Question 1: I want to start buying shares for my kids who are 5 and 7 years. I have opened a CommSec account for them. Which 5 shares do you recommend for the long-term with $10,000?
Answer: I have two answers. Firstly, if you want them to learn about investing at the same time, I would buy shares that they are more likely to relate to or can see what they do in the community – i.e. where they bank, the phone carrier you use, where you do your grocery shopping etc. In this category:
- One of CBA/ANZ/NAB/Westpac etc
- BHP
- Telstra or TPG
- Coles or Woolworths
- CSL
If I was more focussed on growth companies over the next 10 years:
- Macquarie
- BHP
- Amcor
- Wesfarmers
- CSL
Common to both packs is that they are leading companies from 5 different industries. Not fully diversified, but an element of diversification.
Question 2: I note that some buyers place orders before the ASX opens, to purchase shares at significantly higher prices than the previous closing price, I assume to get ahead of other buyers. The reverse occurs with those selling shares at much lower prices. I assume they only pay or sell at the “opening price”, is this correct? How does the market set the opening price?
Answer: The opening and closing prices, which are set in single price auctions that occur between 10am and 10.08am in the morning and 4.10pm in the afternoon, are determined by the price at which the buyers and sellers overlap. All buyers and sellers receive exactly the same price, irrespective of where they bid or offered the stock.
Probably best explained by a simple example. Suppose there is a buyer for 1,000 shares at $5 and another buyer for 10,000 shares at $4.90. On the sell side, there is one seller for 2,000 shares at $4.50 and one seller for 20,000 shares at $4.90. It looks like this:
BID OFFER
1,000 $5.00 2,000 $4.50
10,000 $4.90 20,000 $4.90
The clearance price will be $4.90. There will be 11,000 shares traded, with both buyers being satisfied in full and paying $4.90. The best offer at $4.50 will in fact receive $4.90, and the seller of 20,000 shares at $4.90 will only sell 9,000 shares. After the single price auction, they will have 11,000 shares on the offer at $4.90.
Investors put in crazy high bid prices to guarantee that they will buy on the opening, and others put in crazily low offer prices to make sure that they will sell at the open. They need to be careful, because to work properly, it does require some volume.
Most broker sites will show the indicative opening or closing price. As you get closer to the opening or closing, this indicative price will be changing all the time – you only get a real handle in the last minute or so.
Question 3: Djerriwarrh (DJW) has come out with a share purchase plan. DJW has traded very weakly compared to other LICs like Argo and AFIC, my thoughts that there are far better alternatives out their than DJW. Do you agree?
Answer: Djerriwarrh’s (DJW) recent performance has been pretty ordinary – now underperforming by 2.1% pa over 5 years and 1.5% pa over 10 years. The stock now trades at a discount to NTA (for many years, a premium).
This all said, I would probably subscribe because the SPP price will be at a 5% discount to the ASX price, meaning that your purchase price will be at least a 5% discount to NTA.
I certainly would not be investing in Australian Foundation (AFI) or Argo (ARG) – both trading at crazy premiums to NTA. Both are sells!
An alternative is to invest in the index tracking ETFs – VAS or IOZ.
Question 4: Commonwealth Bank has declared a fully franked interim dividend of 150 cents per share. If I buy CommBank shares on the ASX now, will I get that dividend?
Answer: CBA goes ex-dividend on Tuesday 16 February. If you want to get the dividend, you will need to buy the shares before the COB on Monday 15 February. If you also want to participate in the dividend re-investment plan, the closing date for elections/changes is Thursday 18 February (5pm).
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.