In this article, we discuss how to read the financial newspapers and look at other areas of the media that can provide you with information on share market investment.
The financial press in Australia, and any other country, is a very important and influential source of information in many sectors of the community. Investors rely on it for information about how their shares are performing, stockbrokers read it to see what else is happening in the sharemarket, politicians read it to see how their policies are affecting the market (and in turn, the economy) and business people in general read it to see how their companies are perceived and how other companies are performing.
It is a quick and relatively cheap way for investors to discover what the professionals in the finance industry are thinking and doing each day, and to keep an eye on their investments.
Most newspapers have a range of financial stories in their general news section. However, the majority of stories relating to listed companies will appear in a special finance section of the paper, usually titled 'Business', 'Finance' or 'Money'.
Always remember the financial press is a source of both facts and opinions. Facts are derived from official announcements made by companies, governments, other organisations as well as from the publication's own researchers. Opinions are usually expressed in special columns by regular writers, cartoons and feature stories by guest writers or journalists. Guest writers may include politicians, stockbrokers, advisers or other prominent industry figures.
The newspapers and other publications you select to help keep you informed will depend on your budget and your particular interests and preferences. Are you seeking to achieve a local perspective or a national overview? Do you want brief or detailed information? The answers to these questions will help you to choose publications that are most appropriate for you.
There is also a wealth of specialist finance magazines. Again these are aimed at a range of different markets so spend time to read through a variety of them to find the one that is suitable for you.
Can I base my investment decisions on share market tables?
It is preferable not to. The sharemarket tables in the newspaper contain a lot of useful information, however, it is important to note that they only contain historical figures.
For example, Company X might be showing a dividend yield of 20 per cent. But a chat with your stockbroker may reveal that although last year's dividend was 20 cents, the shares are now trading at $1.00 and brokers are forecasting this year's dividend will be 3 cents - providing a yield of only 3 percent.
Your stockbroker may be able to provide you with very useful forecasts for the future performance of individual companies.
There are numerous facts you should know about a company before you invest in it. What does the company do? Who are the directors and what is their business experience? How is the company currently performing? What are its prospects?
The financial statements included in annual reports are a valuable source of the information you will require to answer these questions. Analysts in stockbroking firms, merchant banks, investment companies and financial institutions rely on them to make major investment recommendations for their organisations.
The contents of most annual reports can be divided into 3 general areas:
1. Background and highlights,
2. Review of operations, divisional activities and human resources:
3. Financial Statements
The content and form of financial statements for public companies which is used for this purpose is prescribed and controlled by:
• Corporations Law
• Listing Rules
• Approved accounting standards (which have the force of law)
• Statements of accounting concepts, and
• Accounting Standards.
In summary, there is a wealth of information available to guide the investor to make informed decisions for investing in an organisation.
This article is based on the ASX share course, 2008.