Roger Kinsky - Teach Yourself About Shares: A Self-Help Guide to Successful Share Investing

1. Chapter 2
2. Chapter 3
3. Chapter 4
4. Chapter 6
5. Chapter 9
6. Chapter 10
7. Chapter 11
8. Chapter 12
9. Chapter 13
10. Chapter 14
11. Chapter 15

1. Chapter 3
2. Chapter 4
3. Chapter 5
4. Chapter 9
5. Chapter 13
6. Chapter 14

A Self-Help Guide to Successful Share Investing

Roger Kinsky

THIRD EDITION

This third edition first published in 2020 by John Wiley & Sons Australia, Ltd
42 McDougall St, Milton Qld 4064
Office also in Melbourne

First edition published by Wrightbooks (an imprint of John Wiley & Sons Australia, Ltd) in 2003. Second/Revised edition published by Wrightbooks (an imprint of John Wiley & Sons Australia, Ltd) in 2009.

John Wiley & Sons Australia, Ltd 2020

The moral rights of the author have been asserted

ISBN: 9780730384946

All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.

Cover design: Wiley

Disclaimer

The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.

I wrote Teach Yourself About Shares because very few share investing books contained worked examples or exercises that enabled the reader to learn while reading and put the ideas into practice. After many years working as a trainer and TAFE teacher, I'm firmly convinced that the best way of learning is selfguided learning, where the learner has input into the learning process and the trainer acts as a mentor or guide. I've adopted this principle in this book, so you can reinforce your learning about shares through selflearning.

I'm pleased to report that the first edition of this book was successful, justifying the reasoning behind it. After some years, a second edition was produced and now this is the third edition. In this edition, I've tried to make the book even more userfriendly by simplifying the explanations and by including additional worked examples and learning exercises (with solutions). Many of the worked examples and learning exercises are based on reallife cases, but fictitious names and codes have been substituted to give them a timeless value considering the rapidly and everchanging nature of financial markets.

To gain maximum benefit from this book, I strongly suggest that you attempt the learning exercises at the end of each chapter without referring to the solutions until you've completed them to the best of your ability.

This book complements my book Online Investing on the Australian Sharemarket, which is devoted specifically to online investing. I believe that Teach Yourself About Shares will have value for all types of share investors and traders. If you use the internet for research or trading, this book can be used in conjunction with my online investing book for maximum benefit.

Every effort has been applied to make the book errorfree but perfection is very difficult to achieve. My email address is and I'd like to hear from any readers who detect errors or have any constructive comments or suggestions.

I hope that this book proves to be truly useful in improving your understanding of shares and your success as a share investor.

Roger Kinsky
Woollamia, NSW
May 2020

In this chapter, I outline the various types of shares and securities you can invest in. I also discuss some important terms and concepts, so you'll be able to understand the information available.

A financial investment instrument is something of monetary value that can readily be traded; that is, bought or sold. These are also known as securities because of their monetary value, which allows them to be used as security for a loan.

Shares are a popular type of investment instrument or security.

The idea of share ownership originated in the early days of English exploration, when expeditions were mounted to farflung regions in search of riches. For those prepared to take the risks involved, a successful expedition could make them large profits. However, such ventures were very expensive and often relied on royal patronage (funding). In addition, private investors might contribute; for example, if a venture cost 10 million to mount, this might be obtained from 10 investors, each contributing 1 million. Funds obtained this way became known as equity capital because investors were part owners; that is, they had an equity in the enterprise.

• Capital is just another name for money or cash used for business purposes.
• Shares are also known as equities.
• Apart from equity capital, a business can also obtain capital by means of loans from banks or financial institutions. This capital is known as loan capital.

The idea of issuing shares to obtain equity capital for business ventures caught on in capitalist economies. Soon, several refinements were introduced. These included:

• Issuing shares with smaller monetary value. That is, instead of raising 10 million by issuing 10 shares of 1 million, the same capital could be raised by issuing 10 million shares at 1 each.
• As shares had a value, they could be traded between willing sellers and buyers. Indeed it was possible to make a profit by trading shares without actually participating in the enterprise. Originally, share trading was done at the Royal Exchange and then in coffee houses where investors gathered, but by 1748 share trading was so popular that a dedicated stock exchange was set up in Threadneedle Street, London. Soon this idea spread throughout the world and today most countries have their own stock exchanges.

The words stocks and shares are often used interchangeably but really they have slightly different meanings. Shares are the smallest equal units of division of ownership in a business enterprise, whereas stock is the sum total of all those shares. For example, all shares issued by Woolworths comprise the total Woolworths stock. If you buy some Woolworths shares, the number of shares you own determines the extent of your equity in the companyin this case, Woolworths.