Learning about shares: If in doubt, ask for advice

By BARBARA KENDALL

Back in 1987 when I won my first windsurfing world championship in Hawaii, a cool new sunglasses company called Oakley was just getting started.

One of its first marketing strategies was to get world champs in action water sports wearing its sunglasses, so it sponsored me. It wasn't a huge amount of money, but I loved suddenly not having to worry if I lost my sunglasses.

They were great glasses, too. Oakley did brilliantly well. In 1990 it listed on the share market, and gave all its sponsored athletes some shares in the company.

I kept track of its price every now and then in the paper, and by the time 1993 rolled around it had hit what I judged to be a huge high. My judgment was based more on the personal financial low that I was enduring at the time. I decided it was a great time to sell the shares.

Problem was, I didn't have a clue how. So I called Mum from a phone box. She didn't have a clue how to sell them either, and then my payphone money ran out mid-sentence. So I made the "investment decision" to hang on to my shares.

I've since worked out how to ring a broker to buy and sell shares. I've read about people who make a living buying and selling shares with a direct connection to the market from the internet at home.

I've also noticed that there seem to be different types of brokers. Budget brokers and full service brokers. I suppose it's a bit like banking. You choose the bank that gives you the level of service you want - with the personal touch at one extreme and do-it-yourself internet banking at the other.

My question for Dan Dividend is: what sort of broker would you recommend for someone like me who's new to investing in shares?

Dan Dividend responds:

You're right to consider your choice of broker carefully. To help you, there are a few points to consider.

Brokers fulfil the roles of coach and manager for personal equity investors and can be a source of as much guidance as personal coaches provide for athletes. A broker might offer total direction on investment decisions, but he or she could also simply have the role of peer reviewing your investment strategies.

Whatever the level of involvement, most investors agree that a broker is an essential element in any investment decision. Brokers also fulfil a valuable role with the administration of investments, such as liaison with your accountant.

Getting a coach's licence isn't easy.

Brokers take their responsibilities very seriously. To be accredited with NZX they must complete the NZX diploma, involving comprehensive understanding of securities law and investment analysis, and have worked for three years under the supervision of an accredited NZX broker.

You pay for the quality of the coaching you get.

Barbara is correct in her assumption about the range of broking services available - from "bare bones" discount brokers to full service brokers. At the full-service end of the market, a broker can be one of an investor's most important financial advisers. Some brokers even offer their own investment products such as managed funds. Brokers charge commission on the transactions you place through them and the amount they charge varies according to the service they offer.

Broadly speaking, brokers' fee structures should reflect the amount of value they add to your investment decisions and the administration of your investments.

If you go for a full-service broker, you'll pay more, but you should get more advice and access to their in-house analysis of different company shares.

Technology now means you can coach yourself. If you're confident in your own decisions and don't feel the need for expert counsel on an investment decision, it's possible to enter orders online through some NZX firms' websites. There are usually low brokerage rates for processing transactions with little or no advice given.

If you're a beginner, get a thorough coach.

Few people have ever jumped on a windsurfer and sailed perfectly on their first attempt. Investing in the share market is no different - it's strongly recommended that you seek a broker's advice if you're new to the market.

Novice investors would be best served by seeking advice from a full service broker, who is likely to assess their risk profile as a first step. The best place to start your search is the comprehensive list on the NZX website.

* Email questions to Dan Dividend.

* This is the last in our introductory series of articles on sharemarket investing but the Herald and the New Zealand Exchange will be providing further information to investors over the rest of the year.