Are there any Stock Brokers amoung us???

[VWindahouse]

I read recently that VW shares lost 8.31 percent when Qatar sold 25 million preferential shares. I know nothing about this stuff so I have a couple of questions for the knowledgeable out there

1. can the general public buy said shares?

2. consisdering VW just took over Toyota as the worlds number 1. auto maker is this a good buy considering the current drop in share price?

3. is margin lending a good idea?

Cheers,

Anthony.

[jettapilot]

I only have an opinion on you're Q3. Is margin lending a good idea?

It depends on your unique financial situation and your risk profile. You would be wise not to take any advice offered on a public forum without checking it out with an independent,qualified financial adviser who is not in business for the money. Let me know if such a beast exists!

Before the recent financial crisis, many people would have said "Yes" margin lending is a good idea. I suspect some of them are now suffering from "margin call". This is when the value of the shares securing the loan has fallen so low that they have had to pay back the loan ... NOW.

In theory, borrowing to invest in an asset (in this case, the shares) that will increase in value is a sound strategy. You have to consider

• The risk that the asset will not increase in value
• How long it will take to increase in value?
• The interest that you will pay on the load while you wait for the asset to increase in value
• What you will do if the asset happens to decrease in value?
• What will you use to secure the loan - and is it an asset that can also decrease in value?
• What will you do in case of a margin call

I am not financially qualified and speak only from experience. I currently have an asset which is worth only 50% of the amount I borrowed to invest in it. It's not a comfortable situation. The interest still has to be paid each month and that's money that can't be invested elswhere.
Fortunately I changed the finance from a margin loan to a mortgage before the crisis so escaped the dreaded margin call. And I have time to wait for this asset to regain it's value, plus the intrest I've paid over 2+ years plus some capital growth (the reason for going into this in the first place!)

Only when all this has come to pass I can say

"Margin lending was a good idea"

[gerhard]

Margin Lending could be regarded by many as a terrific idea.

Why - because it gives you an exit strategy from the market, something which most people don't have.

In all market crashes (or individual share crashes) the buy and hold people lose bucketloads of money, whereas the margin loan investors (gamblers?) get out when they have lost say 20%.

Buy and hold can lose you 95% or 100%......

[Dubdabest]

I believe you can buy VW-Porsche shares via e-Trade or CommSec account for international shares but you really have to know what you're doing and do lots of research & shares performance analysis.

I think VW-Porsche overtook Toyota as no.1 car manufacturer is due to the GFC and so Toyota cut down production by heaps however they have a far bigger production capacity than VW-Porsche hence can easily reclaim the crown once the global economy improves and they start ramping up the production again.

[callen]

Margin Lending could be regarded by many as a terrific idea.

Why - because it gives you an exit strategy from the market, something which most people don't have.

In all market crashes (or individual share crashes) the buy and hold people lose bucketloads of money, whereas the margin loan investors (gamblers?) get out when they have lost say 20%.

Buy and hold can lose you 95% or 100%......

I work in financial planning and this is VERY incorrect. Margin lending/geared investing is alot more risky than using just your own funds. E.g. If you invested $20K of your own funds into stock XYZ and the company went into liquidation you would loose all or most of your $20K but if you invested $20K of your own funds and then used a further $20K of margin lending/borrowed funds and the company went into liquidation you would be loosing $40K!!!! That is $20K of your own money + you would still owe the lender $20K.

If the stock is reducing and hasn't gone into liquidation then margin lending will not just sell all of your stocks ("exit strategy") as mentioned above and recoop all of their money they will sell enough of them that it brings your LVR (Loan to Value Ratio) back inline with their guidelines. This not only means it reduces the value of your stocks/units but it also reduce your amount of units which means it is much harder and will take much longer for you to recoop your fund.

But if this same stock was to double in value in the above example you would have made 100% return if not geared ($20K x 2) or 300% return on your initial investment of $20K if you had geared as above minus any interest paid on the loan.

In regards to the OP's questions.

1. In most case preference shares are not available to the general public as they are offered to existing share holders of the company and corporate/institutional investors first. If they are available to the public I would suggest speaking with a stock broker and getting them to purchase the stocks for you as it can be quite difficult to do this through an online brocker e.g Commsec, Etrade etc.

2. Once again it would be best to speak to a broker about this specific stock to get their full insight. In general though Volkswagen is one of the exceptional standouts of the automotive manufacturers as most automotive manufacturers have very little to no margin and this reflects in the return on their stocks. VAG has very sounds fundamentals as a company but as an industry in general be warry of automotive stocks. If you are adamant that you want to invest in VW because "you like the company" etc. Then make sure you do your research but if you want to make money there is lower risk industries to invest in.

3. ref above + be mindful that unless you will not be affected or concerned if you loose your money margin lending/gearing is a tax effective investment strategy that should be used only for long term investments for people who are willing to take high amounts of risk with in their investments and have sufficient cash flow to cover repayments as well as margin calls if need be. If you own a property and have equity in it you will normally get a lower interest rate and not have to worry about margin calls by taking a supplementary loan against your property.

As far as investing in the stock market in general a GOOD financial adviser or stock broker will very strongly advise you not to invest in one stock as diverification is the key to reduce your investment risk. The problem with this is that to have a properly diversified portfolio that contains a good blend of aussie stocks, international stocks, property or property trust, cash, fixed interest etc. you need to have alot of money. This is why for smaller investments i.e. less than $100K a managed fund may be a better option unless you are a big risk taker.

Also be aware that investing international holds additional risks than investing in australia as unless your investments are hedged which a direct international stock investment will not be you will aslo have to foreign exchange risk. E.g. If you buy international stocks and our dollar keeps going up even if the stock has stayed at your purchase price your are already down and vice versa i.e. if the aussie dollars goes down and the stock hasn't moved your investments has already gone up if you sold out and bought the funds back into australia.

Disclaimer: This advise is general only and has NOT taken into account your personal goals, objectives and circumstances. You should consult with an authorised investment adviser before making an investment.

[gerhard]

I work in financial planning and this is VERY incorrect. Margin lending/geared investing is alot more risky than using just your own funds. E.g. If you invested $20K of your own funds into stock XYZ and the company went into liquidation you would loose all or most of your $20K but if you invested $20K of your own funds and then used a further $20K of margin lending/borrowed funds and the company went into liquidation you would be loosing $40K!!!! That is $20K of your own money + you would still owe the lender $20K.

If the stock is reducing and hasn't gone into liquidation then margin lending will not just sell all of your stocks ("exit strategy") as mentioned above and recoop all of their money they will sell enough of them that it brings your LVR (Loan to Value Ratio) back inline with their guidelines. This not only means it reduces the value of your stocks/units but it also reduce your amount of units which means it is much harder and will take much longer for you to recoop your fund.

But if this same stock was to double in value in the above example you would have made 100% return if not geared ($20K x 2) or 300% return on your initial investment of $20K if you had geared as above minus any interest paid on the loan.

In regards to the OP's questions.

1. In most case preference shares are not available to the general public as they are offered to existing share holders of the company and corporate/institutional investors first. If they are available to the public I would suggest speaking with a stock broker and getting them to purchase the stocks for you as it can be quite difficult to do this through an online brocker e.g Commsec, Etrade etc.

2. Once again it would be best to speak to a broker about this specific stock to get their full insight. In general though Volkswagen is one of the exceptional standouts of the automotive manufacturers as most automotive manufacturers have very little to no margin and this reflects in the return on their stocks. VAG has very sounds fundamentals as a company but as an industry in general be warry of automotive stocks. If you are adamant that you want to invest in VW because "you like the company" etc. Then make sure you do your research but if you want to make money there is lower risk industries to invest in.

3. ref above + be mindful that unless you will not be affected or concerned if you loose your money margin lending/gearing is a tax effective investment strategy that should be used only for long term investments for people who are willing to take high amounts of risk with in their investments and have sufficient cash flow to cover repayments as well as margin calls if need be. If you own a property and have equity in it you will normally get a lower interest rate and not have to worry about margin calls by taking a supplementary loan against your property.

As far as investing in the stock market in general a GOOD financial adviser or stock broker will very strongly advise you not to invest in one stock as diverification is the key to reduce your investment risk. The problem with this is that to have a properly diversified portfolio that contains a good blend of aussie stocks, international stocks, property or property trust, cash, fixed interest etc. you need to have alot of money. This is why for smaller investments i.e. less than $100K a managed fund may be a better option unless you are a big risk taker.

Also be aware that investing international holds additional risks than investing in australia as unless your investments are hedged which a direct international stock investment will not be you will aslo have to foreign exchange risk. E.g. If you buy international stocks and our dollar keeps going up even if the stock has stayed at your purchase price your are already down and vice versa i.e. if the aussie dollars goes down and the stock hasn't moved your investments has already gone up if you sold out and bought the funds back into australia.

Disclaimer: This advise is general only and has NOT taken into account your personal goals, objectives and circumstances. You should consult with an authorised investment adviser before making an investment.

Most people who lost money in the GFC crash did so with the help of their "good" financial advisors.

My advisor did not advise me to exit the market when it was overheated, so I have the opinion in general that 99% of financial advisors are 5% ers - ie, they will spread your investment capital broadly under the mantra "diversification is good" (which is arguable) AND TAKE 5% of YOUR CAPITAL for their efforts, plus at least .025% trail on your money every year thereafter. Big deal, some rebate the entry fees, but only because Investsmart came on the scene a few years ago and forced the issue.

Yes it's tough to invest wisely, but it's made even tougher by the money grubbing "advisors" who take NO responsibility for bad advice, and suffer NO financial penalties for giving it, and no penalties for not giving advice when prudent to do so.

[callen]

Most people who lost money in the GFC crash did so with the help of their "good" financial advisors.

My advisor did not advise me to exit the market when it was overheated, so I have the opinion in general that 99% of financial advisors are 5% ers - ie, they will spread your investment capital broadly under the mantra "diversification is good" (which is arguable) AND TAKE 5% of YOUR CAPITAL for their efforts, plus at least .025% trail on your money every year thereafter. Big deal, some rebate the entry fees, but only because Investsmart came on the scene a few years ago and forced the issue.

Yes it's tough to invest wisely, but it's made even tougher by the money grubbing "advisors" who take NO responsibility for bad advice, and suffer NO financial penalties for giving it, and no penalties for not giving advice when prudent to do so.

If you have paid or been asked to pay a 5% entry fee you should have politely told your adviser to F&*^ off. A standard entry fee is between 1-2% for managed funds and between 0.1-0.5% for direct shares (normally with a minimum fee of about $30-35 for online brokers and $80 for face to face brokers)and as you mentioned a lot of adviser will rebate some of this. The financial advise industry has drastically changed in the past few years and commisions are either non existent or soon will be and you will have to pay a "fee for service" just as you would if you need advice from any other profession e.g Accountant, Lawyer etc.

Also what you are forgetting here is that you havn't lost anything until you sell as you still own the same amount of shares/units and have only lost when you sell. For long term investors who have direct equities and aren't planning on selling/don't need access to the money (so long as dividends aren't held back) if you are having your dividends reinvested it actually works more in your favour than if it is a "bull" market as you receive more shares than if the price is higher meaning that when things do recover (which the will) you will actually be better off than if the market had stay flat.

For the OP the main reason I suggest you speak with a broker is that unless you know what to look for and what market caps, P/E & P/B ratios and a number of other key fundamentals of direct equity investing are they will be able to look into these for you and explain what they all mean and unless you want ongoing advise (which is were they make most of their money) you won't have to pay much for this.

[Brendan_A]

If you have paid or been asked to pay a 5% entry fee you should have politely told your adviser to F&*^ off. A standard entry fee is between 1-2% for managed funds and between 0.1-0.5% for direct shares (normally with a minimum fee of about $30-35 for online brokers and $80 for face to face brokers)and as you mentioned a lot of adviser will rebate some of this. The financial advise industry has drastically changed in the past few years and commisions are either non existent or soon will be and you will have to pay a "fee for service" just as you would if you need advice from any other profession e.g Accountant, Lawyer etc.

Also what you are forgetting here is that you havn't lost anything until you sell as you still own the same amount of shares/units and have only lost when you sell. For long term investors who have direct equities and aren't planning on selling/don't need access to the money (so long as dividends aren't held back) if you are having your dividends reinvested it actually works more in your favour than if it is a "bull" market as you receive more shares than if the price is higher meaning that when things do recover (which the will) you will actually be better off than if the market had stay flat.

For the OP the main reason I suggest you speak with a broker is that unless you know what to look for and what market caps, P/E & P/B ratios and a number of other key fundamentals of direct equity investing are they will be able to look into these for you and explain what they all mean and unless you want ongoing advise (which is were they make most of their money) you won't have to pay much for this.

Well said mate!!

[gerhard]

If you have paid or been asked to pay a 5% entry fee you should have politely told your adviser to F&*^ off. A standard entry fee is between 1-2% for managed funds and between 0.1-0.5% for direct shares (normally with a minimum fee of about $30-35 for online brokers and $80 for face to face brokers)and as you mentioned a lot of adviser will rebate some of this. The financial advise industry has drastically changed in the past few years and commisions are either non existent or soon will be and you will have to pay a "fee for service" just as you would if you need advice from any other profession e.g Accountant, Lawyer etc.

Also what you are forgetting here is that you havn't lost anything until you sell as you still own the same amount of shares/units and have only lost when you sell.

What you say is not incorrect, but still a little over simplistic.

Due to the large reduction in borrowing capacity for virtualy all enterprises, a large number of the listed companies have raised money by issuing capital, thereby diluting the value of the shareholding even further than the crash did.

Therefore, broadly speaking, even a return to an All Ords index of 6800 will not restore the amount you have lost due to the capital raising diluting your holdings.

I'm sure many clients are satisfied with the mantra "you haven't lost anything till you sell", but it's really BS of the highest order, and if any adviser to whom I were thinking of paying a fee for service said that to me I'd be out the door in a flash.

I now have a mentor whose portfolio has returned over 100% this year and the fee for service is $299 per annum. No advice is given, it's just a pity I'm not brave enough to buy what he buys at the times he does, so I haven't made anything like that.

[EUS GTIMK5]

As cullen said Margin lending is riskier than using your own funds. It is called gearing because market movements are geared (ie greater than actual); similar to gearing in a car!
For example say you have $50 and borrow $50 and so can buy $100 worth of BHP.
If the price increases to say $110 then you can sell (ignoring brokerage costs etc) repay the $50 you borrowed and pocket a profit of $10. That is you made 20% (double the 10% return on the stock) ie (10/50)% = 20%.

However, if the stock drops but 10% to say $90 and you sell you have to repay the $50 borrowed and you lose $10 (ie pocket $40 after selling and repaying the loan) you lose 20% ie (-10/50)%=-20%

That is you have geared the actual return on the stock. The +-10% return on the investment becomes +-20% to you! If you had borrowed say $10,000 and used $10,00 of your own money then the gain would have been $2,000 but the loss would have been -$2,000.

There is also another risk investing overseas and that is currency risk. I don't think you'll be able to hedge (ie neutralise) this risk unless you plan on making VERY large investments!

[callen]

What you say is not incorrect, but still a little over simplistic.

Due to the large reduction in borrowing capacity for virtualy all enterprises, a large number of the listed companies have raised money by issuing capital, thereby diluting the value of the shareholding even further than the crash did.

Therefore, broadly speaking, even a return to an All Ords index of 6800 will not restore the amount you have lost due to the capital raising diluting your holdings.

I'm sure many clients are satisfied with the mantra "you haven't lost anything till you sell", but it's really BS of the highest order, and if any adviser to whom I were thinking of paying a fee for service said that to me I'd be out the door in a flash.

I now have a mentor whose portfolio has returned over 100% this year and the fee for service is $299 per annum. No advice is given, it's just a pity I'm not brave enough to buy what he buys at the times he does, so I haven't made anything like that.

I have already written a page to try and give the OP some assistance so if I wasn't been simplistic I would be writting an essay which I'm not going to.

Yes alot of companies have been capital raising but this capital raising is generally also to existing stock holders so you have the option topurchse more stocks at the reduced rate. Secondly most well managed companies have been using this money to either pay off debt or purchase new companies so although the market cap is increasing so is the net asset so nothing is getting diluted. Two pefect examples of this are RIO and ANZ. Rio's capital raising was used to pay off debt and for those that didn't the over could actually sell their right purchase them for the differnce between the issue prce and the current stock price. The ANZ one the funds were used to purchase the 51% of ING Australia and ING New Zealand hence increasing there net assets so noting has been diluted. I'm not saying that there isn't smaller companies that are getting diluted by using capital raising just to keep paying there execs big fat cheques but it is the exeption rather than the rule.
You obviously have a different perception of what fee for service is as the minimum any broker will charge for this is $1100p.a and it will be for them to provide advice otherwise why on earth would you pay them money even if it is only $299p.a

P.S I trade actively and my portfolio has increased by 380% since February 2009 and yes I take ALOT of risk to get these returns but it can be done in a bull market.

[quozl]

I am not an advisor but make the majority of my income from investing and I have only and will only ever use a Fee for Service financial adviser and they are generally loathed by the institutional advisors.

One thing you are not told is that most if not all institutional advisors receive a good portion of their salary / income through bonuses and kick backs for selling products being promoted by particular companies or investment funds and if the institutional advisor sells that product to you the fund pays them a bonus or kick back so their incentive isn't to you and to recommend the best products for you it is to sell what makes thems the best / most bonus or kick back.

A fee for service advisor on the other hand is paid a set fee by you to give you advice solely based on what is best for your situation and if they do happen to recommend a product that pays a bonus kick back for them selling it the bonus or kick backs are paid directly to you as the investor and not to the Fee for service advisor.

I prefer using a fee for service advisor as they are working for ME not for Colonial or Commsec or whoever.

As for margin loans make very sure you understand the pitfalls as well as the potential windfalls with them, a lot of people I know lost a lot of money by having a high LVR and getting a call and then by selling shares to meet the call that in turn decreased the value of the portfolio and they got another call and so on and they were going from margin call to margin call until they lost it all and still owed the margin loan. You can utilise them for your benefit just make sure you thoroughly understand them and keep the LVR low and no matter what any advisor tells you you DO have to eventually pay the money back Personally I prefer and feel more secure using my own money and not to gear but your mileage may vary.

Cheers Al

[mikepologti]

wholly crap i had no idea i was surrounded by marketing guru's!

[brad]

I read recently that VW shares lost 8.31 percent when Qatar sold 25 million preferential shares. I know nothing about this stuff so I have a couple of questions for the knowledgeable out there

1. can the general public buy said shares?

2. consisdering VW just took over Toyota as the worlds number 1. auto maker is this a good buy considering the current drop in share price?

3. is margin lending a good idea?

.

1. You can buy VW shares but they aren't listed on the Australian bourse(sp?). You'll need to buy off a foreign exchange.

2. Only you can decide that. Any stockbroker that gave advice to you without knowing your financial situation, risk profile & investment goals would be breaching their licence terms.

3. I had a margin loan. It was good when the market was hot. Extra-bad when it was in freefall. I didn't cop a margin call because I was only at 50% LVR but it's mentally distressing having to pay 10%+ interest when your investments are achieving -10%.
margin Loans can also make you think that you are more cashed up than you really are (like a teenager with their first credit card). As a result, you may not apply as much scrutiny to your investments as you would when using your own cash.

Enough to say, I tried a margin loans for 3 years & am now back to $0 & building up my cash reserves for further investment.

[brad]

Margin Lending could be regarded by many as a terrific idea.

Why - because it gives you an exit strategy from the market, something which most people don't have.

In all market crashes (or individual share crashes) the buy and hold people lose bucketloads of money, whereas the margin loan investors (gamblers?) get out when they have lost say 20%.

Buy and hold can lose you 95% or 100%......

Can't quite see why you think this is the case.

People with stop-losses in place have an exit strategy. Margin loan gives you no such thing. maybe you could show me the exit strategy applicable to Prime(?) and those other scoundrels that offered margin loans and are being investigated at the moment.