Sunday, August 07, 2005

The (Capitalistic) Times, They Are A-Changing

Who remembers the hey days of the 1980's when Michael Douglas in "Wall Street" coined the phrase "Greed is good" and everyone, white-collar or blue-collar was dabbling on the stockmarket. Pre 1987 greed was rife and everyone seemed to be on the phone with their broker shouting "sell" or "buy" just to be 'overheard' by others.

I was too young to be investing then and by the mid 90's, when I started investing in the sharemarket, the 1987 crash was still in memory but "mum and dad" investors started to come back to the market, still licking their wounds but determined to get back some of their money which they lost.

I remember opening up my first account with Merryl Lynch, a behemoth of a broking house, and I got assigned a stockbroker, a man with a voice which would make John Wayne blush. At that time I had to call him, or in some instances received a call, to make a trade. Trade commissions were a minimum of $50/trade or 0.75% which ever was higher. It was intimidating and I constantly felt like a small fish in a big pond when I only made trades totalling less than $2,500 which were the norm for me. I also was only able to trade the New Zealand market as commissions for overseas trades were astronomically high and for trades under $3000 I would have to make 15% on the shareprice to just break even.

When the Internet started to infiltrate more and more households, Online brokers started up and caught my eye. The cheapest at that time was the now defunct DF Mainland who offered trades for a minimum of $20 or 0.5%. Trades were executed sometimes within 2-3 minutes of placing it online, company news were e-mailed as they become available and charts were updated overnight. And most importantly, prices were "real-time" and not the usual 20 minutes delay you got from free websites. However, there was no broker advise. Needless to say that I closed my account with Merryl Lynch and my trading success was completely in my hands.

Now I trade with Directbroking. Fees are still reasonable $29 for trades under $25,000. I can also invest in the Australian Sharemarket with up to date information from the Australian Stock Exchange. Money not invested is kept in a call account earning interest above banking rates but funds can be transferred at no cost.

But most importantly the internet enables me to invest in the American Sharemarkets at an even cheaper rate and for a better service than I can receive here in New Zealand. I trade with Ameritrade arguably the biggest online sharebroker in the US. Given, I still pay top dollars on bank fees for transferring money from New Zealand to my US call account but trades are executed within seconds of the 'confirm' button being clicked and cost US$10.99/trade. The amount of company information available online is amazing. E.g. on Yahoo Finance I can access ratios, charts, company news, broker reseach, messageboards, competitor analysis and much more.

Online share investing is not for the faint hearted. The mistakes I made are plenty and I'm still recuperating losses when the bubble burst but now I have a strategy which suits me and gone are the days when I traded rather than invested. It is also important to properly monitor your portfolio with programmes like Microsoft Money and to remember the golden rule of investing "If in doubt, stay out!"


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