Share Investing

Investing in shares of companies is a way to effectively make your money work for you. By knowing what to look for in a specific company you can best decide whether or not you want to invest in its shares. Let’s examine some general information regarding share investing and some things to look for when investing in the Australian share market.

The share market consists of companies that have put their shares of stock up for public auction. The stock of a company represents a part of the company, so when you buy a stock, or shares in company, you are also buying part ownership of that company. The actual transaction of purchasing shares is facilitated by stockbrokers who work on the stock exchange. These brokers buy and sell stocks on behalf of traders and investors and earn a commission from each transaction. Assuming a stock does well, its shareholders will earn profits on their investments, but a poorly performing stock means the investor or trader has lost money.

If you want to invest in shares you will have to open up an investment account. You will place orders to either buy or sell shares of company stock through this account, after an order is placed, the stockbroker can then place your bid on the actual exchange. The main stock exchange in Australia is the Australian Securities Exchange (ASX), most trades are executed over the internet today, and most financial portfolios are managed online as well.

After making the decision to open up an investment account you will need to decide on which type of broker/brokerage firm to choose from, there are basically three types:

1. Full-service brokers are the priciest; however their brokers can provide valuable market insight and share broker advice regarding the ebbs and flows of the market. Be skeptical and wary of full-service brokers because they can be biased toward their firms’ vested interests in the market, these brokers work on commission which means they have a financial self-interest to maximize the amount of transactions their customers execute each day.

2. Fee-based brokers are specialized in gathering the investment information you need to decide on a hot stock to buy. These types of brokers work on a fee-based commission schedule.

3. Online share brokers, also known as discount brokers, are the cheapest route to go; however, they do not provide the in-depth research and advisory services like full-service brokers do. Online brokers also work on a commission, however the commission prices are always much lower than full-service brokers as a result of fewer investor services being offered. Beginning investors and traders are better off using a full-service stock broker when starting off because there is a lot to learn and it’s good to have someone double-checking your transactions and guiding your decisions when starting out. After you get some experience and confidence under your investing belt you can switch to a discount online broker.

When deciding on a specific share to buy, doing a bit of company research might just save you some money. One piece of information you will definitely want to obtain is a company’s market value, or capitalization value. This number is calculated by multiplying the current share price by the number of shares the company has on issue. Calculating this value and comparing it with other similar companies will give you a fair market price estimate for that stock.