Introduction

Thanks for choosing the fourth edition of this compact edition, Getting Started in Shares For Dummies. This smaller-sized edition is what’s called a portable edition, full of information but small enough to carry on the tram, train or bus or to take with you on holidays for easy reading. This edition brings you up to date with the many exciting developments in the Australian stock market. If you’re a first-time investor, this book has advice on where to start, the pitfalls to avoid and tips on how to have fun (and not take too many risks) while your money goes to work for you.

The global financial crisis (GFC) of 2007-2008 and the market slump that ensued — which became one of the longest-lived the sharemarket has seen — dented many investors’ faith in shares as an investment, but despite the scary headlines and the ever-present possibility of a market fall, profitable companies continued to generate capital growth for their shareholders over the long term. Soon enough, the market’s rising trend resumed, and despite the occasional stumble, the decade until the end of 2019 was a very good one for share investors. Then in early 2020, COVID-19 came out of nowhere and slammed the sharemarket into a sudden plunge. The great paradox of the sharemarket is that while it’s the most volatile of the asset classes, it’s also the one most capable of reliably building wealth over the long term for the individual investor; I show you how in this book.

Australia has grown and developed in many directions since the first edition of Getting Started in Shares For Dummies welcomed investors taking their first steps into the sharemarket. If you followed the first edition (or indeed the second), you’re hopefully now managing a portfolio, researching stocks that interest you, keeping abreast of the daily market play and boosting your initial investment to something that’ll at least pay for your dream holiday and at best see you comfortably through the years.

In many of the speeches that I’ve made around the country in 32 years as a finance journalist, I’ve tried to present the sharemarket as a hugely interesting institution. Because it is! And, moreover, this market, which touches every one of our lives in one way or another, doesn’t have to be daunting. The sharemarket isn’t a hard concept to understand. When people say to me that I make the idea of buying and selling shares understandable for them, I curse whatever it was they’d been reading or hearing that made it appear the opposite.

About This Book

Getting Started in Shares For Dummies explains the sharemarket’s intricacies in terms that anyone can understand. Although the sharemarket looks like a high-tech computer game with its flashing lights and scrolling letters and numbers on the trading screens, the sharemarket is actually based on a very simple concept. Companies divide their capital into tiny units called shares, and anyone can buy or sell these units in a free market at any time. Companies use the sharemarket to raise funds from the public, and the public — meaning you — invests in the companies’ shares. You invest your money in shares because you expect to get a better return in earnings than with other investments.

Most of the time, the sharemarket is profitable for investors. Despite the occasional spectacular market fall, such as the great ‘bear market’ of 2007 to 2009, or the ‘COVID Crash’ of 2020 — or even the odd collapse of one of its constituent companies — the sharemarket generally plods along making money for its investors. The sharemarket revolves around money but is also very much a human institution. The sharemarket is sometimes described as a living entity (for which we finance journalists are often mocked). Oddly, the sharemarket does have human moods because it reflects the greed or fear of its users, who are sometimes very human.

Greed is a powerful influence on the sharemarket, and so is fear. A saying on Wall Street suggests that these two emotions are the only influences at work on the sharemarket, and they fight a daily battle for supremacy. On a day-to-day basis, the sharemarket wavers between the two. The 2000s began with the fear of the ‘tech bust’, and then switched firmly to greed for the middle part of the decade, only for fear to come roaring back into the spotlight in late 2007, and again in 2015, and again in 2020 with the COVID-19 pandemic. The two will always have their days on top.

The sheer range of activities of the companies listed on the Australian Securities Exchange (formerly the Australian Stock Exchange) makes it a very interesting place — if a trading system that you can see only on computer screens all over the nation can be called a place. The number of different types of shares you can invest in is mind-boggling — perhaps there is too much choice. As an individual investor, you can’t own every type of share, so the solution is for you to come up with a share investment strategy.

As you will discover, of the 2,200 or so stocks listed on the Australian Securities Exchange (ASX), most investment professionals confine their activity to about one-sixth of them. Even in the 500 stocks that comprise the S&P/ASX All Ordinaries index (one of the Australian sharemarket’s main indicators), the last 200 or so don’t hold much interest to Australian fund managers. This is where a self-reliant investor like you can find some undiscovered gems caught in that bind of being too small to attract the fund managers’ and brokers’ attention, and then remaining small because they can’t get this attention. Some of the sharemarket’s acorns really do become great oaks. As a self-reliant investor, with the knowledge and the time to thoroughly research potential stock purchases, you can really steal a march on the pros.

It gets harder and potentially more rewarding the deeper you delve into the sharemarket. In the bottom 1,900 or so stocks, you may find some real dogs that should not be listed (and probably won’t be for very much longer), but you can also discover wonderful companies that are just about to flourish. This kind of investing is called bottom-fishing. You need to be wary and know how to back up your discoveries with solid research. At these depths of the market, you can make some very wrong moves.

You have to own some of the 2,200 stocks in order to experience the ups and downs of the sharemarket. The tools that enable you to get into the market intelligently are right here in this book. The sharemarket should be an essential part of everybody’s investment strategy. Sharemarket participation in Australia is among the highest in the world, but too many people still don’t understand its benefits. As the nation’s population ages and superannuation grows in importance, the amount of Australians’ investment assets (and retirement nest eggs) going into Australian shares is set to rise dramatically. My aim in this book is to help you understand the sharemarket so that you can control your future financial security.

Foolish Assumptions

I don’t assume a lot about you as a reader and budding share investor, but I do make these brief assumptions before I encourage you to get started:

• You are interested in knowing more about the sharemarket.
• You know some of the basics, but you’d like to flesh out this knowledge.
• You know that even if people don’t think they’re involved in the sharemarket, a big chunk of their superannuation certainly is!

Icons Used in This Book

Throughout this book you see friendly and useful icons to enhance your reading pleasure and highlight special kinds of information. The icons give added emphasis to the details that I think are extra important. Although the icons are self-explanatory, here are their basic messages.

Take extra special notice of this piece of information. I mean it, too — this detail is really something to store away for future use.

It’s not vital that you read this stuff as you’ll get a good understanding of the subject matter anyway. But it’s often interesting and sometimes an entertaining diversion.

This is information I think you can profit from, so I’ve pre-highlighted it for you (I’m trying to save you from getting highlighter ink on the opposite page when you close the book).

Uh-oh! Wealth hazard ahead! Manoeuvre carefully around this obstacle, and mark it down in the memory bank.

Where to Go from Here

You don’t need to read this book cover to cover, but if you’re a beginner in terms of the sharemarket, starting at Chapter 1 is a good way to go. In fact, I hope you do. If you’re not a beginner, then each chapter is written as a self-contained read, with plenty of cross-references to other chapters scattered throughout the book. If you want to know more about a particular topic, don’t hesitate to follow the cross-references and gain a broader, fuller understanding of that particular topic.

I hope that after you go through this book — if you haven’t already dipped your toe in the sharemarket waters — you’ll want to take the steps to starting your first portfolio of shares. If you’re already an investor — great! Now you’ll want to become a better-informed and more effective investor. Work out for yourself what...