Understanding the financial pages
- Financial Planning
Looking at the financial pages of the daily newspaper may seem like a bewildering onslaught of information with reams of market statistics and measurements. This can make the investment world seem quite complex and intimidating, but when you break it down and try to grasp each of the component parts, it is well within the capacity of most lay people to understand.
Here are a few tips that may help to get you started:
Firstly, a word of warning
Beware of the temptation to start reading the financial pages in the same way you would read the form guide for horse racing!
It is easy to get caught up in habit of tracking daily movements of particular share values, but this can distract you from the taking the broad, long term view that is so essential to successful investing. In short, don’t be tempted to try and ‘pick winners’.
Understanding the ASX table
The financial section of the newspaper will normally show the full list of companies listed on the Australian Stock Exchange. Next to each company will be a range of figures, usually beginning with the price of the share for that company at the end of the previous day’s trading. Some publications will also show a three letter ‘ASX code’ used to identify the company.
Other measurements shown on this table include:
- Weekly volume – The total number of shares of a company that were bought and sold within the last week.
- Price movements – This may be shown as the price change since the previous day’s closing price, or it may be shown as a change over the previous week and some financial tables will even show the change over the last 12 months.
- Dividend yield percentage – This figure is sometimes also shown and is the amount a company pays out in dividends each year as a percentage of the current share price. For example, if a particular share has a value of $100 and has paid a dividend of $5 then its dividend yield is 5% ($5 divided by $100).
While the ASX table breaks down the performance of each company separately, you can also look at the collective performance of the market as a whole via the ‘All Ordinaries Index’. This tracks the movement of the total value of all shares on the exchange and the change over the last week and month may also be shown.
Apart from the All Ordinaries Index, there are also a range of other sub-indices which indicate the performance of different segments of the market. The ASX 200, for example, is an index that tracks the change in collective value of the largest 200 public companies.
Some indices focus on specific industrial segments. The S&P ASX200 Energy Index, for example, measures the largest 200 energy companies. There are indices for and range of other sectors, such as health care, industry, finance, and metals and mining.
Financial pages will also usually show various indices for major stock markets in other countries, such as the Dow Jones index in the USA, the FTSE in the UK and the Hang Seng in China.
The prices and price changes of key commodities are also a feature of many financial pages. Oil and gold are two such commodities that will usually be shown because of their importance as indicators of the general direction of the world economy and of market sentiment.
These are another important indicator of economic conditions and the state of the economies of different countries relative to each other. The financial pages will usually show the daily movement of the Australian Dollar against major world currencies, such as the US Dollar, the Euro and the Yen.
There can be many factors within each country’s domestic economy which influence the movements in exchange rates. These can include interest rates, inflation, political stability, government debt and terms of trade.
Making sense of it all
It would obviously take quite some time if you were to review and analyse all the items being reported and measured on the daily financial pages. Even if you do have the time to do that, it takes a considerable amount of skill and experience to interpret what different movements mean.
Often the day to day movements in things like share prices and exchange rates are the result of transient factors and it is only a consistent analysis over a long period of time that can start to make a coherent interpretation.
While it can be interesting to follow the fluctuating fortunes of particular shares, or the daily machinations of indices, commodities and exchange rates, it helps to have a financial adviser on your side to look at the bigger, long term picture.
They will have access to expert research resources that constantly analyse markets at home and abroad and can position you to grow wealth without the need to personally keep track of day to day changes.
Do you enjoy keeping an eye on the financial pages? Tell us your thoughts.