Shares

People often choose shares as a vehicle to invest their money, with the financial goal of earning dividends or capital gains.

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. With dividend imputation, if a company pays company tax, the dividends carry a tax credit which can be offset against your tax liability on the dividends. If a company pays the full company tax rate, the dividends are fully franked.

You can read more Trading and Investment definitions here.

ALL ORDINARIES (ALL ORDS) – Measures the level of share prices at any given time for a sample of major companies listed on ASX to determine the overall performance of the sharemarket. Stock exchanges in other countries have similar indices, eg. Dow Jones Industrial Average (New York), FTSE (London) and Nikkei Dow (Tokyo).

What does it mean to invest in shares?

You are probably wondering what are shares? A share is simply part ownership of a business. If you invest in shares, stocks, securities or equities – as they are sometimes called – you are buying part ownership of the company’s business and become a shareholder in that particular company

Obviously you then have a vested interest in the fortunes of that company and hope the business will grow and prosper, together with your equity in its future. If it does then you may get to share in its profits. These profits are paid out in dividends and are your reward for investing with the company.

Many people dabble in stocks nowadays, whether it be investing or online share trading, you are in it for the money. The difference is in how the money is made: an investors' goal is for capital growth in the long term and an income from dividends while a share trader looks at making money purely from capital growth, typically in the short term.

So you’ve decided to invest in shares?

Before beginning on your trading journey, you must first learn some share trading basics. You can start trading on the Australian sharemarket for as little as $500 plus brokerage costs, but most people start with $2000 minimum. Share trading involves the buying and selling or selling and buying of a stock – capital growth or capital decline for profit. Before you even starting buying and selling stocks like a mad man you must first ask yourself the following questions:

• What do you want to achieve from your share trading?

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.