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      Introduction

      T hanks for choosing the third 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) and the market slump that ensued – which has become one of the longest-lived the sharemarket has seen – has 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 continue to generate capital growth for their shareholders over the long term. 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 28 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.

      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 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. 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 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