How does the sharemarket work?

No. It couldn't. How would a company continue to exist and continue to raise funds without the continued support of those willing to buy, hold and sell and trade.

Who would they sell to without a secondary market.

Not at all. They are both forms of investment.....just different.

Selling a house or an IP also exists because there is a secondary market.

 

That's the argument. Without a secondary market, companies are not able to raise capital by issuing shares.

True. The start of the whole argument was a claim that investing in residential rental properties is so harmful to the economy that residential rental properties should not even exist as an asset class in Australia. This ignores the fact that Australia has one of the highest rates of private home ownership in the developed world. But the whole argument was not based on facts, it was an emotional argument from the start.

True. I pointed this out earlier too.

In reality, residential rental properties do have some direct economic benefits, as do shares traded on the secondary market. In terms of rentals, for example:-
- an invester rate of interest which, in Australia, can be higher than OO
- property managment fees
- land tax
- work for trades (electricity, plumbing, lawnmowing, cleaning, carpet cleaning)
- building supplies for upgrades (kitchens, carpets etc)

The counter argument to this is that owner occupiers maintain and upgrade their homes at the same or at a higher rate than investors. My experience is different to that claim.

The other consideration is that residential rental properties provide a service (home) to people who choose not to buy an OO home or for people who can't afford to.

In any case, the entire argument is hypothetical. Reality is that residential rental properties will not be removed as an asset class and the secondary market will not be abolished.

Unresolved is, in terms of investment, what is Australias largest asset class?

 

If you excluded PPOR, probably the majority of Australians have more $$ invested in their Super than elsewhere.

 

Haha. That is what I said. I was sternly advised that super is an investment vehicle, not an asset class. lol

PPoR should not be included as an investment asset class because the ATO does not treat an owner occupied PPoR as an investment.

Here are my rough guesses:
- super is worth around $2 trillion
- an estimated 60% to 70% of super is invested in shares ($1.2 trillion to $1.4 trillion)
- Australians have an estimated $500 bn invested in residential investment properties (as opposed to OO)

That would make shares the biggest investment asset class. However, this comparison of value of shares vs value of loans. I'm not so sure that is a valid comparison although shares purchased in super are not likely to be leveraged?

It becomes quite a pointless argument after a while. The reality is there are benefits to shares and benfits to residential investment properties. Arguing about whether people should be allowed to buy residential investment properties won't change anything.

 

That is why I am so hesitant about considering the stock market as a long term safe haven.

Logical tells me that in coming years, it may be the worse place to be. Regardless of what's happening in China......or commodity prices........or will the EU survive. It's all those factors, plus Australians have the majority of their retirement funds invested in the stock market and a huge baby boomer population are going into retirement soon.

Hopefully, my concerns prove to be exaggerated.

But it worries me when I see so many posts on this site about "what is considered cheap" on the stock market......when the market is still in free fall. There are none of the tell tale signs that its over yet that I would normally look for.

Yeap - I know I sound like a day trader......because I use to be one.

I no longer have the patience or ability to deal with that level of stress any more. But, obviously, I still take an interest and keep informed........and invest/divest when I see the opportunity.

 

Only if my guesses are correct. I put about 2 minutes into researching those numbers so they could be completely wrong. I was going to look into it futher but a) no point and b) I got stuck into doing preliminary feasilibities on new development opportunities in my area.

I am looking at shares and development sites in Perth. The stock market is in freefall and the development site market in my area is in freefall. I find this a very frustrating situation to be in. I have the capacity to invest but I can't find anything to invest it in. #firstworldproblems

 

Then perhaps, you need to look outside of Australia. Look at where Chinese and other foreigner investors are placing their money.

Movements in foreign currency is telling you where the money trail is. It use to be in Australia........and now it is the US.

That is the beauty of the stock market. And it is beautifully complex..........it tells you everything you need to know if you have the time to appreciate it.

It is often too much to me....but it is so interesting and challenging. Well worth spending the time to learn about the stock market as it exposes you to so much about what is happening in the world.

And there comes a point in your learning that you can know the difference between hype and something that is probably closer to the truth.

 

@Ozzie in Texas, I'm not really interested in making any risky moves at this point. I feel like there are global financial issues coming up again. I'm thinking of a long play, like building an income stream from dividends of around $50,000 per annum in today's dollars by the time I retire (nominally 20 years from now). I was trying to think about how it might work if I invested a certain amount each year, for example invest $10,000 a year for 20 years, picking high yielding shares and set them all to dividend reinvestment. How much would I need to invest each year (roughly) to achieve this goal in 20 years time?

Assumptions:
- a diversified portfolio
- 3% annual inflation rate (goal income is around $90,000 pa in 20 years time)
- passive portfolio (I don’t want to spend hours a week running it)

I have the financial capacity to do this but I would have no idea where to start picking shares or how much I would need to invest. Knowing me, I would end with Dick Smith in my portfolio. Lol

I know this question is very much like the question, how long is a piece of string? We don’t know the dividend yield of the final portfolio (although we could aim for an average of 7%). The biggest issue is trying to guess average year on year capital growth for the next 20 years. Remember we are picking high dividend yield shares, so year on year capital growth is likely to be much lower than average.

My rough guess is, assuming an average 7% dividend yield and average 5% year on year capital growth, I would need to kick in about $17,000 per annum to build a $90,000 per annum income stream in 20 years time.

I don’t think this is a good idea though. I suspect I would be better off building a portfolio of managed type investments. However, as a thought experiment, if I was to attempt the above:
- how much at a guess would I need to budget to kick in each year?
- how would I pick the shares to buy?
- how much time would it take each month to manage this future trainwreck?

 

I wouldn't call it gambling. You only gamble when you enter. But what you do after you enter that's where one is making money and the others don't. I don't like shares and don't like property. But there are other instruments in the market that work very well if you have the necessary skills.

 

For someone starting from scratch, how long do you think it might take to build up the necessary skills? (assuming starting with the right mindset)

 

It all depends on what type of skill you are looking for. For some strategies (forex) 90% wins is good, for others 10% is enough. It all depends.
To be good at trading you must spend at least 10000 hours chart time if you use technical analysis. Some get it faster, some - like me - slower. I have spent 11 years before I started to trade the way I want to and still I want to be better. I'm still learning and will be learning 'till I die. It's a great pastime as well, helps you to shake your mind everyday.
If you are starting, be careful, there is a large amount of FREE and not free GARBAGE out there. If you are serious, start with baby pips.com, there is a school section over there and it's free. It'll help you discover the basics. After that we can talk more on what to do next. Believe me - not a lot of people went further than baby pips.com. Usually after that people say that's it's not for them.

 

Gosh, that is setting a mighty high goal for Perthguy. I agree that there is no way you could successfully trading forex without technical analysis. I been trading on and off since early 2000 and I've only dabbled a few times with Forex and it scared the bejesus out of me.

My prefer trading indices and sometimes play with commodities. The SPY is my fav.

I started my learning process with stocks. Studies the heck out of them until I understood and finally could see the patterns. Each one has their own rhythm.......but the underlining skill in reading their chart is the same.

I did not dare touch CFD's until I felt ok.....and in the early days, made tiny trades that risks a very small percentage of my overall trading account.

 

I have been doing CFD's about 10 years ago but switched to spot Forex in 07. I don't use any indices or patterns, only support and resistance and a few lines on a completely clean chart. 2 people see charts differently, sometimes on a 180 degrees basis and still both make money (one uses weekly charts, the other uses daily and they very often contradict each other).
If Perthguy is serious - he has a whole new world to explore.

 

I did a combination of CFDs on the real market to do short term trades on stocks, as well as synthetic (thru CMC) for indices and commodities, as well as bought stocks outright on a regular trading account (back in the days when not all stocks when listed/traded by CFDs).

Agreed. Like you, I also use support/resistance, in combination with a bunch of moving averages as further confirmation......and switch between all the charts depending upon time frame of trades.

While researching, you may want to check/join hotcopper as well. There are some decent traders who regularly post there and share their analysis on the XJO thread. I use to post there and learnt a ton from my old trading buddies.

 

It's not something I would just jump into... set up a dummy account, fluke a few good trades then set up a real money account. In a different area, I actually did this. I was lucky to walk away without having lost any of my own cash. Live and learn.

If I decide to pursue anything, I would want a solid 3 months minimum trading in a dummy account before I even decide if I want to pursue it further. Trust me, there is a very long time and a lot of work between here any my first real trade. It may not even come to that. There is a good chance that I might decide it's not for me.

On paper, I like my chances. I'm a quick study, exceptional at finding patterns and pattern matching and patient. We'll see if this goes anywhere.

 

I went through about a third of the baby pips.com school last night. I found it relatively straightforward. Do you have any suggestions for who to sign up with for a dummy account?

 

Hey, you are serious.
I stick to the local ones using MT4. Global Prime is one, Pepperstone is another. I'm not sure if they allow to have demo accounts for more than 30 days, until you open a live account with them. But if you open a live one and put a 100 bucks on it (not trading it), they will allow you to keep your demo forever. I hope that now it's the same as was when I started with them.
And REMEMBER, all education can be FREE or cheap enough. Just don't start trading LIVE until you are a killer on DEMO. It took me 10 years + to be on the same page as the ones that I have learned from.

 

Thanks @barnes. The reason for setting up a dummy account is that as I read things (theory), I like to see and do them. So I read about exectuting a trade and then go to my dummy system and execute a trade. I was thinking of Pepperstone.

Haha. I don't know at this point if I will ever trade live. I estimate it will take a minimum of 3 months of solid demo trading until I even decide if I want to pursue this further. IF I decide to pursue it further, I would demo trade for a lot longer than that before I decided if I wanted to go live. I'm not in a hurry to lose a lot of money

Also, I forgot to ask if you leverage or only use your own funds.

 

Some further reading
...for balance
Fooled by Randomness - Wikipedia, the free encyclopedia

 

Thank's @radson. I am very much aware of that, which is why I thought I would dummy trade for at least 3 months before I decide if I even want to pursue this. There is a reason why the trading web sites set up 30 day dummy accounts. That's enough time for people to get the hang of the system and fluke some lucky trades before thinking: hey, I'm really good at this and opening a live account and losing a lot of money.

Don't worry, I've been through the short dummy account, hey I'm really good at this, live account, lose money thing before. It was a total coincidence that I walked away without actually losing money. I was lucky because the money I was using to trade was in USD and the Australian dollar dropped. I made back what I lost on paper through the currency exchange and actually walked away slightly ahead. I would have made a lot more money if I had just bought the USD, sat around doing nothing and converted back after the AUD dropped

Still, it was a valuable experience and taught me I wasn't smart, it was totally random that I made some money and totally random that I lost it again. I didn't actually have any control over the outcome.

I won't forget that as I look further into this.