I've been thinking about the share market

[Clockwork]

I'm not too knowledgeable about it but I've been trying to reason it all out and this is what I've come up with. Would welcome feedback from those more experienced in these matters.


So lets assume I own a business and I want to expand that business, I see an opportunity to increase market or productivity but I need finance to do it. The best option would be provide the finance myself (as the owner) but assuming that I personally don't have the funds I can go to a bank for a loan or I can "float" the company and allow others to buy a piece of my action.

I'd need to start by determining what the company is worth, adding up the sum of its assets/liabilities and taking in to account its operating costs, turnover, profit history and projected profit forecasts some sort of financial whiz presumably can determine what the total value of the company is. An investor comes along with the necessary funds and agrees to buy into the business and receives a shareholding equivalent to the investment made.

The money invested is put to use as required and the company's value raises initially by the amount invested plus some arbitrary amount based upon the expected returns to be made and the desirability of the shareholding to non-investors. This in effect is reflected in the company's new share price.

Once the company's shares start being traded, future owners aren't actually investing in the company at all they are merely speculating that the dividends paid or the increased desirability of the shares will provide sufficient return to justify their ownership.


Now we hear a lot about how it's important for the economy to have a healthy share market and the Government would encourage savers to participate but it seems to me that what they are really asking us to do is speculate our money by buying and selling shares, which doesn't in itself actually go to the companies being traded and is not used to further expand their markets or productivity. As such the companies aren't actually worth any more and neither is the nation's economy nut as more investors enter the market, the finite number of shares will increase in value simply by the laws of supply and demand.

It appears to me that the only people benefiting from such a market are the astute speculators and the Brokers and Dealers, if and when additional money stops coming into the market and supply starts to exceed demand the share values will drop. The dealers will continue to make money but the share holders will see the share value start to decline below what they paid for the shares. They are in effect the looses in this. The companies trade on, paying their dividends etc... but many poor saps will have bought at speculatively high price and in effect will find themselves at the end of some sort of pyramid trading scheme where the dividends really don't match the return they should expect for the money they paid (note, I wont use the term invested because no real investment was actually made.)

The way I see it, this sort of share speculation serves no productive purpose for an economy. Maybe the Government should look to reform the share market to encourage more "Investment" rather than speculation. It occurs to me that one way to do this may be to reduce taxes paid on dividends and increase taxes paid on capital gains through trading rather than capital gains through "investing"

Also, when a company does want to invest to increase its profitability how often does it tap it's share holders on the shoulder and say "hey bud, how about stumping up your share in the capital needed for this investment" rather than running off the nearest bank. If you can't ante-up get a loan or sell your shares to someone who can.


Following this line of reasoning I can not see what productive purpose is achieved through share trading, can someone please enlighten me? Like I've said earlier, I have no formal knowledge of this business and I know there are some real Brains Trusts that contribute to this board so I'd love to hear critique or suggestions from those wiser in the ways of the share market.

[oneofsix]

I follow your reasoning and personally agree on a level. I understand that the way the companies 'make' money from the share market is the banks look on the shares as a company asset or something, therefore the more the shares are worth the more the company can borrow. Thanks to our tax system the best way for a company to spend money is to spend borrowed money. All an accountancy fiddle IMO.

This has the potential to be a good thread once someone that actually knows this stuff posts.

[imdying]

Even investment is speculation. If you change how people can get their money out of a company at a time when they perceive they need to, they'll just put it into overseas companies instead.

[Clockwork]

Even investment is speculation. If you change how people can get their money out of a company at a time when they perceive they need to, they'll just put it into overseas companies instead.

You have a point about the overseas share market but I'm not suggesting people can't buy and sell shares, just that its less productive than we are lead to believe and that we should find ways to encourage investment rather than speculation.

As to that language difference, may be that's part of our problem, we have no real way of expressing the difference between the two activities, yet the purpose of which are entirely different.

[Grasshopperus]

IIt occurs to me that one way to do this may be to reduce taxes paid on dividends and increase taxes paid on capital gains through trading rather than capital gains through "investing"


Company owners would stop paying themselves wages and instead would pay themselves via share dividends which would be at a lower rate than normal income tax. How would you avoid this situation?

And you forgot the fun part of American style company ownership.
1. Buy shares in a company
2. Sue that company for 'failing to maximise profit'
3. Settle out of court for more shares
4. Rinse-n-repeat until you own a controlling share.
5. Appoint new directors
6. Get those directors to load the balance sheet up with loans and other debt which you siphon off as dividends and bonuses for your mates
7. Sell company to some dunce.
8. Buy a small tropical island.

[Clockwork]

Most shareholders wouldn't be on the payroll and anyway as long as each share draws the same amount of dividend for all share holders then, fair enough.

As to your other points, surely that just illustrates what is wrong with the share market any why many of us lesser mortals would be wise to avoid such speculation.

[aprilia_RS250]

Companies list in order to access extra liquidity and access to further capital. It's usually at a higher cost vs. debt. Look up pecking order in capital management.

Share market serves as a center where investors can sell and buy their ownership interests in companies they own. Remember primary reason to start a company is to make a profit, investors get their proportion of this profit through dividends, reinvestment into company and share price increases.

Speculators... i.e. day trader or someone who know nothing about valuing a company and decides to invest based on a price chart.... They make f*** all of all investors. ACC, NZ super fund, kiwisaver fundies, AMP, Tower, One Path etc etc make up the bulk of the market. They're in no way speculators. They spend billions in employing people who know how to value companies, know all there is about the companies assets, competitive strength, the management etc. Not only that they usually provide a lot of free advice for these companies in order how to manage their capital structure, strategy advice, opportunities etc. Why? In order to induce a higher share price and a better return for their clients which they pay their fees for.

Day traders actually help the market by creating tiny bit of extra liquidity. No one knows a rich day trader hence why they probably never will pay tax:shit:

[Grasshopperus]

Most shareholders wouldn't be on the payroll and anyway as long as each share draws the same amount of dividend for all share holders then, fair enough.


But every small business will be setup like that. Owner/Operator as 100% owner. Looks like it would be a nice tax dodge.

[Clockwork]

But every small business will be setup like that. Owner/Operator as 100% owner. Looks like it would be a nice tax dodge.

Or you could limit the tax breaks to dividends paid on listed shares.


Thanks for the input aprillia_RS. I'm sure you are right about the high volume professional traders. I guess I'm looking at it from the point of view of the so called "Ma & Pa" investors (God, I hate that phrase) They are the ones being encouraged into the market but I suspect all that will do will provide additional fleecing opportunities for the market wolves. As I said earlier, I just don't see how simply trading shares will ever prove beneficial to the country's economy. I fear the additional money simply serves to inflate the share price rather than grow the productive base.

[avgas]

Oh goody:wings:. A proper investment topic.
Will be back here later - gotta work right now

[Winston001]

Companies list in order to access extra liquidity and access to further capital. It's usually at a higher cost vs. debt. Look up pecking order in capital management.

Share market serves as a center where investors can sell and buy their ownership interests in companies they own. Remember primary reason to start a company is to make a profit, investors get their proportion of this profit through dividends, reinvestment into company and share price increases.

Speculators... i.e. day trader or someone who know nothing about valuing a company and decides to invest based on a price chart.... They make f*** all of all investors. ACC, NZ super fund, kiwisaver fundies, AMP, Tower, One Path etc etc make up the bulk of the market. They're in no way speculators. They spend billions in employing people who know how to value companies, know all there is about the companies assets, competitive strength, the management etc. Not only that they usually provide a lot of free advice for these companies in order how to manage their capital structure, strategy advice, opportunities etc. Why? In order to induce a higher share price and a better return for their clients which they pay their fees for.

Day traders actually help the market by creating tiny bit of extra liquidity. No one knows a rich day trader hence why they probably never will pay tax:shit:

10 characters. :niceone:

Clockwork - to understand how the sharemarket works, you need to differentiate between two types of buyers:



1.Traders who buy and sell hoping to make a profit, and



2. Longterm owners. People and investment funds which hold shares for years, sometimes decades.

Most of the noise you hear and read about sharemarkets revolves around traders who buy and sell in response to good news and panic. Despite the enormous amounts of money exchanged daily, traders only hold a small percentage of total shares issued.

The way to check this is to look at the number of shares traded on a rising/falling day and compare it with the average. The number will be above average but not 10 or 100x average. In other words, the amount of shares traded each day is a fraction of all the shares issued which tells us that most owners do not buy and sell.

Just as you do not buy and sell your house each day, most shares are held for the longterm. But there are a few people who try to trade houses and similarly some trade shares.

[Clockwork]

I accept what you say, but I am still questioning how share trading serves the greater economy. I realise that it is desirable for us as a nation to save and invest in the countries productive base but apart from the initial floats it seems to me that trading shares doesn't really do this. If we amateur investors simply pile in there with our spare savings the share values will increase simply by the laws of supply and demand without improving the productive capacity of those companies traded one jot. Indeed we stand to loose our savings to the more savvy traders out there!

That said and unless someone can explain to me why the above view point is incorrect, I'm just as keen to hear ideas about how things could be improved, whereby our savings actually will be invested in productive ways. For instance as I mentioned above may be "floated" companies should receive tax incentives to encourage investment. Or perhaps a nation full of self employed entrepreneurs paying less tax through their unlisted "company holdings" is a desirable outcome.

Perhaps a capital gains tax could be levied on gains made simply through share price fluctuations but then that tax rate diminishes over a term (say 10 years) thus encouraging long term investment/ownership and refocusing company owners on long term business strategies.

[Winston001]

To give you a live example, I still hold shares in ANZ and Fletcher Building (Fletcher Challenge) which I bought in 1980 when I started work. 30 years ago.


Why do we have sharemarkets? Liquidity and for raising new capital. For example, Contact had a new share issue at $5.05 a few weeks ago when the market price was $6. It was cheaper for Contact to raise $350 million by issuing new shares than borrowing from the bank. Interestingly Contact shares dropped to $4.90 a few days ago so the new shares weren't much good for traders...

Liquidity: your engineering mate needs an extra $50k to set up his new business so you take a 25% share to help him out. Three years later your daughter needs an expensive medical treatment overseas and you tell your mate you want the money out. He can't do it. You are stuck.

However if your mates business was publicly listed on the sharemarket you'd be able to sell your shares. You might make money, you might lose money, but at least you have a market to sell in. Being able to liquidate your investment is a very attractive reason to hold shares. By contrast selling your house takes months.

[Naki Rat]

An interesting point made by Michael Lewis in his book The Big Short is that ALL investment is essentially a gamble. You give someone your money and at some time in the future you expect to get it back together with some (winnings) interest. The extent of your winnings (and the likelihood of being reunited with the principal) are related to the length of the odds you are prepared to agree to. From government bonds on one extreme (US treasury bonds ?? :shit:) to sub-prime mortgage bonds on the other you pays your money and you takes your chances :shifty:

The Big Short (http://www.bookdepository.co.uk/Big-Short-Michael-Lewis/9781594134616) gives a unique insight into the dealings that led to the global credit collapse of 2008, and continue to affect global financial markets. It is downright frightening to read what incompetance and fraud exists in the upper levels of world financial markets, and by embarking on a foray into the stock market you stand to become a pawn to such traders.

[Clockwork]

I'm not questioning the purpose of the share market, I just don't understand why it is lauded as the driving force behind the country's economy. I think the rights issue is great, as with he initial float it allows new money to enter the market with a productive purpose. In fact I would have thought that such rights issues would be the first port of call when a company wants to raise capital, rather than the Bank.

Maybe there too, there is an opportunity to modify market behavior to favor of this sort of finance raising rather than borrowing from overseas owned banks.

[Clockwork]

The Big Short (http://www.bookdepository.co.uk/Big-Short-Michael-Lewis/9781594134616) gives a unique insight into the dealings that led to the global credit collapse of 2008, and continue to affect global financial markets. It is downright frightening to read what incompetance and fraud exists in the upper levels of world financial markets, and by embarking on a foray into the stock market you stand to become a pawn to such traders.

This is my biggest concern, I think the odds are stacked against the little fish, I even suspect we are encouraged to jump in to share trading simply to provide a food source for the bigger fish.

[Winston001]

To really understand shares and capital markets you need to read about them, and keep reading. Benjamin Graham is the font of wisdom but for simple common sense, Warren Buffet (who learned from Graham) is very readable.

Our discussion here for example tends to focus on recent events when really you need a 100 year (or more) overview of sharemarkets.

The Global Financial Crisis is simply the latest in a long string of boom/bust surges in economies. What's interesting about the GFC is it was caused by a global property bubble, not equity markets.

[Naki Rat]

To really understand shares and capital markets you need to read about them, and keep reading. Benjamin Graham is the font of wisdom but for simple common sense, Warren Buffet (who learned from Graham) is very readable.

Our discussion here for example tends to focus on recent events when really you need a 100 year (or more) overview of sharemarkets.

The Global Financial Crisis is simply the latest in a long string of boom/bust surges in economies. What's interesting about the GFC is it was caused by a global property bubble, not equity markets.
Good advice except that what is unfolding on world economic markets presently is largely unprecedented and therefore past experiences are unlikely to be an accurate indicator of the vagaries of current economic trends.

[short-circuit]

I think the odds are stacked against the little fish, I even suspect we are encouraged to jump in to share trading simply to provide a food source for the bigger fish.

Well duh, ya don't say :laugh:

[Winston001]

...I even suspect we are encouraged to jump in to share trading simply to provide a food source for the bigger fish.

No government, business journalist, or economist I've heard of has ever said the average person should get into share trading.

That is not investing.

[Jeremy]

No government, business journalist, or economist I've heard of has ever said the average person should get into share trading.

That is not investing.

Because horrifying things would occur to the government if the average person was clued up enough to invest on the sharemarket.

[avgas]

Because horrifying things would occur to the government if the average person was clued up enough to invest on the sharemarket.
Heh I giggled here.
Had an argument with a boss once as I told him quite bluntly we could run quite fine without the beehive. He (in his 60's) said "But we need the govt". I agreed and said as a whole we are too stupid to operate as a whole without them. Heaven forbid people having to put money where there mouth was :laugh:

Now back to topic.

Clockwork I have scanned through what others have said and what you have said.....and clearly there is a disconnect (no offense to others on here, as everything they have said is right).

Perhaps you are missing a clear fundamental.
- There are no (geographical) boundaries to business or investment

Markets exist so that something of perceived value can be traded. Share markets exists so people can "invest" in a chunk of business. They can be investors locally or internationally. They can be 1 person, or a whole global enterprise. A healthy share market is the sign of a good economy not because it shows the sharks are making money - but because people outside NZ invest inside NZ.

Think of it like income tax. A high national amount of income tax is good. Not because of the benefits and how it will help the govt and the needy. Not because it redistributes the wealth. But because it shows a majority of Kiwis are making good money and living good lives. If income tax (total) is low (like in South America) in comparison to its population, it shows people are poor.

Share markets are shown the same way. Its funny because many people are now investing in China and are happy with 4% return. Why? because the return of 4% is offset by the fact that its a consistent 4% for 20-50 years. When I was in China, every second person I saw was on a computer looking at the stocks.

We all have to trade somehow. Stockmarket is just a way we can show trades in a business. There are few limits of who can trade where. It is global.

As for share trading. There is someone who does this (trading) in every walk of life. Hell its the price of milk in NZ. Don't judge the stock market by the share traders, judge it by the companies your INVESTING in. This will give the most consistent return.
The banks will take your money and do it anyway.

But never invest anything ANYWHERE you can't lose. This includes banks.

[Clockwork]

Thanks for taking the trouble to reply folks. Maybe I misunderstood when successive Governments (by this I mean Treasury, Reserve Bank etc) have made comments to the effect that Kiwis need to save more. I'm pretty sure the Thatcher Government in the UK was definitely looking to increase domestic participation in the share market, perhaps I just imagined that our current Government shared this philosophy.

Certainly the media's obsession with world markets and share price indices gives the impression that the value of the share market is directly proportional to its productivity. I guess I have just been questioning if this bares any credibility

Regardless, if the Government wants to "liquidize" their own assets, they are going to need a large injection of funds from (presumably preferably, Kiwis). But even the floats they are proposing are simply the speculative type of investment I was trying to define in earlier posts. These businesses already exist and will not grow by virtue of their sale, any money raised by selling them will not increase the Nation's productive capacity.

All I guess I'm asking is, is this really the sort of saving/investing that we need as a nation? I suspect not but I'm open to being persuaded otherwise, I'd just like to see the the arguments.

[Indiana_Jones]

Would it be wise for a person to buy shares?

I have no idea how it all works

-Indy

[aprilia_RS250]

Regardless, if the Government wants to "liquidize" their own assets, they are going to need a large injection of funds from (presumably preferably, Kiwis). But even the floats they are proposing are simply the speculative type of investment I was trying to define in earlier posts. These businesses already exist and will not grow by virtue of their sale, any money raised by selling them will not increase the Nation's productive capacity.


The gov't is not selling the assets (partially btw) to "make them better". They're selling the assets to fix their own "gov't" books. When you're borrowing 1m a week, and your tax take is lower you need to raise some funds, hence asset sales. Nothing changes with the how the asset functions, merely only ownership structure.

[Clockwork]

I'm not questioning the Governments motives for selling them (although I don't agree with them) I'm questioning the perceived benefits to the nation of buying them.

[aprilia_RS250]

I'm not questioning the Governments motives for selling them (although I don't agree with them) I'm questioning the perceived benefits to the nation of buying them.

Well wouldn't you prefer to have an option?

If the govt doesn't sell assets then you as a tax payer indirectly own the asset and the revenue from the asset goes to govt accounts and they decide what to do with it.

Once the govt puts the asset up for sale, you have the option to buy in. If you think the price offered is tasty then yeah dip in, otherwise do nothing.

So given the govt will put up the asset for sale it gives you an option to decide how much of this asset you want to own. Also as the govt sells the assets they use the funds to reduce their debt, again this is good for you as you know you won't be chased by the govt later on and have your taxes increased to help lower debt burden.

If you have ever done an accounting course you know that Assets = Liabilities + Equity. What the govt is technically doing is reducing the Asset part and simultaneously reducing the Liabilities part, why? Because the Liabilities part is getting too big for the govt. Key has looked at the books and probably shit himself. Someone's done some sensitivity analysis and gone, "hold on, we're loaning millions a week from China etc at super low interest rates, what happens once the world starts improving and yields go up given NZ's revenue won't dramatically change" . What you need to do the is start reducing your debt burden.

So the impact of not selling any assets and continuing to borrow and facing interest rate hikes will more than likely cost us more in the future than not doing anything...

[Clockwork]

I'd love to debate your points further but that's the subject of another (now deceased, thread). I'd prefer to keep this thread on topic and hopefully more philosophical than political.

Cheers

[avgas]

The benefits are simple.
Local control. Not govt control, not overseas control but local control.

You could argue that the govt answer to the people and selling the assets on the market will mean the average person gains nothing.

But how much are you paying for rego now?
The govt stopped listening a long time ago.

People don't just buy shares on speculation. They buy because they want to invest in a companies ideas. Or they buy to get some form of control over the company.

Wouldn't you like a bit more control over your power bill? That can be arranged. Simply buy some shares and you then get invited to a shareholders meeting. Then just take a loud voice.

Unfortunately it works like this in most situations:

- Shareholders

then

- Management

then

- Stakeholder concerns (customers etc)

So if you don't have investment, its very hard to get a point across to many companies. Not impossible, just hard.

[steve_t]

Is anyone considering buying shares in Tardme?

I have what I'd consider a small/modest share portfolio. I also have mortgages and business loans. Hindsight tells me I'd have been better off putting the money towards reducing these loans but I'm hesitant to 'realise' any losses I have made over the last few years. As long as I hang on to the shares, the losses remain paper losses.

BUT the thing I realised was that buying shares invests your money into someone else's business. If you're a business owner, why would you invest your money in someone else's business when you could be investing in your own?

[Winston001]

Is anyone considering buying shares in Tardme?

I have what I'd consider a small/modest share portfolio. I also have mortgages and business loans. Hindsight tells me I'd have been better off putting the money towards reducing these loans but I'm hesitant to 'realise' any losses I have made over the last few years. As long as I hang on to the shares, the losses remain paper losses.

BUT the thing I realised was that buying shares invests your money into someone else's business. If you're a business owner, why would you invest your money in someone else's business when you could be investing in your own?

You are correct. The best form of saving is to pay your own debt off.

On the other hand, if you invest in shares/bonds you are spreading your risk. The shares may rebound while your business remains flat.

Still, you should back yourself which means concentrating on repaying your loans. Personally I wouldn't sell the shares today because they will be undervalued, just be patient. Or sell those companies which haven't improved over the last 5 years.

[Winston001]

Maybe I misunderstood when successive Governments (by this I mean Treasury, Reserve Bank etc) have made comments to the effect that Kiwis need to save more. I'm pretty sure the Thatcher Government in the UK was definitely looking to increase domestic participation in the share market, perhaps I just imagined that our current Government shared this philosophy.

No, you are right the government does encourage share investing. Not trading - there is a big difference. For example, all of the Kiwisaver funds buy shares. The Cullen Fund (NZ Superannuation Fund) buys shares. Each of us should own some shares as part of our own savings plan, the easiest way being to use an investment fund rather than buying individual stocks.




...if the Government wants to "liquidize" their own assets,... But even the floats they are proposing are simply the speculative type of investment I was trying to define in earlier posts.



NO. WRONG. FAIL. :D

Buying 49% shares in electricity companies is about as far from speculative investment as you can get. Energy companies are regarded as dead boring, safe, and solid investments. The type of share investors you keep thinking about - the speculators - do not have the faintest interest in utility stocks.

As for new investment - earlier I mentioned Contact Energy issuing new shares to pay for a wind farm. If Contact was still govt owned then they'd have had to borrow the money and increased govt debt. So we might see a part-privatised Meridian do the same.

[avgas]

Is anyone considering buying shares in Tardme?
At $700(+!)m for a company that only really trades in NZ. I would consider them overvalued.

Simple maths really 4 million people. A valuation of 700m over 3 year repayment period (tech firms) = $116m year / 4m people = $29 made off every person in NZ per year. How many people in NZ don't have computers, trademe accounts, the ability to use their own hands........ drags that average made off each person closer to the $100 figure.

But then again is has been the stablemate on online trading in NZ for 10 years now.......But I doubt they will sell for less than $800m.......which makes it more crazy.

[Banditbandit]

At $700(+!)m for a company that only really trades in NZ. I would consider them overvalued.

Simple maths really 4 million people. A valuation of 700m over 3 year repayment period (tech firms) = $116m year / 4m people = $29 made off every person in NZ per year. How many people in NZ don't have computers, trademe accounts, the ability to use their own hands........ drags that average made off each person closer to the $100 figure.

But then again is has been the stablemate on online trading in NZ for 10 years now.......But I doubt they will sell for less than $800m.......which makes it more crazy.

It's not that simple - Trademe also sell advertising space ... so there is another income stream .. when I look now I can see AA Insurance and Rugby World Cup ads on screen ... this is possibly the more lucrative income stream ..

Trademe is owned by Fairfax, a newspaper company that is well aware of the balance .. a newspaper basically gets 20% of its income from paper sales (subscriptions and counter sales) and 80% of its income from selling advertisements ... I have no idea what the Trademe balance is .. but I bet Fairfax knows ... and makes a profit. In fact a quick look around the net tells me that Trademe is Fairfax's only profitable endevour ...

If you go the other way and say that a $700m company should be making at least bank interest rates (otherwise why have a company? - just put your money in the bank because you'll earn more) then a $700m company should be earning $35m per annum at say 5% return.

Trademe has 5.5 million auctions per month (phenominal) ... or 66million auctions per year (5.5 X 12). At earnings of $1 per auction that makes $66million - now the cost of a Trademe aution is more than than $1 ... then there is Trademe's percentage of any sale ... So you have that income, and when you add the income from advertising then take out the costs, $35million states to look realistic.

So no, I don't think the company is over valued.

[steve_t]

Fairfax Media slumps to $490m loss

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10747544

[Clockwork]

The benefits are simple.
Local control. Not govt control, not overseas control but local control.

You could argue that the govt answer to the people and selling the assets on the market will mean the average person gains nothing.

But how much are you paying for rego now?
The govt stopped listening a long time ago.

People don't just buy shares on speculation. They buy because they want to invest in a companies ideas. Or they buy to get some form of control over the company.

Wouldn't you like a bit more control over your power bill? That can be arranged. Simply buy some shares and you then get invited to a shareholders meeting. Then just take a loud voice.

Unfortunately it works like this in most situations:

- Shareholders

then

- Management

then

- Stakeholder concerns (customers etc)

So if you don't have investment, its very hard to get a point across to many companies. Not impossible, just hard.

I wish this were true but I'm less than convinced. I understand that some shares carry no voting rights whatsoever. This must be true 'cus I have shares in my employer and I aint never been invited to an AGM or asked to vote on any matter yet!.

I've also seen the news reports of (notably) Contact AGMs.... where the board have all given themselves nice fat pay rises and the "Ma & Pa" shareholders have fronted up to tell them what they think of it. The smug look on those pricks faces as they sit there and let the anger wash over them knowing that hey have the support of their brethren institutional investors "So who gives a fuck what you suckers think" is burned indelibly into my psyche.

[Banditbandit]

Fairfax Media slumps to $490m loss

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10747544

Yes .. if you look at other pieces tho' TradeMe is their only profitable division ..

Read this one

http://www.guide2.co.nz/money/news/business/fairfax-new-zealand-profit-down-trademe-profit-up/11/5793

[steve_t]

Yes .. if you look at other pieces tho' TradeMe is their only profitable division ..

Read this one

http://www.guide2.co.nz/money/news/business/fairfax-new-zealand-profit-down-trademe-profit-up/11/5793

Another noob question but is a publicly listed company normally worth 20x EBITDA?

[avgas]

I wish this were true but I'm less than convinced. I understand that some shares carry no voting rights whatsoever. This must be true 'cus I have shares in my employer and I aint never been invited to an AGM or asked to vote on any matter yet!.
If that is the case talk to the other shareholders. Its lack of notification like that that gets CEO's fired. I have seen it happen many times before. Soon as the shareholders get smart the pigs get sent to slaughter.

I've also seen the news reports of (notably) Contact AGMs.... where the board have all given themselves nice fat pay rises and the "Ma & Pa" shareholders have fronted up to tell them what they think of it. The smug look on those pricks faces as they sit there and let the anger wash over them knowing that hey have the support of their brethren institutional investors "So who gives a fuck what you suckers think" is burned indelibly into my psyche.
That simple pull money out. Like power, money is often given and rarely taken.
The weakest thing a ma&pa can do is not pay attention to their investment and sit on the hands.

Investment is more than just money.

[avgas]

Another noob question but is a publicly listed company normally worth 20x EBITDA?
Short term (volatile or tech stocks) - no.
Long term strong growers - yes.

People make money in tech stocks if they fly. 90% flop.

Most safe investments look for a payback rate (i.e. 100% ROI) around 3 years for tech stocks and around 5-10 years on non-volatile ones.

[avgas]

Yes .. if you look at other pieces tho' TradeMe is their only profitable division ..
Read this one
http://www.guide2.co.nz/money/news/business/fairfax-new-zealand-profit-down-trademe-profit-up/11/5793
At 5.2%.......

[Banditbandit]

At 5.2%.......

Yeah ... I'm no good at maths .. which is why I used 5% in the post above instead of 5.2% .. it's still better than bank interest rates ..

[Winston001]

I've also seen the news reports of (notably) Contact AGMs.... where the board have all given themselves nice fat pay rises.... they have the support of their brethren institutional investors "So who gives a fuck what you suckers think" is burned indelibly into my psyche.

There is a strong movement internationally by "ma and pa" investors to restrict directors fees and massive CEO salaries. So you are right and many people agree with you. The institutional investors are hardnosed too.

The thing about Contact is that its a successful company so it is hard to deny increased directors fees. Origin holds a big chunk so if they thought the directors weren't doing their job, they'd have restricted the fees or dumped the board.


Another noob question but is a publicly listed company normally worth 20x EBITDA?

Fisher and Paykell Healthcare trades on a PE of 22. Raykon on 17.


From what I've read the average PE over decades is 15. So a price above that suggests anticipated growth. A price below that suggests a company with flat or deteriorating prospects.

As for Tardme, its hard to see further growth in a limited market of 4 million people. Mind you, I thought that when it sold for $700m! :D

[avgas]

Yeah ... I'm no good at maths .. which is why I used 5% in the post above instead of 5.2% .. it's still better than bank interest rates ..
That return rate is along the bottom end of investments on the NZX. The risk is not worth it. Though I would have to admit I would love to know what the beta speculation figure is.

Not saying I wouldn't invest in Trademe if they IPO it.........but it would be a very small part of the portfolio. Not life savings.

[avgas]

Rakon
Fixed it for you. :shifty:
Having worked for them I wouldn't touch their shares.........but that is the horrible thing about companies you work for......very rarely do you see the good sides lol

Out of interest did anyone buy burger fuel stocks when they did the IPO. Apparently they are doing ok - friend said she had Burger Fuel in Dubai or Abu Dhabi (having never been there they both merge in my mind). She said it was always packed.
I wish I did buy some, but the $1000 bucks helped me buy my first 1L bike.........god I miss that bike.

Also anyone invest in Hulme? When I looked at the portfolio I thought he was crazy. No dividends for 5 years or something?

[steve_t]

Glad I didn't buy Burger Fuel at IPO. $1 a share has now gone to 38-50c a share. Doh

[avgas]

Glad I didn't buy Burger Fuel at IPO. $1 a share has now gone to 38-50c a share. Doh
Yeah I suspected as much. Apparently they couldn't get enough investors from that IPO either.........so the bank must be really riding them now.

[avgas]

http://business.scoop.co.nz/2011/08/26/fairfax-to-sell-up-to-35-of-trade-me-in-new-zealand-float/

heh seems they think the business is worth over $1B ($1.5B) cash.......
that return just gets smaller and smaller.

So yeah would be a small part of any portfolio I build if I were to invest. Makes me worry about the mums and dads out there though that will get told its a good thing, poor their savings into it only to find Trademe does not trade outside NZ.......

[steve_t]

Yeah, I saw that in the herald article. $500m for a 35% stake in it. Something tells me the shares are likely to follow the path of BurgerFuel but who knows? It'd be interesting to see the prospectus.

[Clockwork]

http://business.scoop.co.nz/2011/08/26/fairfax-to-sell-up-to-35-of-trade-me-in-new-zealand-float/

heh seems they think the business is worth over $1B ($1.5B) cash.......
that return just gets smaller and smaller.

So yeah would be a small part of any portfolio I build if I were to invest. Makes me worry about the mums and dads out there though that will get told its a good thing, poor their savings into it only to find Trademe does not trade outside NZ.......

So once that IPO money goes in to the company, is there any sense in which the company has increased in value by that amount or does it just become the property of the orignal owner as if, say I'd just bought 500 shares of company x off your good self?

Would the money raised be re-invested in the company?

[avgas]

So once that IPO money goes in to the company, is there any sense in which the company has increased in value by that amount or does it just become the property of the orignal owner as if, say I'd just bought 500 shares of company x off your good self?

Would the money raised be re-invested in the company?
Nah by the sounds of things this might be the other way around. IPO is selling a 35% stake in existing stock.
Money will be reinvested back into fairfax accounts.
Trademe hit saturation point about 3 years ago. So even if it was reinvested in Trademe unless they came out with something new the reinvestment would be a waste.

I can't wait for the 2030 govt bailout of Trademe. :laugh::confused:

[Clockwork]

If you were an interested investor could you find this sort of information out? Would such info be required to be in the prospectus or is there perhaps a phrase used to differentiate each sort of transaction? Because it seems to me that there's a pretty big difference and buyers really should know which sort of "investment" they are making.

[avgas]

If you were an interested investor could you find this sort of information out? Would such info be required to be in the prospectus or is there perhaps a phrase used to differentiate each sort of transaction? Because it seems to me that there's a pretty big difference and buyers really should know which sort of "investment" they are making.
Yeah usually its in the prospectus somewhere.

They pick their words wisely though. Look for key things like "step-out" "new plant purchases" or "redefine"....

But it easier to just look at the accounts if you know what your looking for. In this case its a no brainier. Fairfax has lost $400m, it has $700m tied up in an investment. It sells off a chunk of that investment for $500m...... the figures couldn't be anymore straight forward.

If you find a company that you are looking to invest in, I would be happy to look through the prospectus for you and point out any flaws for you. FYI don't even consider NZFSU or PGG..... I will tell you right now I have bad juju with them http://farrst.blogspot.com/2009/11/corporate-governance-nz-farming-systems.html

[Banditbandit]

Another noob question but is a publicly listed company normally worth 20x EBITDA?

The value of a company has little to do with the share price

The value of the company is based on assets and income .. the share value is based on emotion and hope ..


http://business.scoop.co.nz/2011/08/26/fairfax-to-sell-up-to-35-of-trade-me-in-new-zealand-float/

heh seems they think the business is worth over $1B ($1.5B) cash.......
that return just gets smaller and smaller.

So yeah would be a small part of any portfolio I build if I were to invest. Makes me worry about the mums and dads out there though that will get told its a good thing, poor their savings into it only to find Trademe does not trade outside NZ.......

yeah .. at $1.5billion it's not a great return ... I certainly would not be buying ..


So once that IPO money goes in to the company, is there any sense in which the company has increased in value by that amount or does it just become the property of the orignal owner as if, say I'd just bought 500 shares of company x off your good self?

Would the money raised be re-invested in the company?

Yes, no, maybe ..

In this case the money is going to offset Fairfax losses ...

In some cases, if a company can convince investors it intends to put it back into the company then yes the value can increase, especially if it buys assets which earn money ... but only if you buy into a new shqre float ...

If you buy shares off another investor then the company does not see the money ... you purchase the seller's investment ...

The value of a company seems to depend on two things - and they seem to be independent. One is what the company would realize if the company was wound up ansd the assets sold and all the liabilities paid off. The percentage of your shareholding would entitle you to that percentage of the money left over ... (shareholders are not preferential creditors). Tied in with this concept of value is also the "return on investnment" i.e. how much dividend is paid out each year ..

The other value is what people THINK the company is worth - reflected by the share price - which is what pundits call "driven by sentiment" .. in other words, emotions - hope, despair, panic, elation, wars, droughts ... etc etc ...

Investors go generally go with the first value - traders with the second ..

Have a look at Bird and Fortune ... for a very funny and pretty close to the truth discussion ..

http://www.youtube.com/watch?v=mzJmTCYmo9g

[Robert Taylor]

I'm not too knowledgeable about it but I've been trying to reason it all out and this is what I've come up with. Would welcome feedback from those more experienced in these matters.


So lets assume I own a business and I want to expand that business, I see an opportunity to increase market or productivity but I need finance to do it. The best option would be provide the finance myself (as the owner) but assuming that I personally don't have the funds I can go to a bank for a loan or I can "float" the company and allow others to buy a piece of my action.

I'd need to start by determining what the company is worth, adding up the sum of its assets/liabilities and taking in to account its operating costs, turnover, profit history and projected profit forecasts some sort of financial whiz presumably can determine what the total value of the company is. An investor comes along with the necessary funds and agrees to buy into the business and receives a shareholding equivalent to the investment made.

The money invested is put to use as required and the company's value raises initially by the amount invested plus some arbitrary amount based upon the expected returns to be made and the desirability of the shareholding to non-investors. This in effect is reflected in the company's new share price.

Once the company's shares start being traded, future owners aren't actually investing in the company at all they are merely speculating that the dividends paid or the increased desirability of the shares will provide sufficient return to justify their ownership.


Now we hear a lot about how it's important for the economy to have a healthy share market and the Government would encourage savers to participate but it seems to me that what they are really asking us to do is speculate our money by buying and selling shares, which doesn't in itself actually go to the companies being traded and is not used to further expand their markets or productivity. As such the companies aren't actually worth any more and neither is the nation's economy nut as more investors enter the market, the finite number of shares will increase in value simply by the laws of supply and demand.

It appears to me that the only people benefiting from such a market are the astute speculators and the Brokers and Dealers, if and when additional money stops coming into the market and supply starts to exceed demand the share values will drop. The dealers will continue to make money but the share holders will see the share value start to decline below what they paid for the shares. They are in effect the looses in this. The companies trade on, paying their dividends etc... but many poor saps will have bought at speculatively high price and in effect will find themselves at the end of some sort of pyramid trading scheme where the dividends really don't match the return they should expect for the money they paid (note, I wont use the term invested because no real investment was actually made.)

The way I see it, this sort of share speculation serves no productive purpose for an economy. Maybe the Government should look to reform the share market to encourage more "Investment" rather than speculation. It occurs to me that one way to do this may be to reduce taxes paid on dividends and increase taxes paid on capital gains through trading rather than capital gains through "investing"

Also, when a company does want to invest to increase its profitability how often does it tap it's share holders on the shoulder and say "hey bud, how about stumping up your share in the capital needed for this investment" rather than running off the nearest bank. If you can't ante-up get a loan or sell your shares to someone who can.


Following this line of reasoning I can not see what productive purpose is achieved through share trading, can someone please enlighten me? Like I've said earlier, I have no formal knowledge of this business and I know there are some real Brains Trusts that contribute to this board so I'd love to hear critique or suggestions from those wiser in the ways of the share market.

Simplistically, I loathe brazen speculation as it arguably does little productive other than for the recipients bank balance. I think the ''money supply'' is best used for companies that do something productive for the countries economy and in doing so carry along people with it by employing them. We need more engineers doing something thats actually useful and....ethical.

[p.dath]

Every "investment" involves some "speculation". Basically the higher the risk the greater the return.

You put your money in the bank based on the assumption that they will eventually pay you back out plus some interest. The risk is low - but there is a risk of default.

You invest your money in a publicly listed company. You do this based on what you expect the future sale price to be, or for dividend. The risk is higher, but the return is better.

You invest your money at the casino. This is based on what the return will be if you win. The risk is very high, but the return is much greater again.


When people invest they need to weigh up the risk of loosing their investment, against the possible future return.
The good thing about investing in companies is that it helps the economy grow, helps us produce more as a country (hopefully for export) and creates new jobs.

[Winston001]

Just to add to Bandits excellent post:

The share price is the future (estimated) value of the company.

The price paid for a company share consists of three things:



The breakup value of the company = dollars per share



The dividend payout compared to putting your money in a term deposit



The future earnings of the business


It's this third point which leads to huge gaps between different company share prices and is where sentiment intervenes - fear, excitement, yawn...

Solid boring businesses should trade on a PE (Price/Earnings ratio) of 14. Declining businesses maybe 8. But those aren't the shares you hear about on TV. Of course not, it's the others, the sexy exciting expanding noisy companies who are THE NEXT BIG THING. Like technology company Rakon. Which I bought at $4. And now trades at $0.79. :shit:

The exciting shares typically trade on PEs of 30 or more. Pan Pacific Petroleum is 63 which tells us there is a lot of optimism - and risk in the price. By comparison Goodman Fielder are a dog (against all business logic - they should mint money) and have just made a big loss. The PE is 8.

Dot com companies can trade on PEs in the 100s because the buyer hopes the business will break through and be mega successful. There is always another Microsoft somewhere. I'll sell you one, go on, trust me, in fact I'm sure RAK.NZ is worth $5 between you and me... ;)

[avgas]

We need more engineers doing something thats actually useful and....ethical.
I wish this were the case. But in my field I can honestly tell you that behind (almost) every ethical is 2-3 manager, and a board of directors and shareholders that are only in it to get a buck.
Don't even get me started on groups like EEA and IPENZ.......I wouldn't even save those sods in an earthquake. From recall the head's of both are accountants.

The NZ market has crushed many an engineers dreams of humanity in the last 20 years. I had to take the philosophy of if you can't beat em at your game, change to theirs.

To any engineering students and graduates out. Don't feel disheartened with what I have said - there is lots of good elements too. And if you get a good boss in a good company (1%ers) you will be fine.

[avgas]

Dot com companies can trade on PEs in the 100s because the buyer hopes the business will break through and be mega successful. There is always another Microsoft somewhere. I'll sell you one, go on, trust me, in fact I'm sure RAK.NZ is worth $5 between you and me... ;)

It is. If $NZ1.00 = $US0.10 ;)

Or they invade Iran.
Its funny though - there was an article recently that basic said RAK investors were blind to the (bad) facts mentioned in the books. :laugh:

Mind due did'nt help when Navman got sold off and stopped buying their chips. Then samsung. Then Foxconn........

[Clockwork]

Every "investment" involves some "speculation". Basically the higher the risk the greater the return.

You put your money in the bank based on the assumption that they will eventually pay you back out plus some interest. The risk is low - but there is a risk of default.

You invest your money in a publicly listed company. You do this based on what you expect the future sale price to be, or for dividend. The risk is higher, but the return is better.

You invest your money at the casino. This is based on what the return will be if you win. The risk is very high, but the return is much greater again.


When people invest they need to weigh up the risk of loosing their investment, against the possible future return.
The good thing about investing in companies is that it helps the economy grow, helps us produce more as a country (hopefully for export) and creates new jobs.

Sorry, p. I don't think you've been comprehending my point. What you've just described is gambling not investing. Its even the analogy you used!


....
The good thing about investing in companies is that it helps the economy grow, helps us produce more as a country (hopefully for export) and creates new jobs.

My contention has been that simply trading shares does none of this! I've even asked people to dispute this position, but I don't recall seeing a convincing argument to the contrary.

In the absence of such we've simply got to stop repeating this mantra. I believe we need to differentiate between investing (productive money for a productive purpose, which, yes, does involve a form of speculation) and just "investing" by buying some shares in the hope that the dividends/capital gains provides a worthwhile return.

[Jeremy]

Sorry, p. I don't think you've been comprehending my point. What you've just described is gambling not investing. Its even the analogy you used!

My contention has been that simply trading shares does none of this! I've even asked people to dispute this position, but I don't recall seeing a convincing argument to the contrary.

In the absence of such we've simply got to stop repeating this mantra. I believe we need to differentiate between investing (productive money for a productive purpose, which, yes, does involve a form of speculation) and just "investing" by buying some shares in the hope that the dividends/capital gains provides a worthwhile return.

There's no difference between investing and gambling. Whether you're buying government bonds, putting your money in the bank, buying shares, starting up your own company, placing it on the horses or just on a coin flip. All the same thing. It's all just risk/return.

[Clockwork]

That's entirely my point. There is a difference, its just does not seem to be not recognized in our language. If only because we seem to be unable agree on words that that differentiate the two.

Or do you really think there is no difference between spending $100,000. to make something that is (hopefully) worth more than that to someone else, in the hope that from the profits of sale you can make another and another etc... Or going out and putting your $100,000 on red or black, odd or even.

[oneofsix]

That's entirely my point. There is a difference, its just does not seem to be not recognized in our language. If only because we seem to be unable agree on words that that differentiate the two.

Or do you really think there is no difference between spending $100,000. to make something that is (hopefully) worth more than that to someone else, in the hope that from the profits of sale you can make another and another etc... Or going out and putting your $100,000 on red or black, odd or even.

the difference is the degree of risk. Putting your money on red or black etc you are more likely to lose, or are you? w4ell if you go to the casino or the races you know the odds are against you. Producing something you hope (which is a gamble in itself) the odds are for you. Investing is just a spin word for a different type of gamble, there is no guaranteed win so its a gamble.

[avgas]

the difference is the degree of risk. Putting your money on red or black etc you are more likely to lose, or are you? w4ell if you go to the casino or the races you know the odds are against you. Producing something you hope (which is a gamble in itself) the odds are for you. Investing is just a spin word for a different type of gamble, there is no guaranteed win so its a gamble.
Remember it is not in the markets favor to collapse. Where it is in the casino's favor to not offer you a return.
When people don't get return on their stocks..... the rest of the market runs from that co.
When people don't get returns from gambling, everyone expects a jackpot and come a running

[Clockwork]

But one of these propositions has enriched the world, it has at least produced something of worth and at the same time generated the funds needed to create the next one (two, etc) ..... the other hasn't

It's like the difference between "Give a man a fish and feed him for a day. Teach a man to fish and feed him for a lifetime."

[oneofsix]

But one of these propositions has enriched the world, it has at least produced something of worth and at the same time generated the funds needed to create the next one (two, etc) ..... the other hasn't

It's like the difference between "Give a man a fish and feed him for a day. Teach a man to fish and feed him for a lifetime."

doesn't stop it begin a gamble and has it enriched the world? wasn't that your initial question?
If I gamble at the casino it has enriched the world as it has provided employment and enjoyment.

[Clockwork]

So what you're saying then is that gambling at least is more productive than share dealing. It is a service industry that employs people and consumes. Fair enough.

If I buy a share for $1.00 and sell it for $2.00 where did the extra $1 come from?. Or worse, if I buy for $2.00 and sell for $1.00 where did it go?

[oneofsix]

So what you're saying then is that gambling at least is more productive than share dealing. It is a service industry that employs people and consumes. Fair enough.

If I buy a share for $1.00 and sell it for $2.00 where did the extra $1 come from?. Or if I buy for $2.00 and sell for $1.00 where did it go?

Perceived value.
Why are 250cc bike so dear and people expecting them to drop in price when the power to weight rule comes in? the value isn't in the bike. Another why to put it is "what the market will bear" (bet I pick the wrong spelling of bare)
So if the market now thinks a share in the company is worth a $ more then someone pays it. How does the company benefit? It doesn't benefit directly, the money goes to the seller and the brokerage fees etc but because the company is now considered to be worth 100% more any shares the company itself still holds are also worth 100% more so the company can use those as assets to borrow money to expand. (And that is the closest I've come to understanding the mess they call a share market).

[Clockwork]

This gets even better.... so I'm a dollar poorer (this is real money that was in my bank account) and yet no one is a dollar richer?

Great system.

[oneofsix]

This gets even better.... so I'm a dollar poorer (this is real money that was in my bank account) and yet no one is a dollar richer?

Great system.

no one is a $ richer but the seller and broker got part of the dollar, say the broker gets $0.1 and the other $0.9 goes to the seller. Don't you wish you could have just loaned the money to the guy that has the company making widgets for bikes?

[avgas]

Quick question Clockwork,
How much do you get paid?

Why doesn't you employer pay you the amount of money it costs you live on bare minimum?

Now have a think of what a company is worth? Speculation is in more than the stock market. I know when I negotiated my last salary there was a figure I wanted for the job, and my employer would have been very happy to pay me less. What made them think I was worth what I asked?

[Clockwork]

Some times I look at what I'm paid and in all honesty I think to myself. "I don't see how I can be worth that!"

Then I learn what they are paying for other services and people and suddenly I don't feel so guilty. Truly, value is in the eye of the beholder. (Or perhaps in the case of the share market, the non-owner)

But I still don't see how any of this answers the question about why we, as a society (or economic units) should be encouraged to trade shares. Why that is deemed to be generating wealth and a worthy use of our money.

[oneofsix]

Some times I look at what I'm paid and in all honesty I think to myself. "I don't see how I can be worth that!"

Then I learn what they are paying for other services and people and suddenly I don't feel so guilty. Truly, value is in the eye of the beholder. (Or perhaps in the case of the share market, the non-owner)

But I still don't see how any of this answers the question about why we, as a society (or economic units) should be encouraged to trade shares. Why that is deemed to be generating wealth and a worthy use of our money.

I see your issue, you are trying to look at this from what might you call a society view, what is best for the larger group. nah the money boys just want your money.

[avgas]

But I still don't see how any of this answers the question about why we, as a society (or economic units) should be encouraged to trade shares. Why that is deemed to be generating wealth and a worthy use of our money.
The more people invest in something. The more they believe it to be a good thing.

This applies to all things in life, not just the stock market.

[Clockwork]

So we are back to the old "supply and demand" thing again; the more people jump in, the more the share values will increase, the better for the dealers and those players already in the market. But if/when the new money runs out, the last ones in will be the ones carrying the losses. Just like a pyramid selling scheme. Or musical chairs.

[Jeremy]

Some times I look at what I'm paid and in all honesty I think to myself. "I don't see how I can be worth that!"

Then I learn what they are paying for other services and people and suddenly I don't feel so guilty. Truly, value is in the eye of the beholder. (Or perhaps in the case of the share market, the non-owner)

But I still don't see how any of this answers the question about why we, as a society (or economic units) should be encouraged to trade shares. Why that is deemed to be generating wealth and a worthy use of our money.

Because the NZ markets suffer from a massive lack of liquidity. Consider https://nzx.com/markets/NZAX/securities/BFW , it's had a grand total of one trade today, there's a very good chance that the value of those shares does not reflect the true value of the company. Or even https://nzx.com/markets/NZSX/securities/AIA , that's had 158 trades. If you can't find someone to sell your shares to then you can't invest in something else, say a new IPO, which is a major issue.

Also those IPO issues often struggle to come up with enough money to finance them, thus less companies go public. Restricting them from access to greater funds, and not allowing them to make that jump to becoming large companies.

[Clockwork]

I think, when all is said and done, that the actual investing is done by the companies and I suspect in most cases it's done with money borrowed off the bank. The rest of us are just looking for places to park our money where hopefully it will not be eaten away by inflation.

[Jeremy]

I think, when all is said and done, that the actual investing is done by the companies and I suspect in most cases it's done with money borrowed off the bank. The rest of us are just looking for places to park our money where hopefully it will not be eaten away by inflation.

Those same banks get most of their money from the sharemarket too though. Like at the moment ANZ is doing CPS3 to raise another 750 million.

[avgas]

Those same banks get most of their money from the sharemarket too though. Like at the moment ANZ is doing CPS3 to raise another 750 million.
I am sure some of that will come from OnePath :corn: ...I mean kiwisaver :eek5:

[p.dath]

Sorry, p. I don't think you've been comprehending my point. What you've just described is gambling not investing. Its even the analogy you used!

Gambling is investing. Just different ways to describe the risk.

[steve_t]

I am sure some of that will come from OnePath :corn: ...I mean kiwisaver :eek5:

LOL. Don't get us started on Kiwisaver....

[Clockwork]

Gambling is investing. Just different ways to describe the risk.

So say you discover how to manufacture a super-conducter that works at room temprature, you own the patent and all you need is $100,000 to buy the equipment needed to make the stuff and market it. Would you call that kind of investment a gamble?

[avgas]

LOL. Don't get us started on Kiwisaver....
Kiwisaver.
NZSuper.
Stockmarket.
Its all horribly inbred.

[avgas]

So say you discover how to manufacture a super-conducter that works at room temprature, you own the patent and all you need is $100,000 to buy the equipment needed to make the stuff and market it. Would you call that kind of investment a gamble?
Yep.
But seeing as that company is in NZ is a gamble close to home.

Risk does not disappear between investments. Only gets smaller. The gamble still exists.
i.e. Apple had some of the best ideas way back in 1996-7 (and earlier). But they were considered dangerous "gambles". Soon as the gamblers (Gates/Jobs) turned up and put their foot in the door things looked green for Apple.

[Winston001]

So say you discover how to manufacture a super-conducter that works at room temprature, you own the patent and all you need is $100,000 to buy the equipment needed to make the stuff and market it. Would you call that kind of investment a gamble?

Yep!

1. You are running a scam and my investment disappears, or

2. The superconductor is caused by a local anomaly in the Earth's magnetic field and only works where you live, or

3. Chinese/Indian/Brazilian/Russian scientists have copied it and dispute your patent...etc etc


Of course it is a gamble, but for that sort of technology with a patent, it would fall in the lower risk category. So for what its worth I'd regard it as an investment.



Want an exciting opportunity?? http://www.indranet.co.nz/ Enjoy. ;)

[steve_t]

So say you discover how to manufacture a super-conducter that works at room temprature, you own the patent and all you need is $100,000 to buy the equipment needed to make the stuff and market it. Would you call that kind of investment a gamble?

Definitely yes :yes:

[Winston001]

That's entirely my point. There is a difference, its just does not seem to be not recognized in our language. If only because we seem to be unable agree on words that that differentiate the two.

Or do you really think there is no difference between spending $100,000. to make something that is (hopefully) worth more than that to someone else, in the hope that from the profits of sale you can make another and another etc... Or going out and putting your $100,000 on red or black, odd or even.

I see your point: you believe that having a sharemarket in which thousands of shares are "traded" (bought and sold) is of no benefit to society. Nothing is made or added value. The only people who benefit are brokers and the winners on any particular trade - which adds nothing to the community.

By contrast, a new manufacturer who sells shares in his factory helps everyone: employees, builders, machinery makers, electricians, income tax, GST, plus profits each year to distribute to the investors.

OK. I'm with you on this - investment, not just buying and selling. So is the government, economists, bankers, unions, pretty much everybody. Everyone says each of us should be investing some of our savings in new businesses.

[Clockwork]

....
OK. I'm with you on this - investment, not just buying and selling. So is the government, economists, bankers, unions, pretty much everybody. Everyone says each of us should be investing some of our savings in new businesses.



Exacerlly!.. 'cept what passes for investment appears to be simply the trading of shares. I just think we need to be more specific somehow.

Oh.... to the rest... pointing out all the things that could go wrong, really doesn't make the investment a gamble IMO, no more than getting out of bed in the mooring is gambling with my life.

[avgas]

Exacerlly!.. 'cept what passes for investment appears to be simply the trading of shares. I just think we need to be more specific somehow.

Oh.... to the rest... pointing out all the things that could go wrong, really doesn't make the investment a gamble IMO, no more than getting out of bed in the mooring is gambling with my life.
The term is "going long", meaning your investing on the fact that things are going to improve over the long term and short term issues will not fluctuate your investment.

Most term deposits and kiwisaver schemes invest this way. It offers low returns but does promote the growth of the firm.

Going short basically breaks down to your going to trade them quick, and possibly even borrow do so - hedging a bet the market will change rapidly. This is the negative and highly publicized element of the stock market. But think of these guys as the "squids" of the stock market. Some get rich and famous, many become pavement meat.

The govt is trying to promote people going long. Because this means people are putting their money where their mouth is in growing NZ business. Where as just leaving your money in a bank basically means giving money to some other country (exception is Kiwibank).

There was an article many years ago talking about Germany's market. And how if it wasn't invested initially by German people, it would not have attracted overseas investment. Its now one of the most stable markets in the world - but never offered very high returns. Perhaps that is what the NZ govt is trying to promote in NZ? Currently the NZ market is just a really good place to hide money.........but if more kiwi's invested in it that could change.

[steve_t]

This seems to have turned into a discussion about semantics :yawn:

[avgas]

This seems to have turned into a discussion about semantics :yawn:

It has to be unfortunately. Clockwork has created a thread STATING that the stockmarket is the devil. But has not actually looked into what stocks are, what they do etc. Without simple terms and explanations as to what things are, what terms are used, what they mean etc...
How will Clockwork ever think that the market is anything but people betting on companies?

Its kinda like saying. "Why should I buy a honda? my mate has a honda and something fell off, dunno what it did but therefore by default all Honda's a horribly assembled and it makes the worst motorcycles in the world".

People would ask questions like What fell off? What makes you think they are worse than others? Do you know how to ride a motorbike? Do you know anything about bikes? Do you know anything about Honda?.......

[Clockwork]

Its 's interesting what people are taking from my comments.

I guess to clarify, I don't think the stock market is the devil, I just think "it ain't all that!" That there is a difference between "investing in the stock market", which I accept does serve a purpose and "investing in business and the NZ economy" and that that difference (for the sake of all us "Ma & Pa" investors) really needs to be spelled out clearly and repeatedly else we stand to be fucked over royally.

[steve_t]

Its 's interesting what people are taking from my comments.

I guess to clarify, I don't think the stock market is the devil, I just think "it ain't all that!" That there is a difference between "investing in the stock market", which I accept does serve a purpose and "investing in business and the NZ economy" and that that difference (for the sake of all us "Ma & Pa" investors) really needs to be spelled out clearly and repeatedly else we stand to be fucked over royally.

I might need you to clarify this further. The difference between investing in the share market (which for the NZX is shares in publically traded NZ companies/businesses) and investing in NZ business is...

[Clockwork]

OK, I'll try to explain my point one more time.

Buying or selling a company's shares will make no differnece to the business of the company, it wont expand its markets or increase its productivity or as far as I can tell, make any practical difference to its bottom line. The share buyer/seller may make make a captial gain or loss on the deal but the business of the company will be unaffected.

Investment in a company or more accurately, by a company, would entail a capital outlay that would reasonably be expected to yield (in time) an improved return for that company by way of reduced costs/overheads increased producutivity or improved market opportunities.

I've simply been reflecting that IMO only one of these scenarios is beneficial to the greater economy. That share trading (for those of us amatures on the fringes at least) mostly seems to be done for the purposes of capital gain. That existing market players will welcome/encourage such "novice" traders simply because it increases the supply of money thereby increasing their existing shareholdings without actually adding any value to the businesses.

I'm concerned that we as a nation are being encouraged to participate without fully understanding these differences.

I'm futher concerned that we reinforce this state by taxing a company's productive returns while not taxing these capital gains. This, to my mind is entirely arse about face and ultimately counter productive to the economy in general. I would have thought that as a nation we should be better off changing our tax base to encourage long term productive growth rather than rewarding short term share speculation.

[steve_t]

OK, I'll try to explain my point one more time.

Buying or selling a company's shares will make no differnece to the business of the company, it wont expand its markets or increase its productivity or as far as I can tell, make any practical difference to its bottom line. The share buyer/seller may make make a captial gain or loss on the deal but the business of the company will be unaffected.

Investment in a company or more accurately, by a company, would entail a capital outlay that would reasonably be expected to yield (in time) an improved return for that company by way of reduced costs/overheads increased producutivity or improved market opportunities.

I've simply been reflecting that IMO only one of these scenarios is beneficial to the greater economy. That share trading (for those of us amatures on the fringes at least) mostly seems to be done for the purposes of capital gain. That existing market players will welcome/encourage such "novice" traders simply because it increases the supply of money thereby increasing their existing shareholdings without actually adding any value to the businesses.

I'm concerned that we as a nation are being encouraged to participate without fully understanding these differences.

I'm futher concerned that we reinforce this state by taxing a company's productive returns while not taxing these capital gains. This, to my mind is entirely arse about face and ultimately counter productive to the economy in general. I would have thought that as a nation we should be better off changing our tax base to encourage long term productive growth rather than rewarding short term share speculation.

But there are a lot of average joe investors like me who don't trade frequently but rather buy shares and look for dividends as well as hope for capital growth over many many years.

The initial "investment" in the company comes from it's IPO (or maybe an issue of bonds), but after that, there has to be share trading. And of course the money from investors is used to grow the company otherwise why would they sell off part of their company? I get the feeling that you think the money people invest in companies by buying their shares does nothing for these companies or the economy...

[Winston001]

I'm concerned that we as a nation are being encouraged to participate without fully understanding these differences.



We aren't. I do not know of any serious commentator, politician, or journalist who tells the public they should buy shares to trade. Buy and put in the bottom drawer - yes. I think the general public understand that but they do not trust shares and who can blame them. Three maybe four crashes in the past 25 years.

Buying a bluechip share is no different to buying a commercial building. Or a rental house.

[Smifffy]

Couldn't agree more.


We aren't. I do not know of any serious commentator, politician, or journalist who tells the public they should buy shares to trade. Buy and put in the bottom drawer - yes. I think the general public understand that but they do not trust shares and who can blame them. Three maybe four crashes in the past 25 years.

Buying a bluechip share is no different to buying a commercial building. Or a rental house.

[joan of arc]

My simplistic take on the government's desire to see NZers save money by putting it in the bank or investing in the stock market is to move us away from investing in the property market. I don't think that they necessarily see the Stock Market as being productive but as a viable option to owning rental property because the potential to make money is comparable whereas putting funds in the bank is perceived to be a poor means of turning a profit. The mortgages that we procure to obtain a second, third or 10th property sees huge sums of money disappear off-shore to which ever lender the bank has borrowed money from. If we save then the interest comes to us and therefore remains in the country. Buy shares keeps money in the country.

From observing what has happened over the last four years, my perception is that saving too much is also not so good for the economy as so many business hit the wall if there are insufficient people spending money.

I don't know what the ideal is, but seems to be kinda tricky finding it

[avgas]

Buying a bluechip share is no different to buying a commercial building. Or a rental house.
Actually its also a little bit secure....imagine walking into a bank and saying

"Hi I am joe blow, you don't know me, I have $20,000 but I would like a loan of an additional $380,000 so I can buy $400,000 of stocks on the stock market".

It will be the first time you will see a bank manager crack up laughing. He might laugh so hard he wets himself.

But I have been harrased on a annual basis by banks asking me if I want XXX dollar mortgage approval. Some of the these banks don't know me from a bar of soap.

[jonbuoy]

OK, I'll try to explain my point one more time.

Buying or selling a company's shares will make no differnece to the business of the company, it wont expand its markets or increase its productivity or as far as I can tell, make any practical difference to its bottom line. The share buyer/seller may make make a captial gain or loss on the deal but the business of the company will be unaffected.

Investment in a company or more accurately, by a company, would entail a capital outlay that would reasonably be expected to yield (in time) an improved return for that company by way of reduced costs/overheads increased producutivity or improved market opportunities.

I've simply been reflecting that IMO only one of these scenarios is beneficial to the greater economy. That share trading (for those of us amatures on the fringes at least) mostly seems to be done for the purposes of capital gain. That existing market players will welcome/encourage such "novice" traders simply because it increases the supply of money thereby increasing their existing shareholdings without actually adding any value to the businesses.

I'm concerned that we as a nation are being encouraged to participate without fully understanding these differences.

I'm futher concerned that we reinforce this state by taxing a company's productive returns while not taxing these capital gains. This, to my mind is entirely arse about face and ultimately counter productive to the economy in general. I would have thought that as a nation we should be better off changing our tax base to encourage long term productive growth rather than rewarding short term share speculation.

The Company Directors/owners and possibly employees probably own a fair chunk of those shares themselves so its in the companies interest for high share values.

[p.dath]

So say you discover how to manufacture a super-conducter that works at room temprature, you own the patent and all you need is $100,000 to buy the equipment needed to make the stuff and market it. Would you call that kind of investment a gamble?

So if I discovered it, and I new it worked, then I would be looking for equity investors.


However if you told me you had invented it, I'd probably think it was a fraud. Neither an investment nor a gamble. :)

[Usarka]

OK, I'll try to explain my point one more time.

Buying or selling a company's shares will make no differnece to the business of the company, it wont expand its markets or increase its productivity or as far as I can tell, make any practical difference to its bottom line.

Incorrect. As a shareholder you often get a vote on important matters so you do have some say on the direction of the company.

[avgas]

I still stand by what I said before Clockwork. Your getting ripped off, and your CEO deserves to lose his head if he doesn't notify the shareholders. Likewise your board.
Don't confuse poor investment with poor governance. Note that in the papers recently directors have been sentenced to prison time.

Without shareholders having their say, your company can do what it wants. Its illegal. People look poorly on this since 2008. Now people go to jail over misleading shareholders.
I suggest you raise this with your CEO and tell them you want a pay rise (to keep quiet) and you want it fixed.


The Company Directors/owners and possibly employees probably own a fair chunk of those shares themselves so its in the companies interest for high share values.


If that is the case talk to the other shareholders. Its lack of notification like that that gets CEO's fired. I have seen it happen many times before. Soon as the shareholders get smart the pigs get sent to slaughter.


I wish this were true but I'm less than convinced. I understand that some shares carry no voting rights whatsoever. This must be true 'cus I have shares in my employer and I aint never been invited to an AGM or asked to vote on any matter yet!

[Clockwork]

As I understand it, not all shares are voting shares.... but this doesn't really matter to me anyway because the reality is that the small share holder will never be able to compete the institutional investors and for that reason I think Usarka's point is a bit of a stretch.


So if I discovered it, and I new it worked, then I would be looking for equity investors.

Yes, yes yes.Its a silly proposition but I was getting frustrated by the arguments that all investments are gamble. I accept that there is a risk element in almost everything we do in life. If by that argument everything we do in life is a gamble then yes, investing is gambling too. But if I invest in an action because I can see that the action being taken, should in the normal course of events return a positive outcome, I don't consider that to be a gamble, if however, I risk money in the expectation of a return without being able to influence the outcome one way or another. That would be a gamble and that is how I view share trading.

Please don't think that I'm trying to tell the share traders out there that they shouldn't be doing this. This was just the end of a thought process, a philosophical exercise that made me realise that if and when I decide to enter the market I would prefer to see the money "invested" rather than just buy some shares. I put it out there as a discussion point to see if others agreed or disagreed.

[Winston001]

That would be a gamble and that is how I view share trading.

Please don't think that I'm trying to tell the share traders out there that they shouldn't be doing this. This was just the end of a thought process, a philosophical exercise that made me realise that if and when I decide to enter the market I would prefer to see the money "invested" rather than just buy some shares.

With respect, you are still confused. "Trading" is done by a small minority of people. The number of shares traded is minor. Most shares are held for at least a year and often many years.

Buying shares in an existing company is an investment just like a term deposit. Slightly higher risk but far less risky than investing in a new business which has yet to prove itself. You can do that certainly, just do so with your eyes open.

[steve_t]

Please don't think that I'm trying to tell the share traders out there that they shouldn't be doing this. This was just the end of a thought process, a philosophical exercise that made me realise that if and when I decide to enter the market I would prefer to see the money "invested" rather than just buy some shares. I put it out there as a discussion point to see if others agreed or disagreed.

So, if and when you decide to enter the market, just limit your purchases to IPOs or bonds which allow companies to raise capital for growth or expansion etc. This will actually give the companies more cash at the time of your purchase :niceone: