Thursday, March 25, 2010
How to Find a Stockbroker
The Australian Stock Exchange's "Find a Broker" service is a great place to start your search for a stockbroker...
It provides a list of brokers and their Web addresses based on criteria you select, such as location and the type of securities traded.
If you're after an online broker, you can do an in depth comparison of the features and pricing of a range of brokers using a handy interactive tool on the InfoChoice site...
Once you've identified some likely candidates, I recommend you give them a call and try out their customer service. You'll want to find out
- their brokerage rates
- do they take orders by phone or online or both, and what's the difference in brokerage?
- are there frequent trader discounts?
- do they offer any value added services (company research, price alerts, dynamic market data)?
- will you need to set up a Cash Management Trust?
- what's the procedure for placing orders?
- the fee structure
- research resources available
- how are clients contacted (is there a newsletter, does the broker call clients)?
- access to new floats
- how often is your portfolio reviewed?
Saturday, March 13, 2010
Brokers - What to look for
It's a good idea to shop around a bit when looking for a broker. Different investors' needs will vary, but some things you might want to consider are
- Does the broker display a courteous attitude over the 'phone
- Availability of margin lending facilities
- Access to floats
- Ease (and promptness) of communication
- Brokerage fees
- Does the broker provide research and advice?
- Speed of order execution
Net a breath of air after stuffy full serviceOpening an account with a stockbroker is similar to setting up a bank account. Basically, you have to identify yourself and show that you are creditworthy.
John Synott From: The Australian February 14, 2007 12:00AM
CLINICAL psychologist Linda Chamberlain took her time coming to online stockbroking.
She says it was a breath of fresh air compared with the expense, and poor service of the so-called full-service broker she had been using since the early 1990s.
Her investing days had begun with a stockbroker friend of the family, but when he moved on there was little advice from his replacement while some hefty fees made her feel that she did not count much as a client.
Still, in that period, her blue chip portfolio had managed to almost quadruple in value. And her accountant had been urging her to borrow to invest in the share market to reap tax benefits and long-term share price growth.
In November last year, she took out a Westpac margin loan using her shares as security and has since bought BHP, Rio, Brambles and some bank stocks online using Westpac Broking ($24.95-$29.95 per trade).
In the swing now, she is going to buy $10,000 of another stock each month this year.
She uses the online broker's site for research almost daily and reads newspaper financial pages at least once a week. She also bounces off potential pick ideas with a friend, who has made good money borrowing to invest in blue chip shares.
Her own stock investing targets include Santos and David Jones, plus other names in the pharmaceutical and retail sectors.
"My intention is to invest my way through the share market's top 20 shares," Chamberlain says.
"My advice to anyone starting out is to read up on investing and the market. I would not buy anything unless it had a long-term record of making profits. Also, you have to be able to deal emotionally with taking on debt."
Yet, Kris Freeman, who runs her own national calendar company, has no complaints about her full-service stockbroker at ABN AMRO Morgans in Brisbane.
The money that had been sitting for years in a bank account with a view to buying real estate has earned 30 per cent in seven months from a dozen blue chip stocks. "I am not a savvy investor; I am naive about the stock market but that is a pretty good result," she says.
The stocks included AGL, Telstra 3, QBE, Woolworths, Westfield, NAB, and Babcock & Brown Infrastructure. Her broker (and financial planner), Susan Rallings, says it is important to spend time upfront to devise a strategy around what you are trying to achieve -- for instance, whether you are going to have a long-term portfolio or be a frequent trader.
"A lot of people feel they do not get the level of service they expect from a full-service stockbroker," Rallings says. "It's more than picking a few shares and hoping for the best."
As such, the fees, including a financial plan, were 1 per cent of the portfolio value, although 1.5 per cent is more typical.
Retail strategy manager at ABN AMRO Morgans Rebecca Sullivan says it can take work to find the right stockbroker as styles vary.
"Getting the right stockbroker, who is in tune with your approach, can take some searching around. We encourage people to speak up if it is not working out so we can find someone else who works for them, who they can bounce ideas off," she says.
"Other investors don't want advice and are happy to do their own homework and trade online."
Sullivan claims the thirst for quality research on stocks is bringing clients back from discount stockbrokers, as is access to floats -- of which there were 31 last year. One example was Ausenco, which started at $1 and rose to $4.
"Our research shows clients want more information, but they don't want to be told what to do all the time -- so they go online, but quality is the question," Sullivan says.
In any case, more and more investors are varying their investing mix to include some online share trading, says Brett Spork, Etrade CEO and a former Macquarie stockbroker. "I have money with two different managers but I keep a portion to manage myself, because I am looking for different types of returns from the rest of my portfolio," Spork says.
"The cost of full-service broking is increasing and to make money they have to have bigger and richer clients, thus sending the majority of clients to the self-directed channel.
"The challenge for online brokers is to provide these investors with research and information to make good-quality investment decisions."
While the booming stock market means easy, steady growth for online brokers looking to attract new customers, Gary Tilton, head of NAB Online Trading, still expects more clients to switch from full-service to online brokers when the market slows down.
"About half of NAB clients do retain a link with full-service brokers, especially for more ready access to new company floats," he says.
You'll need to have cash available for the broker to accept buy orders from you, so normally there will be a minimum amount of funds you will need to deposit into a Cash Management Trust (CMT) before you can begin trading. When you sell securities the broker deposits your cash into this same CMT.
And like your bank savings account, you'll earn interest on the CMT balance (though usually at a slightly higher rate than a savings account).
Wednesday, March 10, 2010
Penny wise and pound foolish?
While online discount brokers have become increasingly popular in recent years, there can be some disadvantages.
For example, despite the automation provided by the Internet, the sheer volume of orders attracted by such brokers can introduce a delay in the time it takes for your order to be filled. This could be a particular problem for short-term traders such as day-traders who rely on quick execution of their orders. They can't afford to wait too long for orders to be filled while the stock price continues to move.
To be sure, minimizing brokerage is an important consideration for frequent traders - but having orders filled promptly may be the more important consideration. Saving tens of dollars per transaction is not much comfort if it costs you hundreds of dollars because of slow order execution.
This piece from the news.com.au site looks at the pros and cons of online trading:
Online share trading can be a tangled web
By Anthony Keane From: News Limited newspapers August 10, 2009 12:07AM
TECHNOLOGY has made it easier than ever to buy and sell slices of Australian companies, but with the convenience has come complications.
Witness the online share trading disasters that occurred in the past year when inexperienced investors bought shares in Queensland toll road firm BrisConnections for less than 1¢, without realising each share came with an attached liability of $1.
The result was housewives who dabbled in day trading facing legal threats if they did not cough up millions of dollars in instalment payments on their shares.
The debt recovery action is continuing. Fortunately for the many thousands of Australians who continue to buy and sell shares online, the BrisConnections debacle was an exception rather than the rule.
According to the nation’s biggest online stockbroker, CommSec, 15 per cent of all stock exchange trades are now transacted on the internet.
For less than $30, people can buy anything from stakes in blue chips such as BHP Billiton and Woolworths, to speculate on tiny mining stocks.
"The key attractions remain that it’s convenient, it empowers the investor, and it’s cheaper," CommSec managing director Matt Comyn says.
He says people are trading more on laptop and hand-held devices including the iPhone.
"Look for a broker who focuses on customer service, is financially secure and has an established reputation."
People should be wary of hidden administration charges and fees for minimum dealing levels," Comyn says.
Customer support is important. Most dealings may be conducted via the internet, but call centre contact may be required from time to time.
"Individual experience levels will also be a factor. Beginners should look for educational material and support tools."
Online broker Bell Direct says the percentage of share market investors using online trading has jumped about 30 per cent since 2007-08.
Bell Direct chief executive Arnie Selvarajah expects the growth to continue. "People are feeling a lot more knowledgeable because so much has been written about the market in the past 18 months, he says.
"Some people are saying ‘why pay $100 for a trade when I can pay $15?’
"The information we are getting from the marketplace is that most people are thinking it’s about time to invest in shares, after they have been sitting on the sideline."
Selvarajah says online trades can cost buyers as little as onetenth the price of using a fullservice stockbroker.
"My biggest tip is for people to just do it," he says. "Create an account and get some money in it – $1000 or $2000 is probably plenty.
If you one day see an opportunity, but don’t have an account set up, you can’t take advantage of it.
"You don’t have to trade on day one, but get it set up." Selvarajah suggest beginners look for companies they are familiar with – including retailers such as Woolworths and the banks.
"There is a plethora of information available in terms of research that you can get for free and will help you understand the sectors of the share market.
"Most platforms give you some basic research on companies."
Predictably, full-service stockbrokers are not big fans of online share trading.
Bell Potter Securities private client adviser Andrew Gartrell says typically, online stockbroking does not offer added value such as advice on what to buy and what to sell.
"You work hard to earn your money and you should be getting advice on where to invest it," Gartrell says.
"Do you have access to research which supports the reasons for buying or selling? Online brokers generally don’t provide much in that way.
"They provide the platform to execute your trades but don’t provide the recommendations or supply the research."
Wednesday, February 24, 2010
Discount brokers are gradually coming to dominate the stockbroking scene. These are brokers offering a cheaper service where they are basically order-takers, processing trades without offering the advice and management services of the more traditional full-service brokers. As the name suggests, discount brokers are popular because they charge less per transaction. They can do this because they spend less time with each client, and so can serve more clients than full-service brokers.
The cheapest brokerage fees are for online brokers for obvious reasons - by placing your order online, you don't even need to speak to the broker and thus take up a minimum of his time. The broker can deal with a greater volume of clients simultaneously and therefore charge each less.
And there are benefits to online broking for the client too. Since they are keying in the order themselves, the client can be sure the order was entered correctly, and not misunderstood while verbally reciting it to the broker.
Increasingly these days, although discount brokers do not individually provide advice and research to clients, useful information such as market depth, company research reports and real-time price quotes are often provided for free to all clients via the the broker's Web site.
During the stock market boom a few years ago, discount brokers were fiercely competing to out-do each other with the additional value-added services they could provide to clients, as reported in this story published in the Australian:
Online trading goes for broke
Investors are the beneficiaries of an online arms race in stockbroking, John Synnott reports
From: The Australian February 14, 2007 12:00AM
MOST of us are happy to earn higher interest on our online savings accounts, and to use internet banking for bill payments and funds transfers.
It has taken a while longer for online share broking to catch on, but there's nothing like a booming sharemarket, in which double-digit returns have been the norm for several years, to inspire us.
Even traditional full-service brokers are doing well and claim to be winning back clients. There is plenty of action for investors in a market buoyed by takeovers and superannuation savings. Online broker E*Trade's customer accounts jumped 29 per cent last year.
E*Trade is countering rival Commsec's January offer to new customers of $600 in free brokerage on the first 12 share trades with its own $550 worth of free brokerage right up to mid-year.
Research offerings have also greatly improved in the past year. With competition intense, most mass-market online broking websites now contain in-house or independent buy and sell (or at least avoid) stock recommendations for investors who pay basic broking rates. That is, access to recommendations does not require you to be a frequent or professional trader.
Innovations are quickly matched in an online arms race to attract casual and professional traders -- with research, breaking news, interactive charting, real-time quotes and market depth, automated portfolio management, conditional orders and straight-through processing.
The result is a commodity-like sameness to online broking offerings, as the big banks behind them see the importance of keeping up with competitors.
Tuesday, February 23, 2010
How the Web has transformed share investing
Australia is a nation of share investors, with nearly half of the adult population investing in the market. But many don't have much idea of what a stockbroker does.
Shares are bought and sold on the stock market, but can you imagine how chaotic it would be if all the buyers and seller had to individually negotiate with each other.
In practice, the market is kept orderly by having licensed members (properly, "participants") who collect the share trading orders from their many clients and place them in the market to be matched by other orders.
Only stockbrokers are licensed to buy and sell securities on the stock exchange.
For this service of handling the transaction on behalf of their client, the stockbroker charges a brokerage fee.
Stockbrokers vary considerably in their fees and the services they offer. But they fall into two main categories - Full-service brokers and Discount brokers.
Full-service brokers are your traditional style of stockbroker and are also referred to as Advisory brokers. As the name suggests full-service brokers offer the most support to their clients - they can advise you on investment decisions, provide research reports, grant access to new floats and even offer complete management of your portfolio. As you would expect, they also charge the highest fees.
Discount brokers ("Non-advisory" brokers) are a relatively recent development in stockbroking.
With the advent of readily available trading information on the Internet, it's more common for investors to want to make their own decisions. Such investors only need a stockbroker to place their orders for them, rather than offer information or advice.
Five years ago the Melbourne Age reported on how the Web was transforming share investing:
Web untangles the art of share investing
April 30, 2005
The internet has revolutionised investing. There's even more traffic to share sites than dating sites, writes Peter Weekes.
Investors are no longer waiting for their brokers to return from lunch to place a trade. The internet has transformed the way people invest, sweeping away the cloistered old-school-tie network of full-service broking houses.
Today, with more Australians per capita owning shares than any other nation, tens of thousands of investors are turning to personal investment and finance websites for detailed analysis of stocks and, increasingly, to buy and sell.
"A lot more small retail investors are doing it themselves," says John Curry, deputy chairman of the Australian Shareholders Association. "The research on these websites is free and trading is a lot cheaper."
The growing popularity of these sites can be traced to the fact that more Australians are share owners than ever before.
The 2004 Australian Stock Exchange Share Ownership Study found that 55 per cent of adult Australians, or 8 million people, hold shares in their investment portfolio, up from 51 per cent in the previous year.
"We believe that this is the highest reported level of retail share ownership in the world," the report said.
It also found that after only about six years since the first appearance of finance sites, online trades accounted for 30 per cent of all transactions and 52 per cent of all retail trades.
According to Hitwise, a company that tracks visits to websites, traffic to the stock and shares category of sites has soared by more than 64 per cent since January last year. They are now more popular than dating sites.
Last week, says Hitwise's marketing manager James Borg, Australians visited 425 different share websites, of which only 146 were Australian. Interestingly, visits were evenly spread across all age groups before dropping away once investors reach 55.
"This is in contrast to most other online categories," says Borg.
e*trade's head of marketing, Richard Burns, believes the advent and popularity of online finance sites has demystified share transactions.
"If you look at where the whole industry was even just a few years ago, there was a real element of mystery around broking," he says.
"Full-service brokers were charging really high fees and customers didn't really know what was going on. Once people started getting on these websites to research companies and actually complete a transaction, they understand it."
He says many large investors would benefit from the services that broking houses provide, but argues small investors do not receive value for money.
Hitwise supports this claim, arguing small investors need only quick grabs of information, rather than an arduous session in some Collins Street office. It found that last week, the average session time at a finance site was only nine minutes and eight seconds.
Intense competition among the hundreds of personal investment websites has ensured that features are similar.
They can basically be divided into two categories: those allowing buying and selling such as CommSec and HSBC, and those that provide a more educational focus with links to allow trading, such as ASX and TradingRoom.com.au, owned by Fairfax, which also owns The Age.
All offer company-specific analysis, analyst recommendations, up-to-date prices and the ability to track a portfolio and graph performance against the indices. They also provide price-to-earnings ratios, access to company announcements lodged with the ASX and news. Most even tell you how deep the market is for a particular stock.
As well as shares, the sites also provide information on warrants, options and managed funds.
Those sites that allow trading usually also offers email and SMS alerts of stock price movements.
CommSec is by far the most popular site, snaring a 21.8 per cent market share. It is also the site of choice of the ASA's Curry.
"They go through maybe six analysts, they tell you how many analysts they've got, how many analysts have got it as a buy, how many have got it as a hold. There's a lot of information there, all the ratios, price-earnings ratios, earnings per share, those statistics are all there for the individual companies," Mr Curry says.
He also looks at some of the broking houses' sites but says they are in a different category, catering for more experienced investors who perhaps trade larger parcels.
"They're not aimed so much at the retail investor. They're good and they're probably more aimed at the investor who's been around for a while and who is doing business at a higher level, whereas CommSec will sort of do anything for you - $1000 and you're trading."
Still, online brokers do offer other benefits. For example, investors must deposit money into a CommSec or e*Trade account before they start investing.
However, HSBC's site is linked to its banking, allowing investors to simply purchase the stock when they want without transferring funds.
HSBC also allow investors to trade on global stock exchanges.
- with Gabrielle Costa
Wednesday, February 17, 2010
She'll be right!
It's often been said that Australia is a nation of share investors. So I guess I shouldn't be surprised that a study conducted in late 2008 - after a year of plunging share prices - found that aussies were relatively unfazed. Some 80% of participants in the study thought that it was a good time to buy or hold onto shares.
Here's the full story from Melbourne's Herald Sun:
Fewer Aussies owning shares after crisis
By Xavier La Canna June 23, 2009 4:24PM
THE proportion of Australians playing the stock market has dropped sharply due to turmoil in financial markets, but overall interest remains high by international comparisons.
The latest Australian Share Ownership study released on Tuesday showed 6.7 million people, or 41 per cent of adults, participated in the share market.
The figure was down from 46 per cent when the last study by the Australian Securities Exchange (SX) was conducted in 2006, and well off the 55 per cent peak in 2004.
But the data shows Australians continue to be among the most willing sharemarket investors in the world.
Australia is just slightly behind the US, where 45 per cent of households invest in shares, but well above other countries.
In Switzerland ownership in shares and funds was put at 21 per cent, while it was 14 per cent in Germany, and 18 per cent of households in the UK.
The drop in Australia's share ownership in the new study meant about 540,000 Australians had left the market by late 2008 compared to two years earlier.
"The decline in share ownership between 2006 and 2008 is also mirrored in declining ownership of all other key types of investments over the same period," the ASX study said.
"This suggests that volatile market conditions and a more pessimistic economic outlook have impacted on people's propensity to invest."
The study, which involved 2,400 adults and was conducted in November and December last year, divided shareowners into those who directly invested in shares, and indirect share owners who invest in an unlisted managed fund not part of a superannuation fund.
It showed that 36 per cent of those surveyed were direct investors, down from 41 per cent in 2006.
Some 40 per cent of Australian men were direct share investors compared to 30 per cent of women.
Those most likely to invest were aged 55-64 years and ownership increased in line with education and household incomes.
WA stuck out as the state with the highest direct share ownership, at 39 per cent.
Victoria and NSW followed, each with 35 per cent, ahead of Queensland (32 per cent), South Australia and Tasmania (each with 28 per cent) and the Northern Territory (18 per cent).
Of those who invested, 70 per cent were using online brokers, with that proportion rising substantially.
The study, which is the 11th in a series dating back to 1991, also found investors are developing transaction-based relationships with brokers, suggesting a greater self-reliance about financial decision-making.
The most likely source of information for direct share investors was newspapers, which 50 per cent used, up from 42 per cent two years ago.
The internet was also a rising source of company information, with 41 per cent using the web for advice and information, up from 30 per cent in 2006.
Despite the market turmoil in recent years, 43 per cent of those who participated in the study thought 2008 was a good time to buy shares, with another 37 per cent saying it was a good time to hold onto shares.
Just 15 per cent said it was a good time to stay out of the market and none said it was a good time to sell shares.
And for the first time, the study measured the attitude and behaviour of lapsed investors.
It found 15 per cent of all Australian adults used to own shares or listed investments but no longer do so.
But almost half of those lapsed investors were keen to return to the market at some stage.
Sunday, February 14, 2010
Opting out of the "meltdowns"
Up and down cycles are a fact of life in the stock market, and the reason is very simple - human emotion. Investors become caught up in a buying frenzy during the boom times, and panic-sell when the market starts to drop.
Take a look at this chart of the last quarter century or so of the overall performance of the market (the All Ordinaries Index) :
We see a history of ups and downs including
- a big crash in '87 that was felt around the world
- a boom in the late '90s as the Internet became a worldwide phenomenon (the "tech boom")
- a bursting of the bubble and unwinding of the tech boom early in the new century
- extremely strong returns on the Australian market starting around 2003
- and then... CrAsH!... 2008
Some people are still gun-shy about investing in the market following the "meltdown" of the "Global Financial Crisis" - but a chart like this tends to put things in perspective.
To be sure, the bear market of 2008 was indeed precipitous - but crikey! - look at the bull market that preceded it! Surely it's common sense that the steeper and more bullish the uptrend, the more severe will be the "correction" that follows it. Notice how steeply the market rose before the "crash" of '87. And notice also how that rise is dwarfed by the extraordinary bull market throughout 2003 - 07.
In fact, if we were to put a long term trendline on that chart...
... we can see that there is an underlying uptrend to the market that is still unbroken throughout its history (or at least as much history as you can get from finance.yahoo.com).
In other words, despite the eternal up and down cycles there is an underlying upwards movement of prices that continues beneath the "noise" of sudden volatile movements. Volatility is to be expected in the stock market - years of very strong returns are almost inevitably followed by dramatic downturns. But history shows that after the downturn has run its course, the market always recovers those losses in the long term. We can't know how long that will take, but we can be very sure that the market will not only eventually recover - but go on to make new highs.
You can't avoid bear markets altogether - but you most certainly can insulate yourself from them (or even profit from them).
I've written elsewhere about how easy it is, using free online tools, to determine in a matter of minutes whether the market is currently rising of falling. Applying just the one very simple technical analysis technique discussed in that article to a chart of the All Ordinaries over the past five years...
... makes it fairly obvious when it was a good time to be invested in the market (blue line above red), and when your money would be better off in cash or some other investment (red line above blue).