Sharemarket forecast hard to read

By MARY HOLM

Q: Is there a handful of indicators I should look for when choosing which company I buy shares in?

A: Not to my way of thinking.

Basically, I think most sharemarkets, including our own, are fairly "efficient".

That's a technical term that means share prices fully reflect all available information.

If a new development suggests that a company will do well or badly in the future, the share price goes up or down pretty much immediately - not when the new development is likely to take effect.

Sometimes, analysts need to crunch numbers to work out the expected effect.

The quickest of them are likely to be the highly paid whiz-kids who work for the big financial institutions - fund managers, insurance companies and so on. They're constantly on the lookout for new information.

On the strength of their analysis, they might get their institution in or out of a particular share before the price has changed.

But that very move is likely to change the price. If they buy, the increased demand will push up the price. If they sell, the price will fall.

And if other institutions are coming to the same conclusion, the price will rise or fall even more.

By the time you or I have heard of the development - even if we understand its significance - we're too late.

Your question suggests, though, that you're not necessarily looking to beat the market with new knowledge.

You just want to look out for companies that, perhaps, have certain growth characteristics, or a price/earnings ratio above or below a certain level, or some other sign of a bright future.

Over the decades, thousands of people have looked for such signs. And some claim to have come up with the right formula.

They usually have impressive track records. What often happens, though, is their indicators work for a while, in a certain type of market, and then the market changes.

If there really was a publicly available list of indicators that would always - or even mostly - lead share buyers to buy winners, everybody would be buying according to that list.

The extra demand would push up the price of the shares favoured by the list - to the point where they were no longer good buys.

That's how efficient markets work.

Inasmuch as sharemarkets are efficient, then, any share is as good a buy as any other.

Sure, some shares are riskier. You can vary your purchases according to how much risk you're willing to take.

Beyond that, though, you might as well throw darts at the Herald share price table and buy where they land.

But I did say "inasmuch" back there. Some research suggests that the New Zealand market is not as efficient as the bigger ones, such as the US.

Smaller NZ shares are so small - in terms of the total value of all their shares - that the big financial institutions don't bother with them.

That means the whiz-kids aren't analysing them. So somebody who invests for themselves, or perhaps gives tips to other investors, might be the first to realise that a new development is good for Tiny Co.

If you subscribe to a tip sheet, then, perhaps you'll do well - particularly with some smaller New Zealand shares.

Remember, though, that good past performance is no guarantee of good future performance.

Even Warren Buffett, that one-in-a-million American stock picker who has done brilliantly over the decades, has had some bad years recently. Who knows how well he'll do from now on?

I reckon it's best to ignore everybody's ideas about what are good share buys.

That's one reason I like index funds. They simply hold the shares in a share market index. And they tend to perform better - especially after fees and taxes - than other share funds.

If you don't like that idea, it's out with the darts.

Q: In your column of August 18 you mention that the NZ Super rate of $11,148 for a married person "will not be affected by any other income".

However, I have been told that the amount of a pension received from another country would be deducted from the NZ Super rate. I would be grateful if you could clarify this for me.

A: Oops! You're right. The Ministry of Social Policy and I slipped up on that one.

We were thinking of the ordinary Kiwi situation. For people who get pensions from other countries, things are more complicated.

In the ministry's words: "People who receive overseas pensions from obligatory national schemes are obliged to declare the amount they are receiving.

"Those pensions will be directly deducted from the rate of New Zealand Superannuation in accordance with Section 70(1) of the Social Security Act 1964."

By "obligatory national schemes", they mean Government-run schemes.

The rules don't apply to money you might get from a private super scheme, whether based in New Zealand or elsewhere.

I don't want to reopen a can of worms here - Money Matters has gone into this before. But I think the rules are basically fair.

Why should someone who has lived and paid tax in another country end up with more from a Government super scheme than someone who has lived and paid tax here?

Note that the ministry says its answer is a general one. "There are some variations on this theme, depending on the source of the overseas pension and the agreement New Zealand has with the country."

Q: I was interested to read your reply to the writer last week about their dilemma regarding retirement.

I feel many people are just waking up to the fact that if there is a large age gap between spouses/partners they will need to prepare for these years when one person only is of retirement age.

My husband is 10 years older than me and he was able to obtain the NZ Super when he turned 60. He continued to work and retired when he was 63.

Not long after, the Government changed the goalposts and took the retirement age to 65.

I would like to retire before I turn 65 and my husband 75 so we can have some time to smell the roses together!

We own our home, my husband receives the rate for the married person and has a small annuity of $100 a week.

We also have about $80,000 in a private super fund, which we are not drawing on but is there for our later years, and have about $10,000 in bank term deposits.

I understand that to obtain the married benefit with a non-qualifying spouse inclusion the married couple need to be income tested, and the income from my husband's annuity, plus any interest on our bank term deposits, would be included in this test.

My question is, if we aren't drawing down from the private super fund, would this be treated as income or an asset?

We have also received different opinions at different times from the Work and Income office.

A: I wish I could give you a straightforward answer on the private super fund. But apparently there isn't one.

It all depends, says the Ministry of Social Policy, on your circumstances, and the type of private fund.

Adds the ministry spokesman: "I suggest you arrange to meet your local Work and Income staff who deal with superannuation issues.

Take all the relevant documentation relating to the super fund and other income that may need to be considered."

"Okay," you're probably saying, "but given our past experience, how can we be sure that what Winz tells us is correct?"

That's a fair question.

And it was also raised by another correspondent who has received several different answers from Winz.

I put it to the ministry, which said that entitlements vary, and Winz staff need to know all the circumstances that could affect how much you get.

The ministry adds: "Further, if your circumstances change, the amount of NZ Superannuation you are entitled to may also change.

"For example, if you are married and your partner dies, or if you are living alone and decide to move in with a friend, the rate of payment you're entitled to would change."

Such changes "can sometimes explain why people may get a different answer from Work and Income NZ at different times".

The ministry says that, "for couples where only one partner qualifies for NZ Superannuation, any income earned by either partner could affect how much you get paid.

"In this situation, Work and Income NZ can assist you to work out whether you would be better off receiving NZ Superannuation at the single (living with others) rate."

The ministry spokesman also points out that, if possible, you should go to a Winz Super Centre, "where staff deal exclusively with superannuation".

"However, there may also be a specialist in superannuation issues at the local service centre who can help."

Look for the Super Centres in the blue pages at the front of the phone book, under Work and Income New Zealand.

* Mary Holm is a freelance journalist and author of Investing Made Simple. Send questions for her to Money Matters, Business Herald, PO Box 32, Auckland; or maryh@pl.net. Letters should not exceed 200 words.

We won't publish your name, but please provide it and a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions. correspond directly with readers, or give financial advice outside the column.