knows how much or how little shares in the company you might own, so why not go along to see what you can learn?

The last word is often a cross word...

Almost everyone I meet knows very little about NZX, the products they offer and how to buy and sell shares.

I think this is a real shame because it can be really interesting and a fantastic way to participate in the growth of some of NZ’s favourite companies, while getting exactly what you need back to boost your personal money machine. 

Next week...

I know what you want to know now... “What shares should I buy”?

Tune in next week, same bat-time, same bat-channel.

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Elizabeth thanks for this very refreshing article. I retired at 58 years of age and unlike nearly every other New Zealander who did that I retired on the basis of my dividend income from shares and eventually maybe selling down some shares if I live long enough. I have never owned a rental and never will. I started buying shares when I was 28 and as my income increased I put more and more into them. I tell young people that they should start investing for retirement the day they start working but their eyes seem to glaze over when I talk like that. Retirement seems so far away for them but in some ways it isn't as the last 30 years of work have gone by so quickly. I am lucky in that I had an uncle who before he died was living very well from the income produced by 50 years of investing in shares.He was a good example for me. I think New Zealanders generally have a one eyed approach to investing for retirement. There is too much emphasis on property. I believe they should have a more balanced approach to it and invest in both property and equities. Kiwisaver is not enough in most cases as you are dealing in small numbers generally. The gains in shares since 2008 have been simply amazing and most have missed out on it. I also think it is a pity that young New Zelanders are cashing in on their kiwisaver accounts to buy their first homes when it is long term retirement money. The longer you leave it there the better off you are in other words.

Thats great to hear Gordon.  Thank you for your feedback.  It is so important for people to read that it can be done.

I sincerely hope there is another Quantative Easing yearly to pump up shares and houses for ever and ever, because it is not the norm.
Interest rates have been forced down and down into negative territory and countries are ever in debted to others ad infinitum.
That is precisely why there has been a boom in debt, thereby making others believe they are affluent, consequently as they benefitted from the blowout and extra cheap interest rates and others drop cross currency rates to accomodate supposed growth.
If this is the norm, I shall stand corrected.
Either way, I will avoid all debt and derivatives and magical blowouts and currency exchanges and pumped up dollars and deflated rubbish...until they quit.
When councils cannot make ends meet, Cities are bankrupt, trillions are printed and  looking for yield, some people will believe almost anything they are told. Even that oil is denominated by paper. And there are piles of cash behind every Bank door.
All is right with the World. Flash and flush.
But then....they always did.
It pays Dividends if you understand the scam.
A ponzi is now a legalised distortion of fact. A gentlemans word was his bond..Not now....
Go figure.

I guess the only safe place for you is a cave then, on Mars

Thanks, I do believe that is the next objective. But not for me thanks.
Certain individuals want to find an alternative means to claim the next planet as their own. And start charging addmission.  Mars rocks apparently.
The hydron collidor has hit rock bottom, no more higgs bosum being produced at cheap rates, so they are going off planet and into space to find a better world to live in, but only for the rich and infamous. Mostly share brokers, land agents and cash strapped little cockies, but Landbwankers to the fore, as per NZ.
I do believe that tooth faries are going to be changing planets too, as some children will need reassurance that money will be available when they grow up into adults and can take care of their exponential growth working for families and other new born schemes, especiallyas money does nor grow on tree on Mars. There ain't any.
But a cut of a Mars bar as well as a dividend, will be undertaken by the sellers to make people imagine they are getting a bargain, but short measure.
Butter will not be going to Mars, it has gone through the roof, but has drifted back to earth with a thump. Even a big block of cheese and tons of Milk Powder will not be getting a lift for a while.
But you can bet yer bottom dollar all young tykes will think that playcentre and the NZ flag will be flying up there on Mars as a distraction, just like it is here on earth.
Just like they do in La La Land....away with the fairies and not with the real world as ordained and religiously applied by all nations.
God knows what they will think of next. Some suckers born yesterday, some think virgins are awaiting them in the after life, so are willing to believe almost anything but must die to prove a point.
Me I like to live with my feet on the ground, travelling around the World. Not for me a flight of fancy, but with my own money safe and tucked up beside me....not invested in others. And a tiny divi sucking some in. Kicking the can down the road I believe it is called.
Leverage and ever upwards She cried.
Bye Bye.cruel world...gotta go find my Man Cave....Drinkies time.

Enjoy drinkies mate:). Be careful though everything you own is an investment of sort, event the money you tuck away, is it in NZD, USD, gold, etc? You may wake up one day and find it worth a lot less or more.
Everything is relative, there's no absolute value in anything - in famine a loaf of break is worth more than gold, so which is better at preserving value? We can only count on our ability to play the world and hopefully have an edge.

Just need a credit card. And a fractional reserve policy.
(preferably yours...said the bank, the Government and Mr Rock-a-feller)
Out of this World...gotta fly!.

:) for PattyZ 

Alter ego, if you pay for your essential goods and services with money then you are in it as much of the rest of us.   At the risk of poking the bear... What exactly do you suppose a young person do to prepare for retirement?    

The simple thing is to get a good credit rating.
Get two people to start a family, get WFF as a right, ie. have children, at least 16 or so then leverage up the income into a house, any house in Awkland will do. then sell it to a one parent family from a certain economy overseas as it tanks and move out into the big wide world and rent a house, but buy a rental to minimise tax.
Put a small deposit down on as big a house as possible, using the sale of the house, plus WFF, plus salaries of both parents, then use any extra money earnt to buy shares amd hope and pray that houses will always inflate and that relatives will die.
Take out insurances to befit from those events.
Dollar cost average on shares, short those shares, buy and sell gold, as it falls buy more, then stash in a Cayman Islands Bank, or a Swiss cheese factory. Do not own the factory, sell shares in it to unsuspecting investors.
Or become a Public servant, preferably an MP or a Mayor, spend up large, they will think that know what you are doing and will follow your every whim and increase your salary each and every year inline with inflation and way beyond your likely salary as a busboy (Or girl) at Mcdonalds.
They cannot throw you out, nor take away your knighthood, though every few years you might have to sit on the other side of the hive and pretend to be a busy bee under a leader who has not taken a directorship at the UN or a failing company to give it bouyancy.
I hear you can last a lifetime if you play musical chairs with Parties. Any seat will do.
Or just start a cooking/renovating//dance program and after a certain time, you will be held in high esteem and can retire on the proceeds of idiots watching adverts slotted in and around collecting their welfare cheques.
Fireworks are good too as long as you can get any Council to fund from rates imposed on other peoples properties, not leveraged out as rentals, or deducted from PAYE earners as taxes.
If you can arrange to socialise losses and levererage gains, all well and good.
But do not for Gods sake put your money in a Finance Company, unless you own it or can resurrect a failing Ponzi scheme legitimately, using Taxpayer funds.
I hear that there is a few Coal Mines that need money pumped into them, but I also hear they need puming out too.
Boats are good, Lotto is better. but houses, cannot lose, unless leased, leaky, or shaky, flooded, approved by Council or not..
OH and do not for get to insure them, it does not pay, but some people like to make a killing investing the premiums and hiding the proceeds.
If you can print money, call yourself IMFIV. ECB20  QE10 otherwise it may be deemed illegal, strange as that may be.
A Casino is good for business, only if you can get Government backing and imported slot machines, clients and gullible voters etc.
Also a loss of interest is ok, if trying to stiff Bank Customers. Just open an account with high interest and leave it a month or two and cut the bejasus out of it and invest it elsewhere, preferably in Rubbles.
Hope that helps.
Failing that start a Bank, a licence to print money, but initial deposits can reach stupid figures and you need to find another 14 figures to borrow higher  figures. How stupid is that.

ok.  Thanks for sharing that with us all.

Most New Zealaders are cynical and absolutely love doom and gloom. There are still punters on this website pontificating about the end of capitalism, peak oil, bubbles here and bubbles there. Too bad they missed out on the greatest stock market bull run ever after 2008. you could pretty much throw a dart at a list of compaines on the Dow to pick a stock and you would of made a killing. Just look at the performance of high growth KiwiSaver funds. Amazing. Now those same doomsters will probably buy into the stock market at its peak. 

What about young folks who have only just started saving. With such a long and high run up in stocks, how can we possibly imagine we're not going to get smashed?

As I allude to below, dollar cost averaging will smooth out your ride. Also diversify well, minimise fees and hold for the long-term. The worst thing you can do when investing is move your money out when prices fall.
The long-term compounded gains dwarf any crash - $100 invested in 1987 before the crash would be worth $762 now after adjusting for inflation.

Anyone who brought a rental property in 1987 care to tell us what thats worth today, and how much money it spits out every week?

According to the RBNZ, the price would have gone from $100 to $262 after inflation. For a true comparison, we would need net income figures to get total real return

Exactly, though I suspect your index figure includes dividends and excludes fees so we would need the net figure there as well.  My understanding is that back then a rental property would pay the mortgage and give you a bit of folding money every week, what were the interest rates back then, add a few points for insurance, principal and rates, you could get a ballpark guesstimate.   

all residental properties can reach the positive cashflow point.   It's also the point of over-capitalisation :)

Even a farm will have positive cashflow if it can just cover operational costs.

That's why your yield on your daily equity is the important factor.   Which is also why compounding not flat calculations are used for long holdings.... :)

Hi lapcoat to borrow words from your question - because you are "young folks" who have such a "long run" to go before retirement you can afford to "get smashed" a few times (especially since you get more bang for your buck when you do - Kiwimm touches on it when talking about drip feeding below.).  
I'll explain what i mean by this next week.  

Labcoat my uncle loved bad days on the sharemarket. He always had cash ready and he just bought more quality shares that paid regular dividends like the Australian banks. The only share he sold was Brierley because it ended up a dog. I started off buying and trading cheap shares and lost money on some of them and not insubstantial amounts. In the last fifteen years or so I have bought quality shares that tend to have a monopoly and which pay good six monthly dividends and have benefited enormously from that strategy. Quality shares that pay good dividends will just keep paying those dividends. If they have an off day buy more and increase the dividend stream. I have no tenants to keep an eye on and no costs. The share I have the most of would have a dividend yield of over 10%. I started buying them at a $1 and they are now worth $8 each. The gross yield on them is 30 cents per year and rising. If they dropped to $3 I would be about break even. And there is no tax on the capital gain as I do not trade them.

yes, if you spread your share buying power, the dogs will disappear (and cost you that small amount), but if you do you homework well you will have enough in growing businesses to cover that cost of investing.

Put it on one horse and it's too risky (or if the risk is average like banks, then the price per share will be too high).


Best performing market of 2015 is Russian, maybe you can run off and buy some stawks.

Gosh.  If only we were all so clever.

or just disciplined....

At least with shares you can drip feed your investment. It's not possible to dollar cost average you house purchases. Property is just one asset class and you should diversify across several

touche' again Kimimm - thank you for your contribution each week.   I value you taking the time to comment :)


ummnnn Ok touché probably the wrong word ... (Good thing I'm not a real journalist) but I was commending kiwimm on a good comment which would of been exactly how I would have responded to that question.

"Why Diversify?"
"Because you don't know which company will do well in the future so it's best to spread the risk which increases your chances of getting a good stock"
"So it's kinda like a casino where you make lots of small bets, instead of risking it all on one big bet?"
"No it's nothing like a casino"
"Ok got it, thanks"

Quite like a casino where you make lots of small bets to reduce the chance of losing significantly, but with the key difference being the odds are in your favour as the market tends to go up. More like owning a casino than playing in one, in which case you have stake limits to reduce the chance of a lucky punter bankrupting you. 

through leverage you can drip feed your mortgage, 
and drip feeding your share portfolio is an expensive way to build it, as the price for small "drips" is a minimum fixed charge, where a few dollars regularly off the mortgage is no cost.

The biggest difference is you can drip feed _different_ stock holdings.  An investor might build a couple of power companies, and a tech. or stick to agricultural holdings and pick a cattle agent one month, and a grain supplier another month.

A big restriction in poroperty is when you drip feed a mortgage you're tied to which lines you can reinforce, and what level you'd need to open a other options in the same marketplace (ie another 20-100k deposit).

With a property the cost is fixed at the time you buy it. With shares, you are buying over time at different prices so sometimes you get them cheap and other times expensive but this means that you don't just buy before a fall. Buy an overpriced property that falls in price and there is nothing you can do to improve the price. It could be 20+ years until you see some capital gain (see UK, Japan, Spain).
With shares, if the price falls, you regular payment buys you more shares i.e. you get better value.

Is it just me, or would an explanation of shares be better arranged with dividends being discussed before speculative capital gains? Perception of a companies prospects for success affects it's share price *because* it affects the ability of a company to produce a divided.

Dividends are only part of the picture as not all companies pay them. Apple paid no dividends between 1995 and 2012 and even now only pays a low 1.5% despite sitting on billions of cash.
If you want to pick a number then earnings is the one to look at. A company's fair value is normally around 16 times it projected earnings but will vary from this based on the market's sentiments.

If apple was valuable before it paid dividends, that was because it was *going* to pay dividends (or accumulate assets). So you're right about earnings being the thing to look at, because they become either dividends or assets and that's what you own - a cut of future profits if paid out and a cut of assets if liquidated/bought out.


Hedge Fund Legend Julian Robertson Warns Of A "Complete Explosion" Unless Fed Contains "Boiling, Bubble" Market


So if Robertson thinks the market will tank it will be interesting to see if Tiger Management has decreased their substantial stock holdings worth over $509 million (at 31 December 2014) when their next 13F is filed.

And ZeroHedge is the most objective of all financial/non-financial websites.

I get the share thing, it's simple, but property does not fudge numbers or support a retinue of toady looking excecs spongeing their most excellent of lifestyles off the plebs without accepting responsibility when it all evaporates. Those making the most from shares are the traders creaming the fees from the churn to the greater fools, ask them how many shares they "own".
For a slice of good hearty laughter, tell a bank you want to borrow to buy shares, it's a laugh riot. Now, I wonder what they know that we don't?

Sorry Spinach, the jokes on you.
You can lend against shares. It called margin lending and ASB Securities have a very good product. You can manage your portfolio online and transfer funds in and out of it, buy / sell etc. Dividends into account assist in meeting the interest costs.
There may be other proudcts out there as well.
Also you can gear up against the equity in your house, probably better to do this than buy a depreciating asset like a car or no asset like a holiday  :)

You're not telling the whole story, you can margin lend against some shares and at nowhere near the ratios that banks lend property at. 

Plenty of 3x leveraged ETFs out there that anyone with access to a broker can buy. You can even get triple leveraged short ETFs.
Plus contacts for difference (CFDs) where leverage can be upto 50x (2% margin).

3x is still less than property and you'll never margin lend right up to your limit because, as the author says, the NZX is volatile and you can very easily find yourself facing a margin call. 

CFD's...  I thought we were talking about Joe average logging into ASB securities and buying a few stocks.  CFD's and derivatives are a very different kettle of fish, high risk and specialised. 

I think stocks are a good investment and have my own portfolio but in my experience leveraged property investment in a growing market like Auckland simply outperforms stocks. 

If you use futures you get 10+ leverage.
The reason NZ share market gets boom and bust of an extra magnitude is that NZ was almost always a tiny tiny economy, heavily heavily reliant on export of a very very narrow range of commodity types, to very very concentrated international destinations. Financially NZ is also almost always heavily dependent on international capital markets. See the risk there? The stock market is just a reflection of that.
On the other hand, the housing market is structurally inefficient (though ironically to the investor's benefit, SO FAR), with councils, NZ's geography (isolation, hence high buiding costs), RMA, and the skewed rise of China contributing to the structural shortage.

I'll bite, so if I have a small $1,000,000 self managed, diversified NZX portfolio, paid for in cash how exactly do I convince the bank to loan me a further 9m? 

And also see my comment above, I may be wrong, but I thought this thread was about Jane average logging into a online securities trading platform and buying some NZX stock, not trading financial instruments like CFDs, Futures or derivatives....

1st of all if you are talking about banks all the time, you are looking at the wrong place for share trading. Try brokers, especially if you have a 1m+ portfolio.
10 times leverage means if you have 1m in CASH, you can borrow 9m and buy 10m in say, shares. Or if your portfolio of paid up shares is worth 1m, ask bank to fund 900k of it. Bottom line is banks will ask you what you will do with the 9m you just asked for.
And why not futures? you can buy 1 share for $10 today, or you can buy 1 futures for the same 1 share, post say $1 in margin (depending on broker & exchange rules), and enjoy basically the same p/l. Same underlying risks, just boosted 10 times if you have the stomach, same as borrowing to buy a house.

I know not which jurisdiction you are referring to, but in the largest stock trading casino in the world the US Federal Reserve imposes more moderate Reg T gearing guidelines. Read more
While the CME, home to the most traded stock index future contract, imposes maintenance margin @ USD 4600 per contract, which ~ equates to 22 times leverage. Read more

Regarding your futures link, this is the point I'm making above, I don't know why futures are being dragged into this discussion.  Most normal people don't know what "TC5 RAS TANURA TO YOKOHAMA 55K MT" is and don't want to know.  A long time ago I used to work at Bar Cap in Canary Wharf and I am aware that there is money to be made in futures and other financial instruments I just don't know what that has to do with Mom and Pop investors. 

:)  I hear you and you're right.    Whilst i agree there is a lot of money to be made with those products/options... the goal for most is to just get to enough.  

Can I just clarify, when you say "...ask bank to fund 900k of it..." you're saying that a bank will do 90% LVR lending against a NZX portfolio?  I understand what 10 times leverage means I have just never come across a NZ bank that offers that lending criteria against a NZX portfolio.  If you have a bank that does please let me know. 

Why not futures...  Say I take a futures contract to purchase 100 Xero shares at $1 each in one months time, I am cunning and believe that Xero shares will be worth only 80c in one months time so I can pocket the difference.  But, oh no, Xero scores a massive US contract and I still have to buy 100 Xero shares but at $10 each and I incur a massive loss. 

but without people willing to risk that gamble, the shares for Xero might never be sold, and the company will never get the massive funding they need for big projects.

I found that with cows.
I needed 150 cows, even at $1500 I couldn't afford it - but when I found someone willing to buy at flat $ 700 per cow, I only had to supply the purchase difference.  Then in a years time (contract end) I either sold the cows for >$1600, or works-ed them for $400-600.   If I looked after them I swung a good chance of profit (more sold at $1600) or ran the risk of a loss, having to dump the worst for $400.  As long as I could clear the $ 750 flat each ($112,500), that I owed my venturer I got a profit that I couldn't have afforded to enter into without the contract.  And since they never want to get into adebt/payback situation, had no interest in cows or farming or equity, such a fixed contract was ideal.   There was a risk that cow prices dropped but that's what set their enter (and markup) expectation, I could have pushed for $1000 per cow, but they would expect $ 1100 on the buy back, which was a much harder contract to meet, and to on-sell to their backers.

Apples with apples bank wont lend agianst all propertes as well and I can get 70% margin lend agianst most NZX stocks.
Lending margins for property at banks are:

  • Maybe up to 100% but not to gear up to buy other assets
  • Commercial property maybe 70% more likely 60%
  • Industrial maybe 70% more likely 60%
  • Vacant land depending on type, maybe 50%.
  • Residential property in some locatiosn, maybe 50% at best.

Whole story is here is that it all comes down to quility of asset and there is a list of real estate banks wont lend agianst (or very limited) like:

  • Churches
  • Properties with RMA issues
  • Houses in the back of beyond
  • Some apartments
  • Leaky buildings
  • Untenanted commercial / industrial buildings
  • Etc Etc

As well the market to sell shares is far more transparent than property.

I use ASB for share trading and they will lend up to 70%, not most as you say.  And the shares that you'll get 70% margin lending on are the slow and steady's like banking and infrastructure.  You'll get nothing for, say, Xero and only 40% for Heartland (a great performer in the last 6 motnhs).  See my comment above regarding margin calls, you'll never borrow right to your limit. 

Your quite right that banks wont lend for crappy properties, that doesn't bother me because I don't buy crappy properties. 

I understand the difference between borrowing which is secured against a tangible asset, such as property you already own and hold equity in and straight unsecured borrowing.
Go and ask for a loan to buy shares with only those shares purchased to be the security and tell me the response.
Cars and holidays are consumption items as are the buldings on the property you may own to live in. They would not be expected to do anything but depreciate as they are used up. Land component may provide capital gain, or not.
Shares cannot provide any secondary benefit and exist only to provide an expected return on investment either by dividend or capital gain. While the consumption items above could be sold for their residual value at some point, shares can easily become a 100% loss as all value is erased due to mismanagement.

Diversification is the only free lunch. You can reduce default risk while maintaining returns.

Go and ask for a loan to buy shares with only those shares purchased to be the security and tell me the response
Margin Lending only uses those shares as security so the response will be YES.

Property supports its share of toady looking individuals spongeing their most excellent of lifestyles off the plebs without accepting responsibility when it all evaporates. Have you been to an auction house recently and looked at the funeral parlour types called agents?

So the NZX is a place for companies to raise money?  Why then does 99% of trading have nothing to do with new issues, IPO's or the process you mentioned?  Maybe it used to work how you say it does, and that may be the origins of that particular tautology.  Nowdays it's more like a casino, only put in money you can afford to lose. 

You could argue the same thing in reagrds to property, that is, how many sales of properties relate to new builds / brand new proeprties verses those existing stock being resold.

Except nobody is claiming that the property market exists for builders to raise money.

Nobody saw the need to, until someone smart like you showed up.

actually spec housing and forward contracted dev sales are exactly that.

People... you just never cease to amaze me!
So the car market is more like a casino, too, cos hey majority of trading have nothing to do with car-makers selling new cars! it's all second-hand!

Do they teach you at uni that the car market is designed for car makers to make money?  Or that by buying a car you are helping the car makers?  Or do you only learn how to repeat tautologies and argue strawmen?

A market is just a place where willing buyers and sellers meet, for transacting ownership stakes in companies or cars. It's not for either to make money, but if people don't make money I guess the market won't be for long.
Share market as it is now is the result of an evolution over hundreds of years, rather than some "design", just like your car market.
And you are confusing secondary with primary market. might want to google the purpose of them.

Which is exactly my point, the sharemarket has evolved into something more like a casino then a place for companies to raise money.

What a silly comment. The sharemarket is not a casino. I don't need tokens to buy shares.

Good point!

you can't "hold long" at a casino if you don't like the current spin.

your casino won't pay you dividends on money you give them.
if you give money to other people at a casino don't expect to see it back
there is usually a winning hand at a casino (although race track is the usual analogy)

a big advantage is that on the sharemarket if one bet does well it increases the chance of all of them doing better. 
at a casino the rich casino owners are the ones drink the champaign and in nice cars...while in the sharemarket... ok not much difference there.

A T.A.B. owner once told me "a punter is a large beer vessel in Germany" and that's what punters normally are "very large mugs that are soon emptied".

In 2014, NZX handled $6.45 billion of IPOs plus 223 subsequent capital raising events for a further $2.4 billion

Compare with $7.7b of new residential construction put in place in 2014 according to stats NZ

It's only looks like a casino if you ignore the actual, productive companies that are behind the shares. The 99% of trading you refer to is nothing more than people selling their part of a company on to someone who wants to own a part of that company.

No it looks like a casino because a company like Xero has yet to even make a profit and was trading at absurd multiples.  It looks like people are gambling that one day it may actually make a profit, or that they can flip it on to a bigger fool.

the secondary market is a gamblers den - but that allows the large buys to front big sums for companies, at discounted rates; then resell to smaller and retail investors hoping to get their front money back with a short term profit.  Without the secondary, higher priced, market they wouldn't be able to front the large packets of cash to finance major projects.
  the secondary market also gives added value because people can Short a position they already hold to release its equity - without this ability "shares" would be a one way payout and there would be no way to free up capital invested into a company that is doing well.

That sounds more like the Auckland property market.

The stockmarket is still a place for those larger companies to raise equity capital. Not many do it nowadays as equity capital is generally more expensive than debt, and the companies can borrow both onshore and offshore at lower rates.  
The mantra of don't invest money you can't afford to lose has always existed.
If you are an investor the market is not akin to a casino. If you want to speculate then you could well draw those conclusions.

Exactly, share issues only make sense for companies that never intend to pay a dividend, if they were planning on paying a dividend, debt would be a cheaper option.  So if your shares are not paying a dividend, or a dividend less then bank deposit rates, where is the cashflow?  All you have is the hope of a bigger fool willing to pay more then you did for an 'asset' that has no return.

If a company believes that re-investing its capital is better for the owners (the shareholders) then it should do that. If the shareholders disagree, they can vote to change it.

Cashflow? Just sell a few shares for your immediate needs. Maybe they can invest the cash into growth better than you can from a dividend. It is your call, ultimately.

Exactly, when you have no cashflow you have to sell your assets for your immediate needs, whereas if you have cashflow you get to have your cake and eat it too.  At the same time if everyone is selling their non cashflow assets, then you may have to accept a lower price then you were expecting, in addition to the fact that you will then have less assets to sell next time you have some immediate needs that need paying.

Perhaps you are not intending to be negative but I see cashflow and capital appreciation as being the same animal. Selling for income is voluntary and done only when you want to, not just when the dividend arrives in your account.
Example I have $10000 worth of shares. I expect  5% ($500 income) as a dividend. However for another share my $10000 value gains 20%  and I sell enough of them to get my $500 income but have $11500 share value after the sale. That really is cake and eat it  stuff.

I think of it this way.  If you are going to live off your investments and have fixed income requirements the whole capital gains selling for cash falls apart as soon as you hit a recession.  I view the probability of another recession as 100%, some people act as if there will never be another one.
So say your 100k that was appreciating by 20% falls by 20% (it's barely a bear market) then you have to withdraw that 5k now you only have 75k and you need your stocks to go up by 33% before you make another withdrawl, just to breakeven.  The bigger and the longer the drop, the worse your situation becomes.
If that 100k was invested in a rental that netted 5k pa. and house prices dropped by 20% it wouldn't effect your income. 
Everyone gambles, even those that chose not to gamble - are gambling that something worse will hapen to those who do.

Yes but what if during the good times you left enough money behind to offset the fall.   Yes falls happen but a smart person just plans for that as well by using their using a combination of withdrawl and reinvestment on their returns.

Thats where tranche diversification comes in.   If you're going to live off your investments then you're going to want some value holding (eg growth shares) that you're not going to be able to liquidate profittable but that's ok because you know you're not going to do so, no matter the "weather".

And also you'll hold some steady value holdings (eg power companies, banks) that are well developed and do pay dividend.  These are "less risk" but have higher value because they pay out, where the growth shares you're expecting them to be worth more either for sale or cash in the futher future.   Property can also work as a value holding if it has good tenants, but the NZ government is generally completely clueless, and repeatedly attack these "graineries/ store of wealth" to fund NZs economic activity - as they have done recently with earthquake requirements, and are trying to do by slowly heating the water under the residental housing standards pot.   This enables the government to force spending from what is supposed to be a mature investment due to pay profits to its owners.

But diversification is expensive, as you need to have enough wealth to perform sustainably in more than one market - many people, especially from personal rather than operating for their company don't even have the resources to sustainable weather one market let alone multiple.

thats profit, not cashflow.

you have $10,000 worth of shares you're not going to hand some over to get an inkcartridge to print out that tender doc or cover the PAYE bill when it's the 18th of month.

Cashflow will give you this ability.

the PAYE bill is a classic example, sales and up, debtors ledger is sweet...but without cashflow....
Or manufactury, all the materials in yards, staff waiting and keen to go, customers contracted orders waiting to be filled... and some filing fees for the sign-off need to be paid.
 "money" is all there for the taking but without cashflow, without liquity, business is dead.

Except those banks that provide the cheap debt funding what someone with skin in the game (equity) so that why most companies have a mix of debt and equity and why banks often have covenants to enforce such.
So in the situation of loss equity is gone before debt and so it should be.

Even by that definition it would still be considered a "trading place".

I was more questioning your summary that a sharemarket is a place where companies raise money, when that is only a minor function of the modern sharemarket.  Nowdays it's a place people go hoing to get some easy money, and the house always wins.

considering the NZX fees for listing and other costs, it's certainly not where companies go to raise money.  It's where they go to convert their debt to equity.

 Few helpful pointers for Elizabeth to discuss. The major differences between property and shares
Property investors cannot buy into multiple properties without a heap of money while share investors can cover a wide range of individual shares locally and diversify further into other markets
Shares can be bought and sold at the push of your computer key. You are stuck with property until you can find a counterparty and pay a massive sum in fees and lawyers for the privilege.
Shares have a specified price at the minute. What is your property price?
Gearing is dependent on having other assets to borrow against unless you can use CFDs or margin lending but you can sell short too via CFDs in some areas.
Share investing in not limited to individual buys but can be done with ETFs trading in indices of many hues as well.
I could go on 
But now a little moan. The tax system for most overseas share investments is complicated and ridiculously based on weird logic within the FIF. Our lawmakers would be well advised to encourage  private investors to invest directly in overseas markets.
My tongue-in-cheek suggestion would be to apply the same logic to the property investor. Maybe tax based on a presumed income of 5% irrespective of whether the investor receives a 0% on land or 10%+ . Rally please Gareth Morgan!

Agree re pointers for discussion but for now will intentionally stop short of comparing the two as better or worse than the other so as to honour my stance on diversification.   I will however address your points from a different angle by instead writing about how to tell the top from the bottom in both markets in the near future.

I'd be a bit worried about a computer program that will let you buy and sell any shares.
Some of the best performing companies do not have shares available for sale, so if you're able to trade in those companies "at the push of your computer key" then you're actually trading in a shadow system; which means you don't own any of the "shares" that are indexed to the market , instead you're just buying unit funds, with parallel linked pricing.  If things hit the fan (because there might not be any underlying linked buying and selling) then you could lose everything because you don't actually own any stock certs.

shares don't have a specific price - they have a not yet bought price and a not yet sold price (if available or wanted).

you can gear share portfolios but 25% seems to be the max, and that is very dependent on who you are and who the shares are for.  My bank gaves 25% on Fonterra share value.

As for the foreign tax thing... oh yes.  Now that NZ citizens who own US registered companies that pay a dividend value...we have to file US IRS tax forms ! as we are technically making USD money in the US

 No I have not made any reference to any computer program to help you bu/ sell shares. Transactions take place after very circumspect decisions but they do happen at the press on a computer key. NZ is not instant because matching has to consult the order book. In UK for example where they have brokers who carry the stock, they take on the risk by moving the spread between the buy and sell to allow them to make a profit. My acting broker takes my order gives a price and I have 15 seconds to accept or not. That is close to instantaneous as far I am concerned.
I have not been involved with CFDs for several years but large cap shares I believe still operate on 5% (20x) and indices can go to 100x . Yes, you still have to operate you account with adequate cash to sustain sudden variations or have an agreement with the broker for credit. You cannot get a 99% mortgage on a property!
Regarding the tax position, I am commenting on NZ FIF above and that has nothing to do with US tax except in relation to NZ tax credit for paid tax at source. This starts at a value over $50k but that is such a piffling amount these days, it is unlikely you would have a portfolio of more than one or two shares to be over the top. So you would more likely be in a fund to spread your risk at any lower level. Sorry to be broadening Elizabeth's content far to wide.

I quote you ; "Shares can be bought and sold at the push of your computer key."

There have been some rather interesting prosecutions of brokers who have managed to buy and sell packages of very hard to get high value shares.  Big fortunes and impressive careers were achieved but when it hit the fan it turned out that the "shares" they hold sold to their brokerage weren't real.  the brokerages acted in good faith, as did the happy clients, but because it was all computer driven there wasn't a check point.   IIRC the crunch occurred because a large investor didn't get an invite to an impressive shareholder meeting, and when he tracked down the answer the truth was squeezed out - but not after the brokerage and broker were frantically hunting for real shares to cover themselves with...but that was the catch, the limited shares were so valuable that people were NOT selling them, and that demand alone had pushed up the price.

Muddy waters
Basel Brush is correct
You can buy shares with an online account with Westpac or any of the banks or most of the brokers around today, and you can sell them a few minutes later, as fast as your mouse or fingers can react
Basel is not talking about algorthmic trading, or short selling, or margin selling, or illiquid stocks

you talking value sahres or growth shares :)

Great discussion on here today everyone!!   Thank you :)

Not boring at all :)


Mohamed El-Erian Explains Why He Is Now "Mostly In Cash"

Interestingly El-Erian shares his personal view not his employers' strategy and I note on the other end of his strategy he has hedge fund investments - bet they are not in cash and are probably leveraged.

This is the same Nasim Taleb's barbell strategy. Keep most of your money in the safest possible assets then place a small proportion you can afford to lose in extremely risky investments.

The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look almost tame by comparison.