Shares

In the Broker recommendations section you may find some analysts or brokers recommending certain stocks listed on the Australian Stock Exchange (ASX). Some may say they are Overweight or Underweight on a stock while others will claim a stock will Outperform. Some others may actually give instructions like Sell, Buy or Reduce. We will have a look at what these broker and analyst recommendations actually mean.

What is share trading? Of course you may say - the answer is simple: "Share trading is the activity of actively trading shares in the view of making a profit". Simple wasn't it? Well, case closed, we can all go home now. Well, I want to probe into what share trading really is in reality, not some non-sensical theory that seems impractical in the real world. Sure, the laws of supply and demand rule the markets, but what I want to discuss is what share trading means to the retail trader: traders like you and me.

I often ask myself the question - which shares are being traded the most in the ASX sharemarket? Sometimes I use the local teletext services that you can access on your TV box for this information - if you point it to page 200 you'll get the financial index. The shares with the most traded shares with the highest trade volumes (not necessarily highest net worth) that day reveal the level of liquidity of the stock as well as the most actively traded stocks. The significance of this is simply that as a trader you should be aware of what the neighbours are doing but this doesn't mean you should join in with the crowd - Just to be aware of what the market is and perhaps recognise the activity as a result of some news or market information.

The Australian Stock Exchange is considering plans to sponsor stockbroker research of small companies in an attempt to boost liquidity and compete more effectively with foreign exchanges.

The ASX has discussed a proposal with stockmarket participants under which the exchange would facilitate payments to analysts in order to produce "independent" research of smaller stocks that are not widely covered.

The Australian stockmarket is one of the most highly concentrated in the world; the biggest five stocks are responsible for more than 80 per cent of turnover.

General Investors - with 'set and forget' rules should consider the next seven investing rules for their own trading plan.

#1 The trend is your friend.
Always follow the trend. Going against it is gambling.

#2 A mate with a hot tip is not your friend.
Hot tips are risky - better if you follow it up with your own research.

#3 Don't buy or sell in one hit, use cost averaging.
This technique can lower the effective cost of the underlying share you are purchasing.

#4 It's time in, not timing, that counts.
Statistics show that time in market pays very well.