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!