By MARY HOLM
Q. Let me draw you a picture of myself. I'm 29, male, bit of a beefhead, play rugby, like beer, PlayStation, computers, never read for pleasure, have cheap rent at $50 a week, own car, earn $60,000 a year.
Want out of the rat race. Who doesn't? Big risk-taker - international companies (Tower managed funds for four years). I'm a small-time investor (four stocks including Tranz Rail!) - value $9000.
I have been reading your column in the Herald for the past three months. Now, via the net today, I read how you used the net to buy and sell at a cost of $49 when buying stocks in a brothel in Aussie.
Can you point me in the right direction for the Stocks for Dummies manual?
As I said earlier, I don't read for pleasure. But I would love to jump into the stock market, head first.
I have $10,000 to $12,000 to make work for me. "Make the money work for you, blah blah blah ... ".
Any info would be great.
A. Thanks for the pic. You sound fascinating. I should point out, though, that this is not a dating agency. Interested women need not apply to me for information on how to contact you!
More to the point, I didn't buy shares in the Sydney brothel via the internet. That was a reader whose letter ran in this column.
You're not the only one who has recently got that confused. Not only do I not write the questions in the column, but I often strongly disagree with what the writers say. And this is a case in point.
I never buy shares in individual companies, whether they sell sex or apple pies. And I don't intend to, unless I accumulate, say, $100,000 that I want to invest in New Zealand shares.
I reckon you need that much to get a good wide spread of shares and a reasonable number of each share - to avoid high brokerage for small lots.
You'll have gathered, then, that I'm not going to applaud your plan to invest $10,000 to $12,000 in shares.
I would rather see you put it in a managed fund, where you'll get much more diversification.
You imply that you haven't done well in your Tower fund lately. But over the long term it will probably turn out to be a good investment if you stick with it.
I've also got reservations about trading shares on the internet. The convenience is great, but that makes it too easy to trade frequently. And frequent traders tend to do worse than those who buy and hold shares, partly because they have to pay brokerage and, in many cases, tax on their capital gains.
Okay, I'll get off my soapbox now. You sound like one of those people who regard share trading as a bit of a gamble, a source of entertainment. And there's no doubt it can be.
You're on a high income and don't seem to have any dependants. As long as you invest only money that you can afford to lose, and don't get into borrowing money to invest - which can lead to big trouble - it's your choice.
You and three other readers have all inquired about online share trading, so here's some information on it.
The cheapest way to trade shares, if you know what you want to buy and sell and don't want advice from a broker, is to use a discount broker. It's usually cheaper again if you deal with one online.
Among the discount brokers are: Access (www.accessbrokerage.co.nz); ASB Securities (www.asbsecurities.co.nz); Direct (www.directbroking.co.nz); and NZIJ (www.stockbroker.co.nz).
All are Stock Exchange members, which gives you protection if the broker should get into financial trouble.
If you would rather go to a broker that offers investment advice, some of the above firms give that option. And other brokers also have websites and online trading. Go to the stock exchange website, www.nzse.co.nz and click on "NZSE Firms". You can find brokers in your area and, in some cases, their websites.
Unfortunately, you can't just go online and buy shares the same day.
Because of the Stock Exchange's "Know Your Client" requirements, you'll have to fill out an application form, which you can get from the websites. You'll also have to photocopy some ID and send it in.
Note, though, that some of the firms - for example, NZIJ - have lesser requirements if you want to do just a one-off sale.
Which broker is cheapest? They have varying minimum charges, cut-off points and sliding scales, so it depends on the dollar amount of your purchase or sale.
As for a Stocks for Dummies manual, I don't recommend any publication that tells you which shares are a good buy or sell. I don't believe anyone really knows. If they did, why tell the rest of us?
But if you're looking for information on how the markets work and so on, you should find something useful on the brokers' websites.
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Q. In a recent column you said that you looked "at a graph of [house] price changes over the past 40 years ... "
Where's this type of information on the net? What about share histories etc? Do you have some links?
A. I'm at risk of alienating non-computer users in this column. Still, most people these days seem to have access to a computer, at least through their local library or similar.
The house price graphs I looked at were on good old-fashioned paper. But I do know of one graph on the internet.
Go to the Reserve Banks' website, www.rbnz.govt.nz, click on "Publications" and then on The REAL Story - Saving and investing now that inflation is under control, which is a booklet I wrote in 1998.
If you click on the PDF version, you'll find a graph on page 21 of changes in nominal (before adjusting for inflation) and real (after inflation adjustment) house prices from 1968 to 1998.
It's a bit old now, but it does illustrate the point I was making last week, that there are no predictable cycles in house prices.
The pace of growth in house prices goes up and down, but the "ups" can be severe or gradual, short-lived or long-lived, and the same for the "downs". The graph also shows that, after adjusting for inflation, house prices actually fell year after year from 1975 to 1981. And the same thing's happened in several years since then. You've been warned!
As for share histories, I'm not sure if you mean graphs of whole share markets or of individual share prices.
On page 28 of The REAL Story there's a graph of world and New Zealand share prices and the New Zealand consumer price index (showing inflation) from 1970 to 1998. Since then, world shares have slumped, so it's seriously out of date.
If you're after the history of individual share prices, you can get the last three months on www.nzse.co.nz. Click on "Listed Companies".
From there, you can also get to the websites of many listed companies and, in some cases, their websites will include share price history.
Other readers may know of other websites with graphs of house prices and share prices. If so, it would be great to hear about them, so I can tell readers in future columns.
A few other points:
* You can print out The REAL Story if you wish. It's a few years old, but its messages are still valid.
* Another reader, a student who apparently hasn't got ready access to computer, asks if I know of any free brochures on the basic principles of shares and investment.
I can't think of any. But if any readers can send me samples, and tell me how to get hold of them, I can also pass that on.
* To put the record straight, two weeks ago I wrote about ING research on the worst- and best-performing asset types from 1982 to this year.
I said that property was worst performer four times and best only twice.
I also added - but it was edited out for space reasons - that property in this study is not quite the same as the average New Zealander's rental property.
ING uses the Watson Wyatt Property Index. This shows the pre-tax returns made by big institutional investors, mainly superannuation funds, on their direct investments in commercial and industrial properties. The returns include rent and capital gains.
I don't know of any reliable data on returns on residential rental property.
Common sense says, though, that big institutions' property returns should be at least as good as individual investors'.
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Q. After reading your reply to a recent letter, I felt slightly annoyed that once again it seemed as if you had a negative stance on property investment.
But upon further reflection during the day I came to realise that the majority of readers of your column were average New Zealanders, and that as an investment "authority" figure, people look up to you, and respect your advice.
And so it dawned on me that you have to be responsible with what you write, and after rereading your reply I saw that you try to cover as many potential outcomes as possible.
It's not a negative stance, it's a cautious stance, and so it should be.
So I would like to thank you for being a responsible voice for investment advice.
A. And I would like to thank you for your kind words.
We all tend to read about our investments with huge biases.
If somebody is critical of world share funds, in which I still have a big chunk of my savings, I tend to look first for flaws in their argument rather than just listening to their message. And I'm sure those with big investments in property - presumably including you - do the same.
That's one reason sparks have flown in this column over the years.
It's always good to be sceptical about what you're reading. Still, as you've noted, things can look different if you take a step backwards.
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