Mum And Dad Go To Wall Street
Sun Herald
Sunday October 24, 1999
Australia's love affair with the stock market has reached the point where two in five of us now own shares. We're calling our brokers, learning the lingo, selling high, buying low. It's Struggle Street meets Wall Street and, with the market booming, the strugglers like what they see. But is the end of the good times in sight?
The eight women agreed to meet in the restaurant of David Jones' city store. Four nurses, a former physiotherapist, a teacher and two office workers came together with one thing on their minds - making money and lots of it. Despite the venue, they weren't interested in discussing the latest spring sale bargains. They had bigger, more ambitious plans. These eight women from Sydney's suburbs were going to play the stock market. Four of the group had little or no experience of investing in shares, while the other four had bought some shares before. By the meeting's end, the women, all aged in their 40s and 50s, had each contributed $360 towards the group's initial share investments. Stocking Up - the name they gave their investment group - was born.
Two years have passed since that first meeting. The women subsequently met every month and each contributed $70 to the Stocking Up fund on each occasion. Their meetings now take place at Epping RSL, in Sydney's north-west, and when they get together, a few women present research and the group discusses strategy. To date, their $16,000 investment has grown by more than 30 per cent. Not bad when the same amount deposited in a bank would have earned around four per cent.
"When we meet, we have fun but it's a business meeting," says group member Larraine Weir. "We review our portfolio every month and we've had a few guest speakers, such as a member of the Australian Shareholders Association and a stockbroker. The group is registered as a business, it has a tax file number, it's all been done properly," Weir adds. "Because eventually we hope it will have a lot of money!"
The number of Australians who hold exactly the same hopes for their share portfolios has recently skyrocketed. The so-called mum and dad investors have been bitten by the sharemarket bug so ferociously that Australia now ranks only behind the United States in terms of share ownership. Two in five Australians now own shares and 30 per cent of those own shares directly - up from nine per cent 10 years ago. Before this share rush, most Australians, like Stocking Up member Kay Brunner, 56, would never have dreamed of contacting a stockbroker. But not any more. "I certainly hadn't rung a broker until I rang our group's broker," Brunner recalls. "I was very nervous. But she got me over the initial bumps and afterwards I asked if she would do personal dealing for me. I still haven't bought or traded shares on the Internet. I've registered but I feel more confident with my broker because I know she won't let me do anything wrong."
Brunner says watching the market is exciting and feels her life has a new dimension. Her foray into investing in shares has taught her that it's best to be patient and not to panic. She has also acquired a vocabulary once reserved for inner-city yuppies, not middle-aged women from the suburbs. "I bought BHP at $12 and soon after they went down to $10.90," she says. "I thought, oh no, I've done my money! Later, I sold them at $17 - much against my husband's advice. They've been up over $18. But that was a pretty good profit."
Brunner has built her investments into a $30,000 portfolio. "I've done quite well. I think you should be very happy if you make 10 to 12 per cent on share money. Stocking Up has done much better as a group. We feel the added responsibility in a group and we are compelled to do the research. Or maybe with eight of us we come to the right conclusions. And maybe there's a little luck in it, too."
Tony Featherstone, editor of Shares magazine, attributes much of today's interest in shares to the spate of household-name floats that have caught the public's interest - everyone knows Woolworths, Telstra and the Commonwealth Bank. Secondly, these household-name stocks have performed "fantastically". He says, "These stocks have been a great introduction to the sharemarket for mums and dads. Plus the market as a whole for the past few years has been very strong.
"There is an enormous demand for simple information on companies - not everyone is an expert," says Featherstone, whose magazine, launched in 1996, has since reached a circulation of around 80,000 copies a month on the basis of simple, no-nonsense financial advice and share tips. It's not aimed only at people in business or finance, but at ordinary Australians who simply want to know which shares to take a punt on.
Other magazines targeting small investors include Personal Investor and Money, which launched in July, a spin-off of Nine's lifestyle and lucre television show. "Your average investor wants to know what products or services the company makes, its history and the people behind the company," says Featherstone. "When you present this information, people start to understand that they are buying a stake in the company that makes their toilet or their fridge or sells them food or electricity."
And while your average investor might struggle to make sense of a prospectus or company report, they do know what makes a good company. "A lovely old woman rang recently to discuss National Australia Bank," Featherstone says. "She had just invested in NAB shares but only after she opened a NAB account to see if the tellers were friendly. She decided they were and bought the shares."
About 40 per cent of Featherstone's readers are fairly new to the market, he says, which is hardly surprising - of the 1.3 million applications received by the Federal Government for the Telstra 2 public share offer last month, over 40 per cent were lodged by first-time buyers. It was a similar story with the 1998 float of AMP, which handed "free" shares to over 700,000 Australians who had never owned shares before in their lives.
And with more of us owning shares, the way shares are bought and sold is changing, too, as financial institutions realise there's money to be made by encouraging small, quick trades. Instead of charging the usual percentage commission of brokers, companies like the Internet trader etrade and Commonwealth Securities charge from $29 to trade a small-value batch of shares.
"In the past, a lot of broking firms devoted their time to higher net-worth clients and a lot of mums and dads were more neglected and didn't have the same access to the sharemarket they have now," says one broker with Commonwealth Securities. "Dealing with a broker meant fees of two per cent or more. Now fees have dropped and people can go on the Internet or phone a non-advisory broker so the stock market is much more accessible to everyone."
The catch to this bargain-basement trading is that it doesn't come with any advice - your $29 buys you a trade and that's all.
But that's exactly what electrician Dale Slater, 38, requires. He spends about an hour every two days on the Internet and does all his own trading. "I believe you're much better off doing your own investments than, say, going through property trusts and unit trusts. I've had some experience with them and I feel most fund managers don't do much better than the average person who has a bit of knowledge."
Not that he's always been hugely successful. His first foray was in 1987 - soon after he bought in, the market crashed and he lost around $2000.
"I had a lot of small parcels in small companies which have all changed their names or disappeared off the face of the earth," he says. After that, he and his wife, Jane, focused on property but then decided to take another shot at shares.
"I was very hesitant," says Slater. "I thought it was getting too late and that the market would crash in the last two years. It hasn't yet but I think it will before Christmas."
The Slaters are short-term investors. They borrow on their line of credit, dip into the sharemarket, gauge what's happening over a few weeks and, generally, make swift getaways with the profits.
"We're not prepared to wait long-term. We've got a young family (two children, aged three and four) so we have more immediate needs for our money. Also, I figure it's the end of the cycle. Because I was around in '87, I don't want to be around again."
The Slaters' first buy was in the initial Telstra float in 1997. "We sold a bit early but it's been our biggest profit. We made around $3500 and more than doubled our money. Earlier this year, we bought back into Telstra and sold six weeks later and made a quick profit again. We bought 1000 shares at about $8 and they then went down to $7.22, so we were a bit worried, but then they went up and we sold at $8.75, so we made around $750.
"We did the same on a share called ecorp. We bought just after it listed and sold three weeks later and made a couple of hundred again. We've done that a few times."
It's not behaviour that many brokers encourage - they will mostly steer clients to long-term stocks that should perform well regardless of market hiccups. But, says Commonwealth Securities client adviser Lawson Donald, "I have three or four clients who refuse to buy anything blue-chip because they think it's pointless. They're 100 per cent risk-takers and don't hold me to anything. Some have been pretty lucky. If a stock looks like it's moving, I'll get on the phone and mention it to them without advising them to buy it and often they'll say, 'Put $5000 or $10,000 on it.' They also have portfolios that deliver them dividends but I think they see this as an adrenalin rush.
"I also have a few clients who are getting on a bit in years. When I give them the spiel: 'Do you want something long-term?' a lot of the response I get is, 'Mate, there is no long-term for me. I pop the cork if I wake up in the morning. So buy me something that will triple overnight'."
Commonwealth Securities is now Australia's largest retail stockbroker in terms of clients (400,000) and number of trades. Advisers focus on portfolio building and long-term wealth creation for clients rather than overnight buying and selling but a few clients buy speculative stock - and some, says Donald, have hit the jackpot.
"We had one client who was very new to the market. He had shares in Telstra, Commonwealth and TAB, which he got with the floats and that was it. He decided he had a little money to invest and he wasn't overly concerned with security so he wanted part of his portfolio in a potentially high-growth stock.
"We recommended one stock called ERG Limited and he bought 10,000 shares at about $1.50 and went on holidays for two months. ERG had a spectacular rise and when he got back, he sold most for $6.20 so he made around a $47,000 profit. He was ecstatic. And he was able to pay off his Visa bill a little quicker!
"There's potentially a lot of money to be made but as we reiterate to every client, those profits can be mirrored by the same amount of losses. We tell that to every client, especially those who don't have much experience and see stocks going up and think it's a bonanza."
But are the punters worried? Not particularly, according to a survey carried out last year by the National Australia Bank that found more than two-thirds of shareholders were unconcerned about the possibility of a market crash.
No wonder Dr Steve Keen, senior lecturer in economics and finance at the University of Western Sydney Macarthur and self-proclaimed "Dr Doom", questions whether those who've paddled onto the wave are fully prepared for the ride ahead. "History shows that people buy into markets, not when prices are low and shares are a bargain, but when prices are rising. People jump on board to ride the bubble. And the bubble is there now."
Bubbles preceded the 29 October 1929 stock market crash - the 70th anniversary of which takes place this week - as well as the 1987 crash. The last big boom in mass share ownership occurred in late 1920s America. History tells us what happened next. In an opinion piece published by the Sydney Morning Herald earlier this year, Keen questioned the current trend toward mass share buying: "The classic remark from the Roaring Twenties was that when the bellhop starts to talk shares with you, it's time to get out of the market," he wrote.
"Today, nobody buys shares for dividends," he says. "They buy for capital appreciation. And how much capital appreciation can be left? It's the same as pyramid selling. Ultimately, you reach a point where you can no longer find buyers and then all you have coming in is the dividend stream, which is trivial."
Keen says an ominous sign that the wave is about to break is the amount of debt behind a lot of share buying. The Commonwealth Bank reported that personal lending was up to 90 per cent above the normal monthly rate before the Telstra 2 float, while other financial institutions said many Telstra-inspired investors were borrowing for the first time to buy shares. "When people borrow to buy shares, they still have to repay their loans if they lose on their shares," Keen says. "To do this, they sell other shares and the whole thing cascades through the market."
"Don't give the impression that you make loads of money from it," says Andrew Callaghan, who once made $5000 in three days when he sold shares in what he had thought was a dud mining company. "It's not as easy as the newspapers make out. The newspapers say 'profit! profit! profit!' I don't do that well."
When he retired five years ago, Callaghan, then 53, felt he needed something to occupy his time and keep his mind active. Turning a profit wouldn't hurt either. His solution was to take an interest in shares, which he did with gusto. Callaghan hired an office in a business centre and started going in every weekday from 8am to 2pm to keep tabs on his stock. "It gets me out of the house, it gives me a routine and it keeps me busy," he says.
Callaghan has also created a webpage (www.iisat.com.au) for small investors. "I created it for myself initially but it now gets around 10,000 hits a month and generates e-mails from all over the world." As another sideline, he charges a small amount to do Internet research for people and to show them how to use the Internet for trading, known as e-trading. "Most people I see trade much larger amounts of money than I do," says Callaghan, who has between $100,000 and $200,000 invested in about 20 companies. He is also happy to sell after making a 10 per cent profit.
"I give myself a maximum allowance to spend. It can be frustrating when I reach it and there's something I really want to buy. But I set myself strong rules and I won't borrow. There's no way I would risk borrowing on my house. You can lose it all. I once went to a seminar on a share-trading program and I left quite upset because in an hour and a half, the lecturer only mentioned loss once. People were left with the idea that it was not possible to lose money in shares."
Another recent convert to e-trading is Claude Cesario, 30. He was once too busy working to buy shares, he says, let alone trade them. As a senior manager in a large firm of chartered accountants in Melbourne, Cesario works 60-hour weeks. The Internet changed everything, however, and Cesario made his first share purchase online through the Commonwealth Bank's ComSec site in August 1997.
"I wanted to do something on the side to make money but it had to be on my terms. I wasn't happy about investing in property trusts or other investment funds. I like looking after my own interests because I believe I do a better job. I didn't want a broker because I like to place my orders in my own time. Online trading was exactly what I needed. I can also do it out of hours. After I put our baby to sleep, I might spend half an hour online."
Cesario's first purchase was $2000 worth of Coles Myer shares. He currently has small holdings with 14 companies. "I don't have any sentimental holdings. I buy them, wait till they go up a bit and sell. My view is if you buy and hold, you're not making anything because your money's stuck. If you sell, you've made money and you can buy more.
"We have bought shares that haven't done well. Spike was a major disappointment. It was a company which floated at the height of the e-boom. When it went to hell, a lot of others followed. On Spike, I would have lost about $450 but that's been offset by gains on others like ecorp, Coles Myer and Telstra."
Cesario and his wife invest around 10 per cent of their income in shares. "If we need money for some expense, we'll sell some shares and have the money in three days. Say if the car's died and we need $1500, we might sell shares to pay for it. Then when we have more money, we feed the share portfolio again. Overall, we've made a profit, not a great profit but we're certainly ahead."
So, too, are Peter and Pat Brownie but it took them six years to get there. "I lost a lot of money because I gave it to other people to invest,'" says retiree Peter. "I'm strongly against financial advisers - do it yourself! Don't pay them to do it."
How much did he lose? "I wouldn't put a figure on it in print, no way! But too much."
The Brownies, of Wollongong, knew nothing about the sharemarket when Peter retired from his job as an education lecturer. Peter was determined to invest his superannuation and live off the dividends. He says they are slightly better off than they would have been on the pension. But the benefits of investing have been more than financial.
"It has become an absorbing interest," Peter says. "It takes me about an hour a day, mostly reading. We don't take big risks. But we had to learn this. We had terrible experiences when we started. A broker told us to do this, do that, and we ended up with 20 small investments, selling and buying and not making anything."
The Brownies have encouraged their four daughters to buy shares. "We also have nine grandchildren and three or four of them have got started," says Peter. "I urge them, by the time they're 16, to have $1000 worth. If they save $500, we give them $500. They're not allowed to spend it. They have to learn about the sharemarket. If I had my teaching days over, I'd be teaching people to be financially literate."
"When I sold Caltex and bought Coles, I said to my wife, Kathryn: 'Oh well, we've just lost $300'," says truck driver Garry Maguire. "But if I'd lost $300 out of my back pocket, I'd think, strewth! When you buy shares, you have to keep in mind that tomorrow they may be worth nothing."
Garry and Kathryn are convinced the sharemarket is the best option for them. "Buying an investment property ties up a lot of money, whereas buying shares is just $1000 here and $1000 there," Garry says. "Putting money in the bank now is just a dead loss. You may as well put it into something worthwhile."
The Maguires now have 400 Telstra shares, 500 Coles Myer shares and around 3000 AXA shares. "AXA took over National Mutual Holdings and we had our superannuation with them. When they listed on the stock exchange, you could take cash or shares so we took the shares. Now we keep getting dividend cheques."
Garry puts his share certificates in the bottom of a drawer and pretends he hasn't got them. Then the dividend cheques are a bonus. "Buying shares and thinking you're going to make a killing is not for the small investor. That's for the big investors who trade every day and have a better idea of what's going on. They're the ones who will spend $500,000 on shares and keep them 24 hours and sell them. But even they can get caught out."
Garry likens buying shares to having a bit of a punt. Given the country's love of gambling, could this also help explain why we have embraced the stock market with such enthusiasm?
"Possibly," says the University of Western Sydney's Steve "Dr Doom" Keen: "But unlike a horse race, people think everybody wins on the stock market."
Dr Carolyn Currie of the School of Finance and Economics at UTS, rules out any connection. "Gambling is very much a luck thing," she says. "You toss the dice and it's to do with probability. With a company, you can make sophisticated analyses and gather a lot of information and it's a matter of timing. People just need to form simple decision rules."
Currie learnt her own decision-making process from her grandfather, a musician who also made good profits on the stock market. "He said, 'Whatever the broker tells you to do, do the opposite; whenever people buy, sell, and when people sell, buy; and when you've made 200 per cent, get out, because if you stay in to make 300 per cent, you may lose the lot'."
The Idiot's guide to trading up
Shares: If you want to play the Stock Exchange game, this is the way to do it. Those people who name-drop their share portfolios are talking about the financial interest they have bought in a company that gives them the right to "share" (aha!) in the profits. People who try to tell you they have a complex mix of stocks and shares have no idea because the two terms refer to the same thing. Anyone can invest in shares but there are many different categories. Beginners should start with bank shares and industrial shares before trying to tackle more complex areas, including international and speculative shares.
Bonds: Not Alan and his family but a financial system that allows companies, government authorities and statutory bodies to borrow money. They release a number of "bonds" to raise some cash but they must pay interest to the people who buy them and promise to buy back the bond sometime in the future. Bonds are loved by older people, especially retirees who buy them and live off the regular income. A good one for your grandmother.
The money market: You know when you're about to go on holiday to America and the US dollar suddenly surges against the Aussie? You can make money out of such movements. Some banks and institutions offer foreign currency accounts that allow you to "bet" that another country's money will go up or down against ours. (The Mexican peso is not recommended for beginners.)
Futures: This is an agreement to buy or sell something (anything) for a certain price at a certain time in the future. Sounds simple enough but it's probably the most risky game of them all. For you to win, somebody has to lose. Not one for the faint-hearted.
Warrants: A legal document that entitles you to buy a set number of shares or bonds at a certain price. Can be traded in its own right.
Options and derivatives: This is where things get really complicated. Unless you're an experienced trader with 100 silk ties in your wardrobe, don't even go there.
Funds and gains
* The latest Australian Stock Exchange (ASX) share ownership survey (October 1998) shows 40.3 per cent of Australian adults own shares, representing 5.5 million people.
* Thirty-two per cent are involved in direct share ownership (others own shares via investments in managed funds or they contribute extra to their superannuation and it is invested in shares).
* Ten years ago, the first thorough share ownership survey found just 9 per cent of Australians owned shares directly (it did not measure indirect ownership).
* Half of current direct share owners have only acquired shares since 1995. The big leaps have come with the privatisation of the Commonwealth Bank, Qantas and Telstra, and demutualisations like those of National Mutual and Colonial Mutual. When AMP listed on the ASX in June 1998, it added 730,000 first-time investors to the market.
* Previously, the highest number of new shareholders entering the market was through the partial float of Telstra in November 1997, when 559,000 of the nearly 2 million people who purchased shares were first-timers.
* Share ownership is highest among the 45-54 age group, with more than half owning shares. But so do more than one million people in each of the 25-34, 35-44 and 55-plus groups.
* On average, direct shareholders have three companies in their portfolio but 40 per cent have direct shares in just one company.
* Not surprisingly, the incidence of share ownership increases with household income. Yet there are significant levels of ownership at all levels. In households where the annual income is between $30,000 and $50,000, 45 per cent own shares. Where the income is less than $30,000 it is 25 per cent, and more than $50,000, 64 per cent.
© 1999 Sun Herald