Basic Stock Market Juan-O-Juan (101) : Notes

What is a share?
A share is simply part ownership of a business.


Shareholder rights and benefits
• Participatie in annual general meetings
• Receive reports and information
• Dividends and dividend reinvestment plans
• Further issues of shares
• Share buy-backs, and other corporate actions


What is the sharemarket?
A market in which securities are bought and sold; a stock exchange.
The Australian Securities Exchange (ASX) is a licensed market operator. ASX operates Australia's major national sharemarket.

Functions of the sharemarket (stock exchange)
• Operating the primary market (IPO), where companies raise money by issuing shares to investors
• Operating the secondary market, where investors buy and sell those shares at prices determined by market forces.


What is dividend?
A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

What is ex-dividend ?
Ex-dividend is a classification of trading shares when a declared dividend belongs to the seller rather than the buyer
Investors need to buy the dividend-paying stock at least three days before the record date, since trades take three days to settle.

What are franking credits ?
Franking credits are a type of dividend imputation and a way to reduce or eliminate the double taxation of dividends that occurs in many advanced economies

What is dividend imputation?
Dividend imputation is a corporate tax system in which some or all of the tax paid by a company may be attributed, or imputed, to the shareholders by way of a tax credit to reduce the income tax payable on a distribution.


Where do I start if I want to buy / sell shares in Australia ?
1. Select a stock broker
- Online brokers (Nabtrade / Commsec / e-Trade / etc...)
- Full Service (Investment Fund Companies)

2. Create an account online (for online brokers)
Typical requirements:
- To be 18 years of age or older
- Personal details, date of birth, australian residential and postal address
- Valid email address
- Mobile number
- TFN or exemption code (optional)

To consider:
- Entity (Individual / joint / company)
- Bank account (linked)
- Ways for shares to be held:
All listed companies have a share registry (an external company) that’s in charge of maintaining their shareholders. 


Two ways for shares to be held:
A. CHESS Sponsored Shares - Shares that are registered with a stock broker (CommSec, NabTrade or another broker). CHESS Sponsored Shares are allocated a Holder Identification Number (HIN) by the broker.

Holder Identification Number (HIN)
A HIN is a unique number that is issued to you by ASX when you become a client of a broker. A HIN starts with the letter X and followed by ten numbers, e.g. X0001234567

If you use multiple stockbrokers you will receive a different HIN from each stockbroker. You maintain 100% ownership of the shares and they are protected in the event your stockbroker goes bankrupt. Shares can be sold instantly because your stockbroker can confirm your exact holdings.


B. Issuer Sponsored Shares - Shares that are managed by the issuer of those shares via the issuer's Share Registry. Issuer Sponsored Shares can be traded through any broker, providing conditions set out by that broker are met. Issuer Sponsored Shares are allocated a Security Reference Number (SRN).

If you own shares in multiple listed companies, each share holding will be represented by a different SRN.
To confirm your share holdings you must log into the applicable share registries website (e.g. Computershare, Link Market Services, etc.)


* Recommendation: (CHESS Sponsored Shares) which holds your shares on a HIN


3. How to select what share to buy ?
A. Fundamental analysis
- Analyze financial statements to determine the fair value
 
B. Technical analysis
- Study of history of market data to predict future price movement

How do I select what share to buy if I am not yet familiar with technical and fundamental analysis ?
* Seek professional services
* Invest on stocks that are diversified like: Index fund or LIC or ETF
* Stock broker research and recommendation
* Own observation and research (online / newspaper / magazines)


4. How to buy / sell shares (Depends on your online broker)

General process: (refer to your online brokers guide)
- Login to your online broker account
- Transfer funds from your link account to your brokerage account
- Minimum share purchase is $500
- Input the stock code / number of shares / buy price
- Once transaction is complete, confirmation of transaction / contract is sent via email
- You will received a documentation of confirmation on your share holdings from CHESS or from Issuer statements
It has instruction to update your details such as bank account / email / TFN and if you want to set DRP.



Monitoring your portfolio
Download apps on your mobile phone
Login to your online broker account weekly / monthly


Record Keeping
• Records relating to income for income tax purposes, including dividend, dividend reinvestment or interest payment advice slips all of which generally are issued by company share registries to the holder's registered address; and
• Records relating to purchase and sale prices for capital gains tax purposes, including contract notes, copies of applications made for initial public offerings, dividend reinvestment and bonus share plan advice slips.



Taxation
- Keeping all records saves a lot of time during tax filling
- Total all your profits and losses.
- Review your dividends and transaction fees.
- As an individual, if you hold a share for more than a year, you only pay Capital Gains Tax (CGT) on 50% of your profit.
- You can declare looses during tax filling and it will be deducted from your future gains


How to prepare documents for tax filling:
1. Some broker provides free report of your trades and some charge for a premium.
2. DIY - record all your trades manually / use Excel spreadsheet
3. Use external software to track your trades











* Materials comes from various sources