HOW TO RULE THE STOCK MARKET
From your phone – no broker necessary.
“STOCKS ARE CHEAP... AND YOU CAN TRADE THEM ON YOUR IPHONE.”
Peter Morgan was 26 when he walked on to the trading foor at Bankers Trust in Sydney and into his dream job. In his unfulflling frst gig as an accountant, he’d learnt to speak the language of money. As a rookie stockbroker he would learn how to make it. “I got a taste for it. I loved it,” he says. And then, after three months of trading shares, the market crashed 25 per cent. It was Black Tuesday, October 20, 1987, the biggest single fall on any day in the history of the Australian stock market. “There was carnage everywhere. I remember the Telex, this was the day of the Telex, was 100 metres long with sell orders from overseas. And I had these two senior guys near me. It was interesting to watch them. For want of a better word, they attacked. When the market takes a hit overnight, the best buying is the next morning. You don’t panic.” The young Morgan mastered the craft of how to invest, becoming one of Australia’s most fabled stock-pickers. Managing $10billion of other people’s money at Perpetual he regularly achieved 14 per cent annual returns. Top of his tips for ruling the sharemarket: be aware of what the herd’s doing. “There’s a lot of psychology in markets as there is in people. It’s hard to step away from the crowd. It’s hard to do that at times. It’s hard to be patient.” Think the stock market isn’t for you? Think it’s only house prices that have boomed? Here’s some numbers to chew over. Over the past 20 years, Australian residential property values have grown by an average of 9.8 per cent annually. Australian shares, meanwhile, have kept pace at 9.5 per cent. And if the shares seem to foat around in a soup of unidentifable acronyms – ETF, EPS, a VWAP – here’s another you’re more familiar with – FOMO. “We’re seeing a shift towards younger customers, in particular over the last couple of years,” says Ryan Dinsdale, general manager of customer experience at Commsec, Australia’s biggest online broker. More than half of Commsec’s new customers are aged under 35, the broker estimating that 28 per cent of over 25 to 35 year olds – have bought their own shares. Two big factors are luring younger Australians into trading. Smartphone apps make buying and selling stocks as speedy as hailing an Uber and watching your fortunes rise and fall is as addictive as Candy Crush. Secondly, anyone can start buying shares as soon as they have $500 – the minimum required under Australian Stock Exchange rules. By contrast, a house deposit will set you back roughly 100 times that amount. “Stocks are cheap, you don’t need much money,” says Sam Henderson, CEO of fnancial planning frm Henderson Maxell. “They’re liquid, so you can move in and out and technology means you can trade them on your iphone.” With banks and brokers investing in state-of-the-art, easy-to-use share trading apps, the challenge isn’t working out how to buy shares, rather it’s what to buy. Perhaps the easiest way to wade in is through CMC Markets Stockbroking. Its desktop portal has a function called thescreener, which takes mountains of analysis about individual companies and boils the lot down to a four star rating system. Keep an eye on sudden changes in the number of stars and you’ll have a hunch of what to buy and when. It makes investing about as simple as Margot Robbie explaining subprime mortgages while drinking champagne in a bubble bath in Wall Street fick, The Big Short. “There are some hardcore algorithms going on in the background,” says Andy Rogers, head of CMC Markets Stockbroking. “We invest a lot of time and money in usability. Whilst there’s a lot of perceived complexity in fnance, in terms of the platform, we feel that we’ve failed in our job unless it’s easy to use and intuitive.” But if you really want to rule the market, you’ll need to do more of your own research. When Henderson is thinking about buying shares in a company the frst thing he looks at is what it’s earning and what people think its future earnings will be.
“I want to see that forecast is positive,” he says. That means seeking out the experts, typically analysts whose reports into forecast earnings per share [EPS] are written up in business media websites. But you can be an expert too. “You need to ask yourself are the company’s profts sustainable?” says Henderson. A company like Woolworths has been very proftable over a long period of time, but you have disrupters coming in like Aldi, cutting prices and Woolworths are losing value.” Morgan, now 54 and a private investor, agrees your own ‘shopping centre’ analysis can be valuable. “There’s a lot of psychology in markets as there is in people. It’s hard to step away from the crowd and be patient. But take Dick Smith,” he says of the iconic electronics retailer that went under this year when its plug was pulled by lenders. “Anyone could work out it had problems, no one was ever in there. It’s a really quite simple analysis but it’s also pretty accurate. You have to observe things.” Morgan has three big ‘Ds’ when it comes to investing. Don’t borrow money to get into the market, diversify and don’t bet the house. “There’s enjoyment in investing,” he says. “Even when you lose, you’ve learnt something.” And when you’re on to a good investment, sometimes it makes sense to just stick with it. “If you’re a surfer, you know the hardest decision is to stay on that wave or get off and pick another one. There may not be another wave, and there may not be another company. It can be better to keep on it and ride it all the way to the beach.” n
PM MALCOLM TURNBULL AT THE LAUNCH OF ON MARKET BOOKBUILDS; MARGOT ROBBIE IN THE BIG SHORT.