Market Essentials: Understanding Movements

By Jack Liang

In this series, Tiger Brokers breaks down the basics of what you need to know to start investing in stocks. Become empowered to make your own investment decisions with the world’s markets at your fingertips. 
As you build confidence in your investing skills, you’ll rely less on others’ advice and learn to trust your judgment on stock market movements.
As you learn to stand on your own two feet, it’s essential to have a strong understanding of Australian and international markets.
Keep reading for ten things you need to know before you start investing on your own. 

Investing in a Bull Market 

As you get more involved in investing, you may hear the terms “bullish” or “bearish” thrown around regarding economists’ views on market direction. A bull market refers to a financial market where prices are trending upward. When economists and financial analysts are “bullish”, it means that they are expecting the prices of shares, or other investment assets, to rise. 

Investing in a Bear Market 

The opposite of a bull market, a bear market is a financial market where prices are trending downwards. This usually reflects a significant drop in prices, with investor sentiment generally negative around selling stocks during this time. When economists and financial analysts are “bearish”, they are expecting prices of assets, particularly securities, to decrease. 

Investing in Indices 

An index fund is a great starting point for investors to begin building the foundation of a healthy portfolio. An index fund allows investors to invest in a market (like the S&P500) as a whole, whereby their funds are used to invest in all the companies that make up the particular index. This gives investors a more diverse portfolio than buying individual stocks and reduces risk for investors, but also limits return on the investment.

Active vs Passive Investing Strategies 

Whether you adopt an active or passive strategy for investing depends on your goals, schedule and individual circumstances. Active investing, or day trading, involves reactively buying and selling stocks within a short-term period. Active investing is considered a higher risk, as traders need to follow stock market movements closely. The volatility of the market means that, while active traders have the potential to make significant gains on individual stocks, there’s also a high risk of selling at a loss. 
In contrast, a passive investing strategy involves holding shares for a longer period. Passive investing means that traders are typically less affected by the day-to-day volatility of the market, with investors more interested in long-term changes in stock performance. 

Investing with a HIN / CHESS-Sponsored Fund 

Investing through a digital trading platform can be daunting. One way to manage your personal risk when selecting a platform is to look for one that has a CHESS sponsorship or certification. Investing through a CHESS-sponsored broker means that the ASX keeps a record of who owns what shares while offering a guarantee for the transfer of ownership so that investors are not hit with surprise “late” fees. A HIN, or Holder Identification Number also provides further security around stock ownership, as the shares will be registered in the individual investor’s name, attributing ownership directly to the individual investor rather than the brokerage entity and can be transferred from brokerage to brokerage. 

Stock market trends 

Like any experienced hand will tell you there is always a “method to madness”. Stock markets are inherently unpredictable entities, but experienced investors know this, as well as the signs to look for when making smart financial decisions. Like watching clouds and predicting coming rain, experienced 
investors will come to recognise many patterns and trends that indicate how the market will develop. It is no crystal ball, but it is an integral part of being a smart investor. 
As you continue investing, you’ll be able to recognise trends in stock movements (like those below) and notice that each sector experiences ebbs and flows in response to world events. Throughout the 2022/23 financial year, for example, the ASX remained stable while overseas markets were bullish, with leading blue-chip technology companies leading the market consistently. Moving into the 2023/24 financial year, we can expect these trends will be impacted by external factors, making it essential for traders to monitor relevant news and market trends.

Growth stocks explained 

Growth stocks are market shares with a high expected growth rate, well above the market average. These stocks typically aim to achieve rapid short-term growth and therefore will continue to invest earnings back into development to accelerate its trajectory. This means that, while the share price will likely increase significantly over a short period, they typically won’t pay dividends. 

Small, Mid and Large Cap Stocks 

Share “cap” refers to the market capitalization value of a company’s shares based on the number of outstanding shares and its market price. Small-cap shares are shares sitting outside the top 100 largest shares on the stock market, while large-cap shares sit on the other end of the spectrum, within the top 50 companies. Mid-cap stocks are positioned between these, representing the shares averaging between 51st to 100th on the stock market. 

Keep Calm Through the Downturn 

With the inherent volatility of the stock market, the downturn of individual stocks is inevitable, whether it’s short-term or prolonged over a longer period. While a significant downturn can be frightening, it’s
important for investors not to panic when the price of their shareholdings drops. If experiencing a significant or long-term decline in share price, traders should seek support from a financial advisor. 

Uninvested Interest 

One disadvantage that traders often experience when investing through a digital trading platform is that their uninvested funds are often left idle in their accounts. Idle funds could be there for several reasons; whether that is investors awaiting a good moment to buy shares in bulk or preparing for a comprehensive investment strategy. While it might seem the money is “doing nothing” there are services that platforms like Tiger Brokers offer to ensure your money is working for you no matter whether it is invested or not. With Tiger Trade, investors can earn interest on uninvested cash amounts over AU$5,000. 

Key takeaways 

● The best investment option is dependent on individual circumstances and goals
● Understanding market terminology and trends is essential to independent trading. Relying on support from professionals or online communities can help to guide your investing decisions until you are confident building your portfolio 
● Monitoring relevant news and market trends is essential to managing your investment portfolio successfully 
Continue to learn the ABCs of investment in our final installment as Tiger Brokers helps you build on your basic stock knowledge to develop a more advanced understanding of investing.

About the author: Jack Liang is the Vice President at Tiger Brokers Australia.