All Ords Report 21 September 2016
How do you turn your cash into tens of thousands overnight?
Some investors say pick the right IPO (Initial Public Offering). However, Iíve seen many investors lose money this way, as itís often a 50/50 bet.
An IPO occurs when a private company raises capital through a public offering of shares.
The problem with IPOs is that itís difficult for investors to make an informed decision when the documentation provided, or prospectus, is often little more than a marketing tool.
This year ASIC reviewed the due diligence practices of 12 IPOs and found a correlation between defective disclosure in prospectuses and poor due diligence, and reportedly, a low level of care in verifying statements in prospectuses. Remember, thereís no legal requirement to perform proper due diligence.
Also, high profile IPOs such as Myer Holdings Limited (MYR) which floated in 2009, are marketed heavily to the public. Whilst MYR shares rose post float, six years on they had fallen by around 80 per cent. In my opinion, MYR is one of the worst high profile floats in recent history.
To assist you with your research into company floats listen to Company Floats: A good investment or a marketing exercise Part 1.
Do your homework and youíll find that more than 50 per cent trade below their issue price in the first 12 months post the float, which means you could buy cheaper on market. But many investors focus on saving brokerage and often these savings are wiped out when the shares fall below the issue price.
You are far better off investing in a good selection of the top 100 shares, by market capitalisation. They are generally easier to trade and most have been listed for at least ten years, so you have enough historical data to understand how to profit from them.
Problem is, we are often our own worst enemy. It is human nature to do what seems easier or cheaper. But in the long run this will prevent you from doing what is necessary to become consistently profitable in the share market, which is learning how to develop a process or system of trading.
What do we expect in the market?
At the start of last week, the Australian share market dipped by around 100 points, with the All Ordinaries Index (XAO) trading below support at around 5400 points before it managed to push back above that level by the weekís end.
Fears rose about the potential that the US Federal Reserve was getting ever closer to a decision to lift rates. In my opinion, the market has had so long to factor this in, however that hasnít stopped the fear mongers from using the prospect of a hike to increase volatility.
That aside, this time of year can often be quite volatile and so investors need to expect that share prices will jump around important levels. Although the volatility may continue over the coming weeks, the low we have been expecting is finally coming in. Now we await confirmation.
The big news this week was that the Australian market didnít open on Monday morning. The Australian Securities Exchange experienced a technical glitch due to hardware failure in the main database. The last time something like this occurred was in February and before that I cannot recall anything major occurring since 2011.
If you were intending to place a trade yesterday morning your best course of action would have been to wait until the market opened, once the frenzied trading period ended and the market settled. Prices can swing widely in the first ten minutes or so, which is why I generally prefer to wait until at least 30 minutes after market open to place trades, or to wait until around market closing time.
Dale Gillham is Chief Analyst at Wealth Within