Thursday, November 5, 2009

How To Buy Shares In Australia

My sister asked me a good question the other day. She asked "How do I buy shares?"

Of course I launched into a long and detailed explanation involving dividend yields, return on equity and interest coverage ratios, at which point she interrupted and told me she just wanted to know how buying shares works - how you physically purchase them.

Buying stocks for the first time can be a daunting experience. There is a lot of new terminology which seems especially designed to confuse new investors. So this article is aimed and beginners who what to learn how to buy shares.

Thursday, October 22, 2009

Kathmandu IPO - Kathmandu Shares Set To Float

Hot on the heels of the initial public offering of Myer shares comes the Kathmandu float. It seems that the present owners of the outdoor goods and clothing retailer have judged that now might be a good time to sell down their stake given the recent strength in Australian shares and the high levels of demand being reported for Myer shares.

The Kathmandu prospectus is available from the kathmanduholdings.com website. The retail offer is set to open next Tuesday and close at COB on 6 November. The share offer is expected to raise between $278M and $375M through the sale of between 167 and 197 million shares at a price of $1.65 to $1.90. The proceeds of the offer will be used to pay down debt, fund the cost of the offer with the balance going to the present owners of the company.

Kathmandu was bought from founder Jan Cameron by Goldman Sachs JBWere and Quadrant Private Equity in 2006 and they are now looking at taking some money off the table. It has been reported that they may retain a stake of up to 15% in the listed entity but I suspect that will depend upon demand.

In order to buy shares in the offer you need to purchase through a broker who has received an allocation. There is some stock available to employees with the rest being sold in an institutional offer.

Kathmandu shares will be listed on both the Australian and New Zealand stock exchanges. The retailer operates 84 stores in Australia, New Zealand and the UK and is looking to open another 18 stores.

Monday, September 28, 2009

Myer Prospectus Released

Here is the latest update on the initial public offering of Myer shares.

Today the prospectus was made available for download on the Myer website. I have downloaded it and had a quick scan through.

One thing that struck me is that there is no application form. As far as I can tell, retail investors have 3 options to invest in the float:
  • as a staff member of Myer;
  • as a member of the loyalty card program; or
  • through an allocation from a stock broker.
If you don't fall into one of these categories, the prospectus says that you will be eligible if you're a member of Myer One loyalty card program on 23 October 2009. I guess that means you still have time to become a member.

The offer will be priced between $3.90 and $4.90 per share with the final price to be set upon completion of the institutional offer.

It seems that demand will probably be strong as I read in The Age today that 140,000 investors have pre-registered their interest in the share offer.

Wednesday, September 23, 2009

Myer Float - How To Buy Shares In The Myer IPO

Since my post yesterday on the IPO of Myer shares, I've had a couple of questions about how investors can get access to the float. As I mentioned yesterday, the strong brand name will probably attract lots of retail investors to the float and I guess people are worried about missing out.

According to the offer website, as long as you become a Myer One member by 5:00 pm on Friday 25 September, you will be eligible to preregister and have your prospectus mailed to you along with a personalized application form.

But I also read in the FAQ that you will not receive any priority by preregistering.

"If you apply for shares under the Myer Share Offer, you will be treated the same whether or not you have pre-registered."
So there appears to be no reason to panic just yet. Although there has been speculation that preferential treatment would be given to loyalty card holders, the information in the FAQ does seem to contradict this.

If you're worried about missing out, maybe the safest bet is to join up to the loyalty card program before Friday. That way you'll be covered if investors who preregister their interest in the IPO do receive preferential treatment in the Myer float.

Tuesday, September 22, 2009

Myer Shares Set To Float

It looks like Myer shares will once again be available on the Australian stock market. The Myer IPO (Initial Public Offering) could well be wrapped up by the end of the year.

According to the www.mypieceofmyer.com.au website, the group "currently intends to lodge a prospectus with the Australian Securities and Investments Commission for the offering of shares in Myer Holdings Limited on or about 28 September 2009".

With the ASX indices racing ahead over the past few months, it may well be an opportune time for the float, providing the Aussie sharemarket doesn't fall over in the next month or two. We've managed to get through the 1st anniversary of the GFC, but October has been a diabolical month for investors in years gone by - although not so much in recent years.

Pre-registration for the Myer float is only available to the company's staff and for Myer One loyalty card members.

The TPG (Texas Pacific Group) led private equity consortium took the iconic retailer private just over 3 years ago. Since then they have managed to increase profits and (not surprisingly) management say that recent trading has been strong.

The interesting thing for me will be the structure of the new listed entity's balance sheet - or more specifically, how much debt it carries. The modus operandi in most private equity deals is the use a lot of leverage (debt) in the buyout. Sometimes when the shares are floated they still carry a significant level of debt. Repco is one of those situations which comes to mind. The cyclic nature of retailing along with excessive debt can be a risky combination.

I suspect that the issue will still be popular though. It is a well known brand which along with some heavy marketing aimed at retail investors should ensure the Myer share float is successful.

Monday, September 21, 2009

Exchange Traded Funds - ETF Investing In Australia

My interest in Exchange Traded Funds has grown since I first wrote about asset allocation a few months ago. As you may recall from that post, I like the strategy as a way of diversifying away from Australian shares and as a way of making the investment process more objective and systematic. Anyway, this line of reasoning caused me to search for a cost effective and relatively simple way of implementing a fairly basic asset allocation - and the humble ETF fits the bill. 

What Are Exchange Traded Funds?

An ETF is an open ended fund which trades on the stock exchange (open-ended means that the fund can issue or redeem shares at any time). Most of the ETFs I've looked at are designed to track the price of a particular index. They are similar to shares in that you can buy and sell them through your normal stock broker. The only cost you need to pay is brokerage. Another way in which they are like shares is that they pay distributions in a similar way to which shares pay dividends. 

Wednesday, August 26, 2009

Best Shares To Buy Now For The Long Term

Many investors will be feeling bruised and battered after a year or two of punishing stock market conditions. Even those who don't purchase shares directly will be feeling the pain. Superannuation returns have plummeted and most managed funds have gone backwards as well. So how do we as investors go about finding the best shares to buy now that stock prices seem to have stabilised?

In this post I'd like to describe some of the criteria I look at when investing. With share prices cheaper than they've been in years (although not as cheap as they were in March) I think now is a good time to buy shares provided they are as a long term investment in a quality business.

Wednesday, August 12, 2009

Value Investing Podcast - The Value Guys

Who said value investing has to be boring?

If you're a stock market investor with a bias towards buying value, then The Value Guys podcast might be right up your alley. Although it's a sometimes light-hearted discussion of stock investments, the principles these guys apply when analyzing a potential investment are well worth listening to.

The two protagonists on this weekly podcast go by the names of Val Hughes and Vern Value (they're at pains to point out that thee names are not real). In each episode Vern and Val pick 3 stocks each which they think may be undervalued and put forward their arguments as to why this might be the case.

Although The Value Guys mainly discuss American stocks, those of us investing in the Australian stock market will still get something out of it. As I mentioned earlier, I find it interesting to listen to the way they approach valuing these companies. And they're entertaining as well.

You might also be interested on the Australian Stock Exchange podcasts and the Gannon On Investing podcasts.

Thursday, April 30, 2009

Buying International Shares

Should Australian's buy overseas shares as part of a balanced investment portfolio?

The Australian stock market is a very small portion of the overall investment universe - less than two percent, depending upon who you listen to. So today I'm going to explore why you might like to consider investing in international shares as well as a discussing some of the options.

The reason I started thinking about this was that I was recently reading about an investment concept known as asset allocation. The idea behind asset allocation is that you spread your investments across different assets classes with different risk profiles and for which returns are not always correlated. One of the asset classes suggested by many financial planners and other investment professionals is international shares.

Thursday, April 2, 2009

Asset Allocation - Investing By The Numbers

What is asset allocation and how can it make you a better investor?

I've been reading a lot about asset allocation lately. I don't recall what prompted this sudden interest. Perhaps it's a factor of age. My investment strategy has always been heavily skewed towards Australian shares, for a number of reasons, but mainly because shares traditionally have a good return when compared to other asset classes and although they are more volatile, since retirement is still a fair way off, I was happy to accept the volatility in exchange for higher returns. However, while retirement is still a fair way off, it's still something which I need to take seriously as the recent fall in world stock markets would have been disastrous if I was about to retire.

Sunday, March 22, 2009

Value Investing - Buying Shares For The Long Term

Investors buy shares in Australian companies for many reasons. Some buy stock in a company simply because they think the share price will go up, some may purchase based on the advice of their stock broker and some may even take the plunge based on a tip they received down at the pub on the weekend. However, today I'd like to discuss an alternative approach to the Australian stock market called value investing.

Value investing is an investment strategy or paradigm based on the teachings of Benjamin Graham and David Dodd going right back to the major sharemarket crash and subsequent great depression in 1929. In a nutshell, it involves buying shares at prices which are a significant discount to their intrinsic or underlying value based on fundamental analysis.

Thursday, March 19, 2009

Buying American Shares

Why should you consider buying US shares and how do you go about making your purchase?

The Australian stock market makes up only a couple of percent of world equity markets by market capitalisation while the US stock market is a whopping 30% (based on some figures I found relating to values back in early 2007). This is a marked contrast and may give you an insight into why you might consider buying American shares.

Apart from being a much larger stock market by market capitalisation and having an economy many times larger than Australia's, there are many more companies listed on US stock exchanges including some of the largest in the world.

Saturday, January 31, 2009

Are Directors Buying Shares In Their Own Companies?

Before deciding whether to buy shares in any given company, there are a number of things I look at. One of things I check out is what the insiders are doing. By this I mean looking at whether the directors of the company I'm interested in have been buying shares recently (or maybe selling shares instead). Since I invest on the Australian stock market, I'm able to find this information fairly easily as companies listed on the Australian Stock Exchange (ASX) are required to report directors transactions to the market.

So why should I care whether the directors are buying or selling shares? Well, the directors of any listed company have (or maybe I should say "should have") a pretty good idea of the prospects of their business. If they're buying shares then it's probably a sign that they are comfortable with the future of the company and see value in its stock at the prevailing market prices. Similarly, if you notice that a director is selling shares in their own company, it could be a sign of trouble to come - maybe they consider the stock to be over valued or they could be anticipating weakness in the business in the future. However, this is by no means foolproof. It's entirely possible that the director is selling just because they need to money for something else.

One of the more interesting Change of Director`s Interest Notice's issued last week was for Harold Mitchell who bought 295 thousand shares in Mitchell Communication Group Limited (ASX Code MCU). Mr Mitchell now holds in excess of 83 million shares in the company. The purchase price was around 45 cents per share and compares to a current price of 33 cents. MCU has traded as high as 99 cents in the last year after peaking at over $1.40 in 2007.

Mitchell Communication Group is a diversified media group and from what I understand, Harold Mitchell is known as a mover and shaker in the media buying industry within Australia. The most recent purchase is one of a number of recent acquisitions of MCU shares by Mr Mitchell.

Sunday, January 25, 2009

Ethical Managed Funds

What is ethical investing and why should you choose an ethical fund manager?

Ethical or socially responsible investing is not an easy term to define. I always considered it to mean not buying shares in companies which operate in sectors such as gambling, tobacco, alcohol and mining of minerals such as uranium which might be considered damaging to society or the environment. So I always figured that an ethical managed fund would be one which holds investments outside of these sectors.

Having done a done a little research on this topic, it seems that this area is more complex than I first thought. According to the Responsible Investment Association of Australasia, there are a number of methods which fund managers (or investors generally I guess) can adopt in their approach to ethical investments.

Broadly speaking, there are 4 different methods. These are Negative Screening, Positive Screening, Best Of Sector and Sustainability Analysis.

Negative screening is essentially what I've already described. The fund manager will simply avoid investing in certain sectors of the stock market like those I mentioned above, but beyond that, they can buy shares in whatever companies they like provided they don't operate in those industries.

Positive screening on the other hand aims to identify specific companies whose operations are likely to have a positive impact on society and the environment. I guess you could consider this a more active approach.

The best of sector approach does not discriminate between industries but rather will seek out investments, within each sector, in a company which is seen to be the most 'ethical' in that sector. So the fund manager may invest in a company within the gambling industry but they would choose the company which could be considered a leader when it comes to sustainability.

Finally, sustainability analysis involves analysis of the entire stock market using information from a broad range of sources then ranking companies based on a set of standard criteria.
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Within Australia, the main players in this space seem to be Hunter Hall and Australian Ethical Investment.

Hunter Hall run a number of funds and seem to have a bias towards value investing. According to their website, Hunter Hall employ a negative screen which "restricts investment in companies that derive revenues associated with the sale of armaments or tobacco, gambling, cruelty to animals, destruction of the environment and uranium mining". You can choose from both listed and unlisted funds.

Australian Ethical Investment offer 5 different retail funds and a superannuation fund. As far as I can tell they seem to use the positive screen approach to their investing. And I'm sure I read that both Hunter Hall and Australian Ethical Investment donate a set percentage of profits to charity each year.

An interesting piece of information I picked up during my research is that the name of the Marketing Manager of Australian Ethical Investment is Roger Green. Does anyone else find that amusing?

One thing I kept reading was that ethical managed funds are more likely to underperform the market because they are restricted in what they can invest in. Given the recent resources boom on the Australian stock market, I'd be curious to know how these funds have fared over the past few years when compared to their 'less ethical' peers.

But even if there was evidence of underperformance, I suspect that if, as an investor, you feel strongly enough about social issues or about the environment to choose an ethical managed fund, then wearing a potential performance hit for your beliefs probably wont bother you too much.

Monday, January 5, 2009

Australian Stock Market Floats For 2008

New company floats on the Australian Stock Exchange copped an absolute pasting during 2008. I can't be any more plain than that. Very few companies whose shares listed on the ASX during 2008 ended up which a share price exceeding the issue price.

Float activity was down on previous years as well, as measured by either the number of new issues or by the aggregate amount of capital raised. But this was to be expected. With the All Ordinaries down 43% for the year and panic stricken investors heading for the exits at the first sign of trouble only the very brave or very needy chanced their arm with an IPO. I suspect most executives who had intentions to float in 2008 would have delayed their plans until a calmer mood prevailed over world stock markets.

Measured by the number of new company floats, 2008 was a poor year, with only 72 new listings. This is the lowest since 2002 and is a far cry from the peak in 2007 of 242 new company floats. Also, only 2 billion dollars was raised last year - once again well behind the 9.7 billion dollar figure for 2007.

Of the 72 floats, only 2 finished with their heads above water.
  • Phosphate Australia (ASX:POZ) finished the year at 44 cents after listing in July at an issue price of 20 cents - an impressive 120% gain.
  • Heartware (ASX:HIN) finished up 20% at 60 cents after an Initial Public Offering at 50 cents in November.

An honorable mention should go to Tiaro Coal who have managed to break even by finishing the year at 20 cents - the same as the issue price back in March when the Australian Stock Exchange was first graced with it's presence.

After that it gets ugly. More than two thirds of new listings finished the year at less than 40% of their original issue price. The companies floated were mostly small with lots of mining and exploration plays amongst them. But there is one exception...

BrisConnections floated at the end of July at an issue price of $1.00. Since then it has plummeted like a stone to 0.1 cents - not $0.10, but $0.001 or a tenth of a cent. The company plans to construct a toll road in Brisbane connecting the Airport to some other stuff (I don't know the geography of Brisbane very well). I believe there are lots of tunnels involved.

BrisConnections has so far raised $400M out of its total $1.2B - and this is where it gets interesting. You see the shares (stapled securities to be more accurate) were issued on a partly paid basis with 2 further installments due (each of $1.00) over the next couple of years. This means the the purchase of each one of these securities at the knock down, bargain basement price of $0.001 buys you the obligation to stump up another $2.00 down the track.

I can almost hear your brain ticking over as you ponder that one. Let's say you have a lazy $500 to 'invest'. At the going rate of a tenth of one cent per security, your 500 dollars (plus brokerage of course) will buy you 500,000 of these little beauties. "Not bad!", you say. Then you do the maths and work out that over the next 2 years you'll need to fork out an additional 1 million dollars - that's $1,000,000 - to make the installment payments.

And just to make sure you are in no doubt as to your legal requirement in this matter, the kind folks at BrisConnections sent out a letter to shareholders early last month reminding shareholders of their obligation to make the installment payments. In the letter, they stated that "BrisConnections will take a vigorous approach to collecting any such outstanding payments."

Finally, I should point out that, despite the tone of this article, I don't mean to imply that all of the floats to hit the Australian stock market in 2008 were of poor quality, although I suspect some of them may well have been. Value investors would know that a fall in price does not necessarily mean the company is no good. On the contrary, value investors may well want to pick through the carnage of last year's IPOs to see if there are any hidden gems which may be worthly of closer inspection.

Saturday, January 3, 2009

Australian Stock Market Worst Annual Return Ever?

The Australian stock market gave investors a wild ride during 2008. It was not a year for the fainthearted. An investment in Australian shares as measured by the All Ordinaries index is down by almost 43% - that really hurts!

Graph of Australian shares for 2008Australian Stock Market Chart - 2008


The All Ords started out the year at 6,462.8 and finished at 3,659.3. Along the way it touched a high of 6,462.8 on the first trading day of the year before plunging to a low of 3,201.5 on 21 November. As far as I can tell, this is the worst performance recorded since 1900.

Australian Shares Not All Bad News...

Unless you've had to sell shares, the good news is that this is only a paper loss. Granted, it might be some time before the sharemarket regains the levels it was at in 2007, but if you have a long term view and focus on the fundamentals of the businesses you're invested in, there should be light at the end of the tunnel.

Even better, if you have cash available, there are some screaming bargains on offer at the moment. I think that prudent and discerning investors will do very well in Australian shares over the medium term. But I suspect there could be more volatility on the way.

The All Ordinaries has recovered slightly from it's low point in November but as we've seen in recent months fear and panic can wipe out any tentative gains in the blink of an eye. Baring any more catastrophes (by that I mean large corporate collapses or bailouts) the next interesting time will be when listed companies start reporting their financial results to the ASX in a month or two.

Until now, the market has been anticipating the impact of the global slowdown in economic activity. Once we start seeing some actual financial results, we'll have a much better idea of how the various sectors, and the individual companies within those sectors are faring.