Australian Share Investing

At the end of last year, while most of the media were playing up the “doom and gloom” angle following a year of plummeting share prices, Julia Lee on the Web site compareshares.com.au was sensing opportunity:

Looking at the glass half full

Julia Lee, equities analyst, Bell Direct

How much further can the market fall?

The market is down almost 50% from the all time high of 6851.5 reached on 1st November 2007. Looking at it another way and with the market now at 3640, by the time the market has moved back to the all time high of last year, the Australian sharemarket would have gained about 100%.

That means that had you bought the market today, then by the time the market has climbed back up to last year’s November levels, you would have doubled your money.

Now the sceptics would probably ask how long would that take? After all a 100% return is no good if it’s going to take 100 years. Let’s look back into history to find out how long it took the market to recover from past collapses. If we look at the last 40 years, the most dramatic one was probably the crash in 1987. If you take the highest point in 1987 then it took bout 10 years before that point was seen again. 1974’s crash took 4 years before the high of that year was seen again. And the 1980/81 crash took just 3 years before new highs were once again being made.

And what about the 1997 currency crisis? Well that one took just one year before new highs were once again being made on the Australian sharemarket. So let’s assume that the market takes 10 years to recover. A 100% return in 10 years doesn’t sound too shabby. You can see why many value investors are calling the current market conditions, the opportunity of a lifetime.

Warren Buffett is probably the most successful investor of all time and he says: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful” How would today’s market be characterised? I would say that now is a time of fear. You only have to look at the rush into treasuries to see this. US treasuries are widely considered the world’s safest securities. Overnight we saw the US Treasury Department selling US$30 billion of 4 week bills at 0%. That means that investors were willing to receive no return in exchange for having their capital safe.

The problem is that most investors buy high and sell low. They buy when the media is reporting the market reaching new record highs and when every man and his dog seems to be buying stock. And then when the floor falls out of the market, they get fearful and sell probably near the lows. This is not a strategy for making money. The point of investing is to do the opposite and buy low and sell high.

The truth is that markets go up and markets go down. It’s normal and for anyone that understands this cycle, it represents enormous opportunity to profit from the cycles in the market.

It’s hard to be brave in a market that is fearful but it is the brave that will be looking back in ten years time and will be smiling from the ability to see opportunity when the rest of the world sees gloom.

technorati tags:australian, shares, stocks, trading, investing

During the long-lived “global financial crisis” bear market of last year I read many comments from disgruntled investors saying they would never again risk a penny in the stockmarket. I even read serious articles suggesting that this “crash” was the death knell of the capitalist system! But history shows that stockmarkets rise and fall, and sometimes very dramatically. Cycles in the market are natural, and in fact, inevitable. The trick is to respond to those cycles - not to try to avoid them.

(click to enlarge)

Any chart of a stock market index, or indeed of an individual stock, will show up and down trends. And smaller up and down cycles within those longer underlying trends. Where do these cycles come from? They reflect the fact that market prices are largely determined by human emotions. Principally the two warring emotions of fear and greed.

Up trends are perpetuated by investors wanting to capitalise on the rising market prices - we might say they are driven by greed. Investors are willing to pay more for a share they see as a good investment, and so prices continue to rise.

But eventually there comes a point where the majority of investors think the share price has gone too high and become overpriced, so they start selling to crystallise their profits.

To make sure their stock is sold, they are willing to lower their asking price, and the market value of the shares starts to fall - a down trend has begun.

The down trend is perpetuated by investors continually asking less for the shares to get rid of them before the price falls too low - in other words, fear now has the upper hand over greed.

Prices keep falling until eventually the pendulum has swung too far the other way - now the majority of investors see the shares as underpriced and the selling frenzy ends. Investors now see the stock as a bargain and start buying… the buying pressure starts the price climbing… a new up trend begins…

… and the whole cycles goes on and on.

Many investors just don’t seem to get this. When the market is falling for an extended time, as it did throughout last year, they act as though the sky is falling.

Did they really think the extraordinary bull market that preceded the so-called “meltdown” could continue indefinitely?

The reality is that it’s no more possible to have bull markets without bear markets than it is to have buyers without sellers - one is a necessary precondition for the other.

Some people can see this clearly. Even during the height (actually that should be “depths” ) of the bear market a year ago, this story in the Australian correctly pointed out to a shell-shocked reading public that historically, the market always recovers:

Climbing back after bear markets end

James Dunn October 15, 2008

THE journey of Australian investors since October, from hubris to nemesis, has probably changed the way a generation thinks about shares.

The spectacular pyre of $400 billion in stock market value has come as a particular shock to those who had only been share investors since 2003. In the five years to the end of 2007, the Australian market gave investors an average return of 21.2 per cent.

Counting dividends, the market appreciated by 160 per cent in five years. It was the best five-year period ever recorded on the Australian market.

Now the market is down 37 per cent from its peak on November 1, 2007. That means it must gain 58 per cent to get back into clear water.

Shell-shocked investors are asking, how will it do that? The first thing investors should look at is that the Australian market has never failed, following a slump, to regain and exceed its previous high point.

That’s the best thing that can be said about bear markets, says Shane Oliver, head of investment strategy and chief economist at AMP Capital — that they end. Since 1960, he says, bear markets in US and Australian shares have lasted an average of 15 months, with an average top-to-bottom fall of 32 per cent in the case of US and 34 per cent in the case of Australian shares.

The climb from the pits of despair to a fresh high for the index can be measured in years, but it eventually gets there. That’s why, since 1900, Australian shares have delivered a total return (capital growth plus dividends) of 12.4 per cent a year on average, according to Oliver. David Reid, managing director of research firm Andex Charts, has produced numbers that show quite starkly why the market’s relative cheapness makes it an attractive long-term investment — because it usually is.

Andex Charts has calculated the returns made by investments in the main accumulation index (share price growth plus dividends) of the Australian share market, made at every month-end since January 1, 1950, and held for 10 years. In the period to August 31, 2008, there have been 585 10-year investment periods — and not one had made a loss.

The lowest 10-year return was 2.9 per cent a year (for the 10 years ended September 30, 1974), while the best return was 28.7 per cent a year (for the 10 years ended September 30, 1987. The median 10-year return comes in at 13.3 per cent a year.

The most recent completed 10-year return — for the decade to August 31, 2008 — is 12 per cent a year. This is despite a 13.1 per cent fall in the last 12 months of that period. Reid says the index would need to have fallen by 66 per cent in September to produce a negative 10-year return.

The lesson in these numbers is that if you are certain that you can give a share market investment (that is, in the accumulation index) time, you can be confident that it will make money for you.

A financial planner would get into trouble for describing the share market as capital guaranteed but, statistically, the accumulation index is, if you hold it for 10 years.

Brian Parker, investment strategist at MLC Investment Management, says at the heart of the long-term performance of equities is a simple engine: profitable companies generating earnings and their retained earnings compounding, and as a result those companies growing in value over time.

“That’s what the share market boils down to — profitable companies reinvesting for growth. The share market at any point in time is just a snapshot of a large collection of businesses. Over time, the value of businesses tends to grow as population grows and technology improves and the economy grows, and the market is generally prepared to pay higher price-earnings (PE) multiples for companies that can demonstrate this growth.”

But the short-term performance of equities is driven by market sentiment, says Parker: the constant battle between greed and fear. When one of those prevails as totally as fear does at the present, fundamental valuation goes out the window.

“Market cycles of greed and fear and excessive optimism and excessive pessimism can greatly inflate or deflate the kind of market multiples that people are prepared to pay for businesses. Over the long term, the market should reflect the true value of businesses, but we’ve always known that in booms and slumps, the PEs over-shoot — as they’re doing at the moment. The Australian market’s PE is down to 10 times earnings — that’s the cheapest it’s been in 24 years. But no one is looking at the fundamentals — they’re simply dumping stocks.”

Parker says the long-term attributes of shares are why equities are given the biggest role in superannuation portfolios — because it’s the most reliable generator of long-term wealth.

“Superannuation is our longest-term asset, whether we like to acknowledge it or not. That’s why super portfolios in accumulation phase are 60-70 per cent held in shares.

“If you’re in the business of building wealth over the long term, what builds that wealth? In a free-market economy, ultimately it’s the businesses that make stuff and sell it for a profit that build the wealth. If you want to build long-term wealth, you’re going to have to get on that train.”

More…

It’s important not to become emotional when investing, and to remember that even those who stayed fully invested in the market during the “crash of ‘87″ not only recovered all the funds they lost, but benefited from the subsequent bull market - while those that panicked and sold out missed out on the recovery.

technorati tags:australian, shares, stocks, trading, investing

So I’m talking to my wife the other day about this new trading system I’m working on and, feeling pretty pleased with myself, mention that it shows a historical return on the total trading account balance of 4% a month.

You know what she says?

“Four percent?!… that’s pathetic!”

Always ready with a snappy comeback, I reply, “Huh?!”

“Four percent?!”, she says, “That’s like… bank interest!!”

“No, no, Sweetie”, I say. “Not four percent a year… four percent a MONTH.”

Her reply?

“So?! It’s still only four percent!”

Then, as I stare at her blankly, she goes on to ask why - if this trading stuff is so great - we don’t just draw our profits out of our trading account and live on them instead of working for a living.

“But Sweetie”, I stammer, “that would be crazy. Then we’d lose the benefits of compounding.”

Something about the way she snorted and rolled her eyes left me thinking she wasn’t convinced.

Now granted, my wife may not be the greatest mathematical mind of our time, but I don’t think she’s alone in underestimating the amazing power of compounding returns.

I, myself, have frequently been FLABBERGASTED by the difference compounding can make.

It has been claimed that no less of a mind than Albert Einstein once referred to compound interest as “the eighth wonder of the world”.

What’s so amazing about compound interest? Let’s take a simple example and see:

Let’s suppose all we have to invest is a measly thousand bucks. That’s it. One lousy grand.

But never fear - my wife helpfully assists us in locating a “bank” that will pay us 4% a month on our account balance (that’s a MONTH, mind you!) Oh, and while we’re at it, we may as well insist that this bank doesn’t charge any kind of fees - I’m sure that won’t be a problem

So we stick our thousand smackers in this “bank”, and lo and behold, each and every month we make 4%, or $40, on our investment.

Following my beloved’s sage advice, we promptly draw our forty clams out of our account each month and blow it on living the high life.

In fact, we’re having such a great time living high on the hog with our monthly forty bucks that we keep doing the same thing month after month for let’s say… thirty years.

At this point, worn out with all the non-stop partying, we take a look back and see how we’ve done with our investment.

Let’s see… we’ve drawn out $40 a month, for 12 months a year, over 30 years. That’s 40 x 12 x 30 = $14,400. Woo-hoo!

But wait… It gets even better! We still have our original thousand bucks sitting in our account. So actually we’ve managed to turn $1,000 into $15,400.

And just in time for the retirement home.

Hmmm.

Let’s see if we can do a little better…

Let’s start with the exact same scenario… We’ve got a mere thousand bucks to invest, and a “bank” that pays a lousy 4% a month on the balance, and of course, no fees.

But this time, we recklessly ignore the wife’s wisdom (don’t try this at home!), and foolishly leave our first month’s forty bucks sitting in our account gathering dust. We do this month after month for the very same thirty years, never drawing out a penny, each month earning a “pathetic” 4% on the account balance. (No, I love her, really I do.)

Now I’m going to ask you. How much do you think we will have in our account at the end of the thirty years?

Go on. Guess.

I dare you.

Take a stab.

… Then click on the piggybank to see the answer.

By the way, that Einstein “eighth wonder” quote is widely disputed, and he probably never said it.

But he should have!

technorati tags:trading, investing

If you’re just starting out with the sharemarket, you might be interested in this recent article from Brisbane’s Courier Mail.

The idea of investing a little regularly over time is a good one - it teaches you good saving habits and let’s you get started quickly without having to amass a fortune first.

Room for small investors

Noel Whittaker
March 10, 2007 11:00pm

PRIME Minister John Howard last week announced we had reached the stage where more Australians owned shares than were members of a trade union.

At the same time, share markets everywhere tumbled in response to a drop in the Chinese market – billions were wiped off prices. This is all good news. We urgently need to get Australians being comfortable with investing in shares because no other investment has the potential for big gains, or the flexibility that shares offer.

But investors need to understand that markets can fall suddenly, as well as rise, and that hanging on, or even buying, when the inevitable bad patch hits is the only strategy to adopt.

A major benefit is that the income from shares that pay franked dividends is tax-free for anybody earning less than $75,000 a year, while the ability to deal in small parcels makes it easy to minimise capital gains tax.

This flexibility enables investors to start small and fine-tune their portfolios when appropriate. It is a simple matter to sell $5000 worth of shares, but you certainly can’t sell the back bedroom of your rental house.

Many people start off borrowing for shares using margin lending. This is a strategy whereby you invest money in shares, or share trusts, using borrowed money with the shares themselves as the only security for the loan.

To protect its position, the lender will require you to maintain a margin between what you owe and the value of the shares. This is known as your loan-to-valuation ratio (LVR). The LVR varies between lenders and also on the type of shares bought.

For example, the LVR for blue-chip shares may be as high as 70 per cent; but for speculative shares, less than 50 per cent.

If the market falls, and the value of your portfolio falls to a level where you are below your LVR, you may receive a margin call. This is a request from the lender to provide additional security by way of cash or more shares.

If you cannot do this, the lender may force you to sell shares to reduce your debt back to within its agreed loan-to-valuation ratio.

The result may be that you are forced to dump quality shares at the worst possible time.

When possible, borrow for shares using a home equity loan. Then there can be no margin calls unless your property’s value slumps.

This may not be possible for everybody because they may not own a property or, if they do, the equity in it may not be enough to justify extending the mortgage. For them, margin lending is fine, provided their income is secure and their budget can handle the repayments.

But it would be advisable to adopt a conservative loan-to-valuation ratio, and reinvest all dividends to add value to the portfolio faster.

If you are just getting going and do not have much money available, a good option is a regular gearing plan whereby you invest, say, $300 a month and match this by up to $600 of borrowed money making a total investment of $900 a month.

After 12 months, you would have invested $10,800 of which $7200 is borrowed.

This provides a gentle introduction to share investing, and by investing every month you practise the strategy of dollar cost averaging that enables you to maximise profits if the market is falling.

Another option for those who wish to start in a small way, is to borrow $5000 or $10,000 by way of personal loan or credit card. If the loan is paid off within 12 months, the interest is minimal and the fact that it is tax-deductible means that the Government will subsidise up to 46.5 per cent of it.

This gets around the high minimum loan levels of many margin loan providers.

Above all, investors who borrow for shares should appreciate that it is a long-term strategy and it is normal for the values of share-based investments to rise and fall.

Panicking and cashing out when the market is having one of its normal downturns could cause a needless loss of money.

Remember, $200,000 invested in shares in August 1987, was worth $121,260 two months later. Today the same portfolio would be worth $1.21 million if all dividends were re-invested. Those who bailed out when the crash hit were the big losers.

Noel Whittaker is joint managing director of Whittaker Macnaught Pty Ltd, Australian Financial Services licensee No. 246519

technorati tags:australian, shares, stocks, investing

For those who are new to share investing, let’s take a look at some basics…

The most commonly traded share is called (surprise!) an Ordinary Share. When you buy a share in a company you own a portion of that company - and as a part owner (albeit a small one) you are entitled to a percentage of the profits (albeit a small one) which you receive in the form of a dividend.

And/or the company may choose to reinvest profits in the expansion of the company, the value of the company’s shares may rise, and you would benefit by a capital gain.

Dividends are normally paid twice a year and can be franked, unfranked or fully franked.  

Franked means that the dividend carries a tax credit to avoid double taxation - the idea being that profits on which the company has already paid tax, should not be taxed again when distributed to shareholders.

But the capital gain from owning shares can be much more valuable than the dividend income they provide.

You can’t buy shares in just any old company - only public companies that are listed on the stock exchange. Many companies are private; their shares are not available to the public to purchase. Public companies - being accountable to the shareholding public - have much more onerous disclosure requirements than private companies. Basically, they are required by law to let the public know what is going on within the company.

For example, the company is obliged to hold an Annual General Meeting (AGM) open to all shareholders to attend, and to supply an Annual Report to shareholders on the activities and financial situation of the company.

Say we have a private company that’s doing quite well and needs an injection of capital (cash) in order to expand further. Such a company has a couple of options.

One is to borrow the money - but then there is an interest cost.

An alternative is to sell part of the company. When shares in the company are offered to the public, it’s called “floating” the company. Companies float to raise capital for expansion.

Before floating, the company must present a prospectus to the Australian Securities and Investments Commission disclosing enough information to allow the public to make an informed decision about whether to invest.

Investors can then apply to purchase shares of this “initial public offering” (IPO). This sale is said to occur on the primary market - investors pay their money and the newly public company receives it.

These shares can then be resold on the secondary market where the shares are both bought and sold by members of the public - investors pay money for the shares and other investors receive it.

All this buying and selling is regulated by the Australian Stock Exchange. The ASX electronically matches up the buying and selling orders and otherwise administers the exchange of shares.

The price of the shares now rises and falls depending on what buyers and sellers can agree on. If buyers are more desperate than sellers they will pay more and the price will rise. If sellers are more desperate than buyers they will accept less and the price will fall.

This is a very important point - it’s the public perception of the value of the shares that sets their price, NOT the performance of the company directly.

There are many examples of leading companies with a strong market position, good earnings, sound finances and healthy dividends, whose share price nevertheless falls. And of companies with no track record, little in the way of physical assets, not making money, whose share prices go through the roof (the words “dot com boom” spring to mind).

To further your stock market education, did you know that you can take online classes from the ASX - for free! Here’s a list of currently available courses from their web site:

Getting started in shares
Beginner

This class gives a short introduction to the world of shares. If you currently don’t invest in the sharemarket or have limited involvement, then this is the place to learn more.

Starting in the sharemarket
Beginner

Are you new to investing in the sharemarket? Then this class is the right choice for you, covering more material than the Getting started in shares online class. Starting in the sharemarket will give you a clear and simple introduction to investing in the Australian sharemarket. If you start with a solid knowledge base when entering the sharemarket you will have more control over your financial destiny.

Tracking your sharemarket investment
Beginner

Being an informed investor means keeping track of what is going on in the financial world. Learn about the influences on the sharemarket and the basics of financial research including how to decipher a balance sheet and maintaining investment records.

Analysing and selecting shares
Intermediate

Equip yourself with the knowledge to perform the fundamental research and technical analysis required to select shares for your portfolio. Learn the concepts, strategies and tools necessary for researching potential investments. Understand the tools of fundamental analysis and how to examine charts for the trends that lie within.

Developing your investment portfolio
Intermediate

Successful investors have direction, discipline and a plan to help them meet their financial objectives. This class helps you to define the most appropriate strategies and asset allocation to suit your investment needs.

technorati tags:australian, shares, stocks, trading, investing

Most long term investors favour Blue Chip shares. “Blue chip” companies are large, well established companies that are considered to be strong and dependable, including such household names as Telstra, BHP, Woolworths and the ANZ, Commonwealth, National and Westpac Banks.

Such companies are generally perceived as reliable investments. But unfortunately, it ain’t necessarily so…

Consider again, Telstra. Here’s a chart of the price of ordinary Telstra shares (the red line) over the past five years - 2002 to 2006 inclusive:

(click to enlarge)

Telstra opened on the first trading day of 2002 at $5.43, and closed on the last trading day of 2006 at $4.14. Annualised, that’s equivalent to a loss of 5.28% every year for the past five years!

Amazingly, this performance occurred during the longest running bull market in the history of the sharemarket according to the following story published in the Daily Telegraph last July. (The green line in the chart above shows the spectacular rise in the All Ordinaries Index over the same five year period.)

Bullish run ’set to end’

Published in Daily Telegraph July 2006

WE are now in uncharted territory, according to Wealth Within chief analyst Dale Gillham.

Never before in the history of the Australian share markets, he said, has there been a bull run for as long as the one which we are experiencing now.

Mr Gillham said the run is now in its 40th month. Previously the longest run was 39 months and that ended rather spectacularly in late October, 1987.

Back then the market fell by about 25 per cent in one day and about 40 per cent over a month. Much money was lost.

Mr Gillham doesn’t believe the same fate awaits the market today. And he is not saying the market will fall into a bear mentality leading to a recession. Rather he said the days of high double digit returns and the safe environment for speculative moves are over. Although, as he concedes, we have never been at this point before therefore the bull run could still continue.

“But I believe the market is just about dead now,” he said. “I’d been expecting it to come in June. It hit 5352 on May 10 and I think that is as high as it will go. “July will still be bullish, but I don’t believe it will continue much longer.

[Seven months later the index reached 6000 points! - John ]

“Statistically the end of the bull run is indicated by rising commodity prices, rising inflation, low unemployment, lots of speculation and volatility.”

All these factors are present, with volatility - where the market is rising and falling by a full 1 per cent or more in a day - especially giving the share market an anxious edge.

Mr Gillham stressed that the market is in a much better position than it was in 1987 and there won’t be blood on the floor.

A bull market is defined as prolonged period during which market prices rise faster than their historical average. It can happen because of an economic recovery, an economic boom, or investor psychology. Some believe when the market falls by more than 10 per cent the bull run is over. Others say the fall should be 20 per cent.

A bear market is defined as a prolonged period during which prices fall in a mood of pessimism. It usually happens when the economy is in a recession and unemployment is high, or when inflation is rising quickly.

A correction happens when the period of falling prices is short and immediately follows a period of rising prices, such as what happened to our share market in May this year.

“Human emotions run the market,” Mr Gillham said. “If we are feeling optimistic we overbuy, if we’re not feeling optimistic we oversell.”

He says because of the rising oil prices and interest rates, people have less to spend in the shops, which in turn will affect retailers and manufacturers.

“And if people are worried about their jobs, they stop spending,” he said, adding the new industrial environment with the threat of pay cuts and job losses will contribute to a more cautious approach to money.

“When the bull run ends, a lot of people will lose their money if they don’t acknowledge the new environment, but smart people won’t.”

“People never buy shares for them to go down so they should be aware of what’s happening in the market.”

And more and more Australians are investing in shares than ever before. In 1991 less than two million had a money invested in the market; now it is about eight million. For these people, Mr Gillham was of the opinion the market will stay flat for 18 months to three years.

He also said managed super funds will struggle for the double digit returns they had for the past two to five years.

“All ships rise and fall on the same time. Smaller funds will do well and self-managed funds will too, but only if they know what they are doing.”

But you can still make money when the bull run ends, Mr Gillham argued. “The market is driven by the top 20 stocks. Small stocks can pull away but not affect overall market movements,” he said. “It’s a case of knowing what you are doing and knowing where to look.”

Bridges head of equities Peter Hilton was less pessimistic about the future. “I don’t think the bull market is over but we will revert to lower returns,” he said. “(But) we certainly will not have the high returns (from shares) of the past three years.”

Mr Hilton expected the market to move sideways where it will still be comfortable but will not offer the same spectacular double-digit returns of the past couple of years.

He suggested investors retain a long-term purpose. “If they’ve been speculating, then they’ve done well in the past few years,” he said, “but now is the time to rein in this activity and return to the fundamentals. And have some cash up your sleeves.”

CommSec’s Charles Hyde reckoned there is still room for growth in the market.

“I believe the year will end higher than it is now,” he reasoned. “The market is not yet stretched.

“There will not be the same sort of gains as in the past years, but I don’t see any reason why the market can’t deliver good returns.”

So whatever way the market goes, it pays to take heed of the two rules for investment from the small investors’ guru Warren Buffet.

The first one is don’t lose money. The second is don’t forget the first rule.

By Jenny Dillon

technorati tags:australian, shares, stocks, trading, investing

Another approach to the sharemarket is the short term trading approach. Traders monitor prices and actively buy and sell shares to profit from short term market movements.

As we have seen, this type of investing has been made accessible to the ordinary individual thanks to the Internet and the availability of share charting software for the personal computer.

Being an active trader requires putting in a day to day effort, but isn’t really that difficult and can provide much greater returns.

For example, look at this chart of Telstra ordinary shares throughout 2006…

(click to enlarge)

Telstra opened on the first trading day of the year at $3.94, and closed on the last trading day at $4.14. If you were holding this share you would’ve made 20 cents per share for the year or just over 5%.

But what we’re seeing here is not a nice predictable rise from $3.94 to $4.14 - the share price jumps up and down all over the place! That’s what we call volatility, and it’s the key to the short term trader’s profits.

Suppose instead of holding the share throughout the year, we had bought it every time it fell to $3.65, and sold it every time it went to $3.90…

(click to enlarge)

In each buy and sell transaction, or trade, we make 25 cents per share or 6.8%

And lo and behold, this happens not once but four times throughout the year. That’s a return on our investment of 4 times 6.8 equals over 27% for the year! - Even without allowing for the effects of compounding (reinvesting the profits).

Of course this is a contrived example - we wouldn’t have known Telstra was going to cross those particular levels again and again. But it highlights the potential profits locked away in short term price changes thanks to the volatility of the sharemarket.

Techniques exist to identify these short term trend changes as they happen - a field called technical analysis. By learning these skills, the short term trader has access to profits denied to the long term investor.

technorati tags:australian, shares, stocks, trading, investing