The first step to invest in shares is setting up a trading account. In this article I will give a beginner’s explanation to what is what and which platform I use to buy shares in Australian companies listed on the ASX.
A stock exchange is a market place where stocks can be exchanged between buyers and sellers. To place orders (buying or selling stocks) on an exchange you need to be registered to a financial institution that is licensed to buy shares on your behalf (a bank trading subsidiary). You need to have an account in a bank to be able to buy shares. It is obvious but it is also why an individual can’t buy shares in an other country so easily. It is not possible for an individual to open a bank account in a country they are not a resident or citizen. Of course Australian banks and brokers offer services to buy international shares but it is a little more paperwork. I have set up an international trading account with the Commonwealth bank of Australia to buy shares in the US and I will explain how in an other article.
Most banks offer services to trade shares. Buying and selling shares is called “placing an order” or “trading”. An order is a set of requirements that list the what, when, who, how much you want to buy or sell. Placing an order cost money. This is the fee a bank or broker will charge to send your order to the stock exchange. Professional traders use brokers or banks with low fees on orders because they place a lot of orders each day. In my case I only place a few orders a month so I don’t mind paying $10 per trade because I invest in the long term.
There is a minimum amount of $500 required to buy shares in Australia. In the US there is no minimum.
My setup: Commonwealth bank of Australia
First I opened a Smart Access account with Commbank. (See all account here) Their standard account is called Smart Access. It costs $4 per month unless you make a deposit of $2000+ on the account. It comes with your typical online services and a mobile app called Commbank.
|Netbank Account||To transfer money in and out of Commbank||$10 per month (unless deposit of $2000 per month)|
|CDIA Account (or trading account)||To provision money to buy shares or receive money when selling shares||Free|
|Commsec Shares Account||To see the total balance of investments||Free|
|Commsec Account||Place orders on ASX||Free|
|Commsec mobile App||Place orders ASX||$10 per trade|
I set up a direct transfer of $1000 per month to provisioned my account. The money can’t be sent directly to the CDIA account but transit through Netbank to CDIA. I make 2 orders per month of roughly $500 each. I explain why I invest in the company I select in the “We bought.”
Where to find inspiration to select Australian stocks?
The market index website has a great list of companies sorted by broker consensus. It gives a good glance at what’s the overall “sentiment” on ASX top 300 companies. Looking at at the “Strong buy” list and noting them down for future analysis is a good way to find potential candidates for success. https://www.marketindex.com.au/broker-consensus
Subscribing to “Extreme opportunity” newsletter. They have some good analysis on some company. I only pick one of their stock every 3-4 months as I found their recommendations to not be always good.
Still one of the best finance mobile app around. You can add and remove stocks easily to keep an eye on a watchlist. Quite useful for US stocks. Their suggestion of “similar company” when browsing a specific company is great to discover new companies.
Keeping an eye out. Working in big or small companies can give you ideas on useful companies. For example if your company use providers or partners with big names, chances are other companies are using them too. I found that a lot of similar big corporations use the exact same providers. Investing in those company has proven to be a win most of the time.
Reddit is great to find inspiration and get the “sentiment” on companies. It is a wild community and its reactivity on some subject can’t be matched by any other media.
Some accounts are really good for inspiration.
How much return on investment can you expect?
This varies on a number of thing.
- The length of your investment
- The number of companies you invest in
- The diversification of your portfolio.
In my case +22.42% when I am writing this article. It was +14% in 2019.
I invest in companies for the long term. I don’t care if a company does well over a 6 months period because I rarely sell stocks.
I buy a maximum of $500 worth of shares in companies I select unless I have a really good intuition. So the maximum I can lose is $500 if the company valuation plummet. There is no maximum on the other side of the scale. So the companies with high growth can out balance the company at loss.
As per today, I invested in 48 companies listed on the ASX. 24 are in the green and 24 are in the red. Below are the best and worst companies I own. It illustrates that balancing.
I bought CANN Group at $2.366 4 years ago and is now worth $0.285.
I bought Camplify at $1.437 about 6 months ago and it is now trading at $4.00.
Before that Appen (ASX:APX) was my top stock. I bought it for $9.645 4 years ago. It went to $40 and is now back to $9.5