General questions concerning shares

In addition to the reading Tropo linked to for you ...

If you are buying high quality stocks that aren't going to go bust and are looking to hold for a very long time, then now is as good a time as any to buy.

However, if you are borrowing to invest, or if you may need your money back within the next few years, then I'd stay out of the market - it may well drop another 20% before we hit the bottom!

There is a lot of uncertainty in the market at the moment. If you aren't sure you can beat the 7.5% you can get on cash in the bank, then just stick with cash - it's a sure thing (until there's a run on the bank )

Yield = income / purchase price

... there are two variables which determine the yield ... price AND income.

The yield goes up as the price drops, but if the income also drops, the yield will come back down again. The problem with this formula is that the "income" measure you have is based on historical data and/or forecasts for the future. Neither are accurate as far as determining what is a good price NOW - the data can be up to 6 months out of date!

The future potential of a company is very important - don't buy just because the yield is high, only buy a company with great prospects that also has a high yield.

Standard rate is about 1.1% including GST ... possibly more for lower amounts. Shop around - there are plenty of brokers out there to choose from.

It's all happened before - people generally have a short memory (about 5 years I believe is normal).

The big problem is that no two events are ever alike - at a longer term macro-level, there may be similarities, but at a day-to-day level, each market movement is unique. Nobody can tell you what the market is going to do tomorrow, but they can probably have a pretty good guess what it will do on average over the next year.

Most of the experts are wrong most of the time. All of them are wrong at least some of the time. Listen to them at your own peril. You need to learn to make your own decisions.

No - shares are issued when the company is created or during an IPO (initial public offering), or during some other defined share-issuing event. There is only ever a fixed number of shares unless new shares are issued. If new shares are issued for an existing company, it dilutes the value of the existing shares.

Two things - the fundamental value of the company (determined by the projected future income they are expected to generate), and market sentiment (determined by how much people are willing to pay over and above the fundamental value of a company). There are many different ways of valuing a company - but there are some basic rules that are widely used. The trick is that the fundamental value is not an absolute value - it changes over time as the performance of the company itself changes, and the future value of the income to be generated is based on projections, which may or may not be accurate.

Valuing companies is not a precise measurement - and market sentiment will have a larger impact on the short term value of the share price anyway.

eg. at the moment, sentiment is very much against the banks - nobody wants to touch them, thus share price is dropping. Based on current forecasts of income (and dividends to be paid out), the banks are exceedingly good value ... but the big question is - will those income predictions hold up, or will income drop (thus justifying the lower share price) ?? Nobody knows - and that's the whole challenge of investing in the sharemarket.

 

I type quickly