By Steve
Information
This article is for educational purposes only. The writer is not an expert and is sharing what he has learned from his personal experiences investing in the NZ Share market.
Last week SB posted a request for volunteers along with ideas on any other topics we thought had merit. I had been thinking for some time that articles on the subject of the NZ share market and investing in it may be of interest to a number in the BFD community.
There are a lot of us who are either already retired or are planning for retirement in the future.
Our love affair with the housing market is currently decreasing. I blame it on a reduced ability to make capital gains and increased regulations which are unfriendly to landlords. With interest rates on term deposits going below 2% the question on everyone’s minds has to be what to do with any savings that we have.
I have been involved in and have had a strong interest in investing in the NZ share market for the last 7 years. I am certainly no expert. I have learned a lot over time and some of that may be of interest.
I am sure that there are others in the BFD community that have far greater knowledge and insights than I do so I would be interested in hearing if any others see merit in this as a series. My contribution is not intended as financial advice. I am simply sharing insights that I have learned along the way.
Some background:
In the late 80’s I had a couple of highly mortgaged rental properties which turned out to be not that great, either from a tenant or capital gain perspective so I vowed rightly or wrongly that I would not do that again. Instead, I put what little money I had into paying off the house mortgage which was great until the banks put interest rates up to 17%.
I was determined at that point that I would do whatever I could to pay off the mortgage and from then on I vowed to never owe any bank a cent.
It took 12 years but in 2003 our family was debt-free. As you can no doubt tell I have an aversion to banks and housing other than getting the bank to pay me money for term deposits.
Having term deposits was great when in 2007 people were getting 8%, however, the GFC took care of all of that and gradually over the last 10 years interest rates have declined to the point that the returns do not justify having any significant funds in the bank in my opinion.
In 2012, 5 years before retirement I was made redundant so I needed to think totally differently about the what, how and where to invest. I took the plunge and for the first time bought some shares.
The best advice I was ever given was to wherever possible have multiple sources of income. Because of this advice, I am careful that the total of my portfolio does not exceed a certain % of my total assets
In the last 6 years, the capital gain on my shares has been 102% with gross dividends of 9.6% p.a. on the original amount invested. This return is on well known, stable blue-chip NZ companies.
I have made mistakes along the way and hopefully, I have learned from them.
To be fair it has been a very good period to invest in the sharemarket, however the same can be said for housing.
There are a few self-imposed rules I have about investing:
1) I have a $ limit of what I will allow myself to invest and will never go beyond that.
2) I only have shares in 10 companies at any one time as this forces me to really think about what I am investing in and why.
3) No one company can add up to more than 15% of the total portfolio.
4) The emphasis must be on investment versus speculation.
5) All stocks must provide dividends of 5% + and be fully franked.
In addition to the above, there are also a few boxes that must be ticked before I allow myself to invest.
1) Is the company well managed?
- debt to equity ratio (debt going down/equity going up)
- Insights into their annual report
- Background into the directors
2) Do I understand the business?
- Can I relate to their business model?
- Do I know how their industry works and their relative strength to the competition?
3) Do they have a future?
- Future looking statements versus achieving what they said in the past
4) What is their intrinsic value?
- Review book value, dividends paid and share price versus company valuation.
I know that the above can seem like a lot. I have the time to do the research but there are companies and banks that will provide managed funds programmes as well if you are time-poor. It also helps to have a bit of a passion for it.
