Sample extracts from

THE BASICS OF SPECULATING - Gerald Krefetz

Published under the Editorial Direction of Daryl Guppy

Australian content by Daryl Guppy

This excerpt copyright 1997

This book is for sale only in Australia. An order form follows at the end of the chapter sample. All books ordered from this site will be personally signed with a note from the author. (To easily print the sample chapter just SELECT ALL the COPY from the FILE menu on your Internet Browser, and then PASTE the selection into any word processing package, such as Works or Word.)

INTRODUCTION (selected extract only) Daryl Guppy 1997

Speculation is an ugly word for a useful and profitable activity. Its when you sell that counts and selling is the end product of speculation.

Unfortunately speculation has a bad name and an ugly smell about it in Australia because it is usually linked with real estate deals of doubtful honesty. Penny dreadful shares in Pierpont's Blue Sky Mines (No Liability Except At Gunpoint) and real estate swampland are speculative in nature but they are not the type of speculation this books deals with.

When you buy investments hoping they will go up you speculate. It does not matter if they are shares in a blue chip company, a housing loan that locks in a good interest rate, long term Government bonds, or some start-up bio-genetics company. You are still speculating and since you are doing it already, it makes sense to understand how to do it more effectively. This book is a basic introduction to the field.

The trader buys todays results confident that results in the immediate future will be better. The trading time frame may be shorter - a few days or weeks - than the investing time frame - a few years or decades - but the principle is the same. Neither of these are swampland we want to pass off to unsuspecting buyer as "overlooking water views." In return for the risk we take we expect a reasonable reward and we speculate on the future performance of the security. The future performance provides the reward.

Speculative activity is respectable if it is not designed to take advantage of others ignorance and gullibility. In market speculation the person on the other side of the trade is generally at least as smart as you, if not smarter. Markets offer different levels of risk, of speed and difficulty. Krefetz looks at this variety and gives the reader an introduction to the characteristic of each market segment.

By matching your interests and your appetite for risk and your trading or investing approaches, with the markets covered you choose to explore particular markets in more detail. Krefetz explains the operation of some markets particularly well. The discussion on options is very clear, but like many US books the world stops on the edge of continental North America.

We have dealt with this problem by adding an Annex, generally with three sections, to the end of each chapter.

The first section is a brief explanation of the differences between the US market and our own.

The second is called US TERMS OF TRADE. This matches some of the US terms used in the chapter with their Australian equivalents.

The third section, SHORT CUTS includes a sample of Australian funds. These are not recommendations. Additional up to date information is available from magazines such as PERSONAL INVESTMENT or SHARES. Readers are strongly advised to consult with a registered financial advisor before making any decision because funds and fund trading methods change.

The speculator does not push prices up or down. Crises move speculators to act. Speculators do not cause the crisis. The prudent speculator anticipates the looming problems and takes an early position. While everyone else is talking about the crisis, the speculator is acting - if only politicians could convert their talk into action in the same way. The last part of this century has been characterised by political ineptitude and corporate mismanagement on a large scale and it is no wonder speculators have done so well.

You have a choice in the face of these economic problems - become a victim or become a successful speculator. If you choose the latter course then this book will provide you with a useful introduction.

AUSTRALIAN MARGIN TRADING (selected extracts only) Daryl Guppy 1997

Margin trading gives the trader powerful leverage but the way Australian margins are set is quite different from the US. The Reserve Bank does not set margin lending rates. Nor does the Australian Stock Exchange set minimum maintenance margin regulations.

Both these levels, the interest rate charged and the equity level required, are established by the brokerage or lending institution. Additionally Australian margin lending is usually limited to a selected list of securities with a minimum level of investment. ANZ Stockbroking requirements are typical of Australian practice. Rates and conditions do change, so shop around for the best deal.

The share mortgage loan.
The loan facility can be used as a revolving line of credit but the lender can demand repayment if there is unusual market volatility or after 10 days notice if, for instance, ANZ reduces the facility amount or wishes to terminate the agreement.

Approved list of Securities and Security value
The ANZ margin lending approved securities list includes around 150 equities, ranging from Advance bank and Boral to Great Central Mines and Sons of Gwalia. Additionally around 30 Unlisted Property Trusts are approved.

Traders are required to make a selection from this approved list.

Traders considering using margin lending based on a share mortgage loan should make sure they fully understand all the documentation. The advantage lies with the lender and the risk with the borrower. If in doubt talk to a competent financial advisor. PERSONAL INVESTMENT magazine does a yearly review of margin lending.

US TERMS OF TRADE

SETTLEMENT PROCEDURES
The Australian market is very efficient and settlement of each trade is currently required within 5 business days. Our growing use of uncertificated holdings makes this speed possible. By the start of 1998 the intention is to complete all settlements within 3 business days.

OTC
This is a market of stocks traded that are not listed on the major exchanges. This term in Australia applies usually to options or derivative trading where the option is customised to suit a particular client.

COMMON STOCK
These are equivalent to Fully Paid Ordinary shares.