Sharemarket Warning for Inexperienced Investors and Traders

The sharemarket is not a place for inexperienced investors and would-be share traders. This is a warning for unsophisticated .

Posted in Australian Markets | Traders' Delusions, Submitted by Trading Critic on Sun, 2009-07-26 23:01.
Sharemarket Warning for Inexperienced Investors and Traders

The sharemarket is not a place for inexperienced investors and would-be share traders. This is a warning for mum and dad investors as well as stock traders who are dreaming of a quick buck. Before you step into the markets, you must ask yourself why do you want to trade the stockmarket?. You do not want to be gambling your money away by trading. You also need to be realistic about your expected returns. This blog Trading Critic is in itself a cautionary tale of the financial industry surrounding the markets: share trading, stockmarkets and forex trading. There are many things that can go wrong for the retail trader. That said, many things can go right too. What is important is that you are aware of the pitfalls and dangers of trading and investing in the stockmarket before you actually execute any orders.

What can happen to unsuspecting inexperienced sharemarket investors and traders? The positive outcome would be you receiving a positive cashflow from the dividends and a healthy capital growth rate for as long as you hold the stock. On the otherhand the negative outcome is totally the opposite (obviously), while you can't receive negative dividends, you would probably experience a negative capital growth with the fall of the share price. Hold on – isn’t this all OBVIOUS?! Why are you wasting my time? No I’m not. Another pitfall YOU MUST WATCH OUT FOR, a warning you must heed is to read and understand the fine print of a stock before you execute the order.

Sharemarket Warning: Read the Fine Print

You have been warned: read the fine print. Take in point: the case of BrisConnections which has been in the news lately. You know the company which Nicholas Bolton of Australian Style Investments made some money by buying up a substantial stake ($47,000 with $97 million worth of liability) and then selling the voting rights to Leighton Holdings. The actual BrisConnections share which could have been bought freely like any other stock on the Australian Stock Exchange had some fine print attached to it (you had to either just "know" because you read the financial news or have read their Product Disclosure Statement (PDS)). The fine print was that the stock was structured with some attached debt. Similar to T3 in that you were expected to pay an instalment by a certain date. Now there are at present 135 former unit holders of BrisConnections whose companies are at risk of being wound up or individual shareholders facing bankruptcy because they could not make the extra payments they were obligated to on their units. Here is a doctor who was affected by this:

Dr Ramzy said he also bought the units without knowing that he was obliged to pay the next instalment.
He bought in at 27c a unit and then topped up his stake when they fell to 10c, and again when they dipped further.
"Sometimes I feel like an idiot, being entangled in this mess," he said.
"It's very frustrating to see this happening to everyday investors who didn't do anything out of the ordinary - they just bought shares.
"All these shares I bought are worth nothing now … not only that, they want to destroy everything else I have," he said.
Dr Ramzy said he did not have the money to fight the attempts to wind up his company in the Queensland Supreme Court on Friday.
"I want the chance to defend myself but it will costs tens of thousands, which I can't afford," he said.

Now unsophisticated and unexperienced investors who bought the BrisConnections share at around 5 to 7 cents per share are obligated to pay up an additional $1 per unit. (keeping in mind that the stock is not worth anywhere near that price anymore) This is why inexperienced investors are recommended to use full service brokers as they are obliged to advise you on anything you are supposed to know and not the cheap internet brokers as they only provide the basic service of order execution. Trying to save a few dollars versus the potential of being bankrupt? Hmmm. Tough choice.

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