Sharesies: Detour Ahead
Sharesies has made investing accessible to all.
When Sharesies launched In July 2017 they lowered the barriers to entry for those wanting to enter the share market and they set about serving a previously underserved demographic. With just $5 you could cut out all the women and men in suits and mumbo jumbo they speak and buy into a diversified ETF or Managed Fund. They really have made investing super easy and achievable and they have nailed ‘plain English’, continuing to just keep things simple in the way they relate to investors via their easy to understand and interactive website. People may begin using them with little idea of what they are actually doing, but with the barrier to entry being so low I often tell people to “just start” and you will pretty quickly educate yourself along the way. And I think it’s true, that “learning by doing” does work.
Thankfully Sharesies has helped people see that becoming a share investor is another viable way to grow your wealth in New Zealand, they have helped people see that there are other options available that are interesting and diversified and I’m sure that when a particular company is mentioned somewhere, say Infratil or BurgerFuel many more Kiwi’s now think to themselves, “I’m invested in them” and they sit up and take notice. If this new platform makes people actually notice the companies that are around them right here in New Zealand, then that is great. With a whole new tribe of willing investors, maybe these very companies will find it easier to raise capital right here at home, instead of going offshore?
I’ve been having a good experience with share investing, due in large part to our sharemarket cranking along rather nicely.
I have just one of my index funds with Sharesies, the SmartShares NZ Property ETF (NPF) and if I’m honest, I originally only joined so I could blog about it, but a weekly investing habit has been created and I’m pretty happy with it. For every person who used my referral code on sign up, this is the fund I invested in. So, thank you! Sharesies has lead the way in actually making investing interesting and not that big a deal. By just starting something, even if it’s only $5 a week, I’m creating a new investing habit and taking the time to learn the system and learn about what I’m invested in, plus I give myself a pat on the back for thinking long term with my investing. Sharesies gives a good lesson that if you are going to get involved in the share market you are looking for time in the market, not timing the market and that regular investing over a long period of time is what you should be aiming for.
What changes are they making?
Sharesies continue to innovate in this space and it is interesting to watch their rapid pace of change. When they first began they offered 11 Managed Funds and Exchange Traded Funds (ETF’s) that you could invest in. As at July 2019, they offer 38 of these. In July 2019 they launched the ability to buy shares in over 120 individual companies listed on the NZX main board. No idea what the main board is? Check it out here: NZX Main Board (NZSX)
Basically, instead of buying into a diversified fund made up of a heap of companies i.e. the NZ Top 50 ETF (made up of 50 NZ companies), they are giving you the chance to buy shares (or fractions of shares) in individual companies i.e just Meridian Energy. You now have the opportunity to buy whatever you like and spend as little or as much as you like. If you like the look of Auckland Airport, for example, you can go ahead and buy shares in just that single company.
Of course, you have always been able to do this on other trading platforms, but Sharesies once again has been a disrupter in this space and made the process of investing in an individual company far easier and far more user friendly. It no longer feelings daunting.
Will there be any cost to this new service?
Their subscription fee does not change, it is still considered “high” in this low fees space but here it is:
When you buy and sell shares in an individual company you will be charged an additional transaction fee based on the dollar amount of your order, AKA “brokerage fees”. When you reach the checkout they will detail what your fees are for that transaction based on this formula:
There is no auto-invest option yet, this may come, so, for now, you will manually go into your Sharesies account to buy. If you have not done so already, you have to have your IRD number loaded into your Sharesies account and current users of the site will have noticed a couple of extra steps in the process if they have logged on recently as Sharesies seeks to gather all of the appropriate information which keeps them in line with Financial Markets Authority (FMA) regulations.
You can’t always get what you want.
The share market is a giant market that relies on the ebb and flow of buyers and sellers. Sometimes you might want to be buying and no one wants to be selling. Sometimes you might want to buy say $200 of a company but Sharesies can only supply $100 on that day, they can only partially fill your order. But the next day someone might be selling the other $100 you were looking for and they can complete your order. However, sometimes they just won’t be able to - it comes down to simple supply and demand, no different to your bakery running out of your favourite mince pie, just as you get to the front of the queue. If after 30 days they still can’t find you the shares you were wanting, they will cancel the unfulfilled order - or you can cancel it yourself at any time during that period.
Only being able to partially fill an order won’t happen with Managed Funds but it could happen with ETF's (but it never has in my own experience).
It’s good that companies grow and evolve. But...
Up until July 2019, I have only been able to buy into ETFs and Managed Funds using Sharesies, they started with just 11 and now they offer 38 and I’ve noticed via the emails I receive that already people are finding this increased selection of funds harder to deal with. When you know zip, nada or nothing about investing, how do you choose what to invest in when faced with 38 choices?
The concept of a managed fund or an ETF being a really diversified investment, where you spread your risk over a range of companies is FANTASTIC and it is certainly the way that I choose to invest. But people are becoming confused about how many funds they should buy and whereas I have just three funds in total, others have contacted me with great excitement to tell me they have bought into “all the funds”. This is concerning to me.
Sharesies reason for being was and is “to make investing in shares accessible for anyone” and they have specifically gone after people who have never invested before, they have successfully found a whole new market that traditional financial providers either didn’t know how to get, or thought there was no point trying to get, because those people didn’t have enough money to spend. Also, over the last two years, they have, via their marketing campaigns and the service they provide gained our trust and got us thinking about our money, for the very first time for many. This is absolutely fantastic, but with their expansion and now their move into including the ability to buy individual shares as well as Managed Funds and Index Funds, they do run the risk of confusing the heck out of their customer base, much like the other investment providers out there already do.
No offence intended - but what makes you think you will be any good at picking stocks?
I am all for investing in the share market. It is an excellent place to grow your wealth over a long period of time and its working well for Jonny and I. I like the fact that I am supporting companies so they can produce goods and services and provide me with a share of the profits.
But, I am terrible at picking stocks.
Ask me how my E-Force stocks are going? WHO? Yep, that was a tech company Jonny and I put money into back in the early 2000s. We might as well have stood on a street corner and handed out our money to passing strangers. Actually, I wish that is what we had done, at least a number of people would have benefited! That money is long gone.
How about our Air Future stocks? Those are dead in the water too. The original premise of the company was communication technology but it seems to have evolved in all sorts of ways I could never have imagined. They don’t appear on any spreadsheet I have because although they are now involved in weird looking cars, there is no point entering an investment where the current worth to us is ZERO.
Why did we buy both of these companies? On the advice of acquaintances of course, that’s where, at that time, most of our stock tips came from. Because where does someone who has no idea about investing go for advice? To a friend who over a drink says “man you should buy cryptocurrency... buy gold... buy tech stocks... buy medical marijuana - it’s the NEXT BIG THING”!
And that is my concern with Sharesies, that people will make an investing decision based on no research and bad advice. And the chances are high that they will get burned, lose their money and then claim that the share market is “where you only put money that you can afford to lose”.
Our one saving grace as far as individual shares go is our Meridian Energy shares, purchased on the advice of the Prime Minister of the day when they partially privatised the company. They are going great, but they needed to, to make up for our other failures! And our success with this company comes down to dumb luck on our part, I claim no credit for having picked a winner.
If you are considering going down the path of purchasing individual companies you need a diversified portfolio of companies so that in amongst that group of say ten, you select some that perform strongly, that way they will cover up for the losses of others. Fingers crossed.
Despite all that, I bought some shares!
I wanted to test out their new platform and purchase $100 of shares in a single company, so I asked, via my Sunday email, if anyone had any suggestions for me. I thought I would go with group think and let the majority make the decision for me (aka “ask my friends and acquaintances”). Surprisingly it was slim pickings, with few suggestions coming forward - I think the readers of this blog also understand the limitations of picking stocks. But I did choose one and once you pick your company the process to purchase is exactly the same as if you were buying a fund. On the 18th of July I purchased $100 of this:
My research into buying this was HORRENDOUS! I basically just asked people their thoughts, knew that the people who responded to my request had a lot of investing experience and went with their investment selection. I am concerned that many Sharesies customers will do a similar amount of research as me (stuff all), or pick a company based on a personal good experience with that company, along the lines of “I buy Meridian shares because they supply power to my house and every time I flick a switch the lights come on”. This is no way to become an investor in individual companies. But no matter how hard I try, I just can’t find the interest or motivation to research the day to day goings on of Ryman Healthcare, it’s just one of the many failings I have and the reason why I was beside myself with happiness when I discovered instead the NZ Top 50 Index Fund! No stock picking required!
So, DON’T follow my example here of how to pick stocks, perhaps follow instead the example of Vinnie who responded to my request by emailing me his comprehensive spreadsheet showing current price, 1 year ago and 5 years ago, dividend yields etc, etc. He had colour coded his spreadsheet so he could see at a glance the companies he felt would be worth investing in. He is clearly undertaking a lot of research on individual companies and carrying out a lot of analysis. If you are interested in individual companies, this is exactly the level of detail you need to be getting into. You really do need to take the time to follow along with a company as best you can. But even then he is faced with a hard task. Share brokers, which you will pay to use, work full time in the area of helping their clients pick and choose which stocks to buy and sell. They follow up to the minute information on what is happening within a company. This is their full time occupation - predicting the markets and advising clients. If Vinnie has a day job he is going to have to work pretty hard to collate all the information he needs to make a sound investment decision.
It is extremely difficult for individuals to beat the market - or professionals for that matter. With so many companies listed on the share market, some will surge, some will fall and predicting which one will do what is the hard part. If you think that buying individual shares is going to be for you, then you need to be prepared to do A LOT of your own research. Sharesies are talking about adding a robo advice service, but that’s not yet available, so in the meantime, it’s all down to you.
Each year the NZ Herald asks the top brokers in New Zealand to predict the companies that they think, based on their huge amount of expertise, will have the strongest performance in the coming year. Here is how they did in 2018. Follow the link for the 2019 picks: Brokers Picks: The hot stocks for 2019
It’s a really mixed bag of failure and success:
Be prepared because you just might lose your money.
I feel that Sharesies have had a bit of a dream run and they have created something both useful and effective in making investing normal and comfortable to a whole new demographic of investors as they really take to investing in diversified funds. But I also think that for the first time they are going to have to deal with people's disenchantment, that users may well lose their money. Not just watch their fund dip in value, but actually, watch the entire value of their individual holding turn to dust or, if we have a market dip or a major fall, watch their confident new investors cash out their chips and scramble for the exits. As was pointed out to me recently by a reader of my blog, “we have not had a good slump for a decade and we will have a whole new crop of investors and their first experience of a slump may not be pretty.''
Proceed with caution would be my suggestion.
If you have any doubts about your ability to choose an individual company then my thoughts would be to just stick with one (or a couple) of the ETF or Managed funds that Sharesies offers. Invest regularly and stay in the market, don’t chop and change, do what feels right for you and hold your course in good times and bad. Mary Holm often suggests that money invested in the share market needs to be in there for ten years plus, so make sure you are thinking long term.
Before jumping into purchasing anything on the share market I would encourage ANY person thinking of investing in shares to read the following book: JL Collins - The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life or to listen to this podcast where they interview the author: 019 - JL COLLINS FROM JLCOLLINSNH - THE STOCK SERIES - PART 1
But if you ARE that ‘details person’ who really likes to drill down and do your research then you are really going to enjoy picking stocks, but for goodness sake, do your research, know your limitations and remember that shares are risky and we forget those risks when times are good. You need to work out not only what to buy and when to buy, but also to understand when is a good time to sell.
Finding out as much as you can about a company you are interested in is important so here are some resources to help you:
www.atmstrategy.com.au ATM Research - you can use a company like this who do comprehensive stock research, but you will pay to read their information.
The Podcast Stock Market Movers by Jeremy Medlin offers weekly news and insights about New Zealand companies.
You can sign up to www.headliner.co.nz for share advice on NZ companies.
You can of course work with a broker who can guide you through finding the right investment mix. You will pay for the service, but maybe that will make it worth it in the long run? Check out this resource on the NZX website: Education Resource Centre
A really important part of investing is to track your holdings. I use Sharesight to assess the performance of the investments I have, including the one (and now two) single holdings I own. Sharesight is free to use for up to 10 companies and it’s the best tool I’ve found for working out if my investments are actually making me any money! It automatically tracks my dividend payouts, updates throughout the day as the market changes and basically gives me information that I could never achieve with my own spreadsheet. I’ve also loaded our index funds on here plus our KiwiSaver accounts into it as well so I can get an accurate net worth amount too.
Here is how my new Ryman Healthcare shares are tracking so far:
Graeme emailed me with his thoughts on the changes to Sharesies, saying, “this could allow people to dip their toes into the share market for the price of a smashed avocado toast. Owning even $10 of a company makes you more aware of it and with the comparatively small NZSE most companies get mentioned in the business pages. I’d argue that $10 in A2 milk, Air NZ or Spark would result in a significant amount of passive learning and interest in the stock market. It could even be a good family project to do, giving each family member $10 to pick a stock and follow it for a year”.
I do like his family project idea!
There you have it, my thoughts (and a few of yours) on the changes to Sharesies, take from it what you will. Just go into it with your eyes wide open and research, research research. I’ll keep monitoring how my Ryman Healthcare shares are doing in comparison with my NZ Top 50 Index Fund and I’ll give you updates along the way in my weekly email.
If you would like to sign up with Sharesies, consider using my link and help support me and what I do on this blog. If you use it to sign up, I will receive $5 in my own Sharesies wallet that I can buy funds with! SIGN UP TO SHARESIES