Question 1
Hi Paul. ETFs seem to be very popular at the moment for personal investors and SMSFs. My question is: what happens if we have a crash? Looking at the ETFs on the Australian market, there are only a few buyers and sellers. So, if everyone is trying to sell, will I be able to get my money out?
Answer
Exchange Traded Funds (ETFs) appoint market makers to provide tight bid/offer spreads around the underlying NTA (net tangible asset value). If the market makers are net buyers, they redeem the units with the issuer. If they are net sellers, they create units with the issuer. Look at the quality of the spread rather than the number of buyers or sellers. If you are investing in a traditional ETF that tracks a major index such as the S&P/ASX 200 or US S&P500 (rather than a synthetic ETF), yes, you will be able to get your money out.
Question 2
As a first-time buyer of shares, I bought into (Mayne Pharma) when the shares were 73 cents. Not sure whether I should cut my losses or just hold on for the ride? It’s been a bit of a learning curve but at least I know now about setting a stop loss when I buy anything else!
Answer
I think you have answered your own question. I don’t claim to be an expert in Mayne Pharma, but can attest to this statement: “your first loss is your best loss.”
Question 3
We have recently retired and have received some additional cash and are trying to decide where to invest. Whilst many stocks seem to be trading on high PEs, we note warnings against value traps, which also applies to bonds and REITs. At this stage of life, we need to consider all three: capital security; income and long-term growth. Any suggestions?
Answer
The $64 question – capital security, income and long term capital growth. Without access to your portfolio, I am loathe to offer individual recommendations. Have a look at our model growth portfolio. Another option might be to consider one of the major listed investment companies like Milton Corporation (MLT), or potentially even a fund like the Switzer Dividend Growth Fund (SWTZ).
Question 4
What are the fundamental factors one should consider before buying a micro cap stocks? What is your pick for the long term, which you think will be 10 bagger? Thanks.
Answer
The fundamental factors to consider when buying a microcap are exactly the same as those you would use to buy a large cap stock. There are some other factors to consider:
- a) Liquidity, or potentially, lack of liquidity;
- b) Influence/control by major shareholders (including executives); and
- c) In some cases, corporate governance arrangements.
Liquidity (or lack of liquidity) means that you may need to be patient when both entering or exiting a position.
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 regards to your circumstances.