The Performance Report now has an option to specify whether you would like to include or exclude the imapct of sold shares in the return calculations. With the ‘include sold shares’ option unchecked, the report will display the performance of currently held shares only. With the include sold shares option selected the realised gains / losses on sold shares will also be included in the performance calculations.

The Performance Report can be run over any date range of your choice. The ‘price’ ‘quantity’ and ‘value’ columns display this information as at the end date of the report.

We have also added a date range selector to the Sold Shares Report. The Sold Shares Report shows the total retun on any sales that have occured within the specfied date range.

Now we have “GFC 2.0” which we are informed will lead to . . . you guessed it . . . another Great Depression! We won’t bring up inconvenient facts such as the global economy is actually growing (although not as fast as many people would like).

“GFC 2.0”? Who thinks up these names? It sounds like something that the marketing department of a news organisation would come up with to boost newspaper sales or Financial News TV subscriptions! But seriously, a sequel makes a lot of financial sense. You don’t need to waste money on journalists, just pull up last year’s script, cross out “Lehman Brothers” and “Sub-Prime Debt” and substitute “Greece” and “Sovereign Debt”.

A Banking crisis or a Sovereign Debt crisis have historically happened about five times per decade – about every couple of years – so there is nothing new here. The current problem is just a little more widespread and a bit closer to home. Banks in emerging economies have largely avoided these problems and most emerging economies do not have large government debts or unfunded pension liabilities.

So, is it safe to venture out onto world stockmarkets? Perhaps we should ask: Is it ever safe . . . ? There are two important answers to that question:

Firstly, if you have some money or can save some money – and you want to build your investment wealth – then you have no choice! You won’t get rich stuffing cash under your mattress or lending it at low interest rates – where its value will be eroded by income taxes and inflation. And are fixed interest investments with Finance Companies, Banks or Governments safe? If you want to build your wealth then you need to invest in shares. Shares are also the only real hedge against future economic uncertainty and technological or political change. Companies are best suited to adapt to the ever changing environment.

Of course, you need to avoid stupid mistakes: You need to diversify over many companies because some will fail along the way! That has always been the case . . . and always will be. You also need to avoid leverage or margin or using borrowed money which makes you vulnerable and can result in forced sales in a crisis when prices are at their lowest.

So you will need to work out a medium term strategy for saving and investing and making your first $100,000 – knowing that you may temporarily lose $30,000 of that in some future crisis (GFC 10.0?). Then turn that remaining $70,000 into your first $1,000,000 – and expect to lose perhaps $300,000 in another unexpected stockmarket crisis. Stick at this long enough and you might make $10 million – which means you will be wealthy enough to perhaps lose $3 million in some future crisis! Of course, you can avoid all of those losses by remaining poor . . . but you will be better off having a share portfolio large enough to fluctuate in value by millions of dollars!

Secondly, forecasting the future of share prices is particularly difficult. In fact, a major financial crisis, when everyone is pessimistic and the outlook is the darkest is usually the very best time to be buying shares!!! So if you buy shares in periods of economic prosperity and growth, and sell when there is talk of crisis and depression, then you will almost certainly be buying near the market high and selling near the market low! The media is the worst forecaster of the economy and stockmarket.

A little bit of common sense can help too! You are not buying an economy but individual shares, so have a look at whether those individual shares offer investment value. During the Technology boom, the shares of many unprofitable companies sold at 10 or 100 times revenues. Frankly, common sense should have told people that even if the economy grew strongly and these companies were extremely successful, shares bought at 10 or 100 times revenues would probably never produce a reasonable return on their initial cost. In fact, few of those companies were even moderately successful. Most failed! (Of course, those of us who expressed such views at the time were ridiculed for “not understanding internet economics” – while perhaps understanding it only too well!)

Today we would suggest that investors look at a company like Integrated Research (and others). At 39½ cents this debt-free company’s shares trade on a Price/ Earnings ratio of 8½ and offer a Dividend Yield of 10.1%. The company has cash in the bank of $10.1 million (6.0 cents per share) and good growth potential for its software. Whatever might happen to the global economy or Sovereign debt or the US dollar, doesn’t that seem like a good share in which to invest a small part of your wealth?

Why lend your money to a government with negative cashflows (i.e. operating at a deficit) and probably a negative net worth (i.e. if future pension liabilities are included)? It is no surprise that there is a Sovereign debt crisis! Surely it will be better to invest in a range of profitable companies like Integrated Research which have strong cashflows from their business, intellectual property and cash in the bank?

We are also working towards a closer integration with RewardSuper to enable a secure mechanism for customers to have their detailed Sharesight portfolio data flow through to their accountant’s professional accounting systems via RewardSuper’s RSDataweb platform.

RewardSuper will be at the Institute of Chartered Accountants Self Managed Superannuation Funds Conference in Sydney this Friday 19 March. If you’re attending this event and are interested in finding out more about RewardSuper and Sharesight, please head over to the RewardSuper sponsor table.

Last year I was a fourth year Software Engineering student studying a Bachelor of Information Technology at Victoria University of Wellington. My commercial software development experience came from being the Summer of Code intern at Xero during the summer of 2008/2009. The experiences learnt there and in previous jobs helped in quickly becoming a productive member of the Sharesight team. Most of my development experience had been more desktop oriented software with Java and C#/.NET, so being dropped into the world of Ruby and Ruby on Rails was quite a bit of an eye opener and I had to quickly get an understanding of how to use it appropriately.

The Wellington Summer of Code is an internship program started by John Clegg to match ICT students around Wellington with ICT companies around Wellington. This year was the fourth year it has been run and it has grown to well over a hundred students vying for positions at over twenty companies from small startups to large corporate and government organisations. Each internship is around twelve weeks of full time work covering various aspects of ICT.

At Sharesight, I worked on the development of a few new features that will make life easier and less stressful for the Sharesight customers. Here’s an overview of what I worked on and some of the experiences I had while in the middle of it all.

Contract note email importer

The Contract Note Email Importer is a new feature of Sharesight that will eliminate the need to record new shares as you buy and sell. This feature works by taking the PDF contract note emails that you receive from your broker once a trade is completed, and automatically extracts the relevant trade data and records it into your Sharesight portfolio. Development of this feature was really interesting as we had to work with processes that already existed, while keeping any extra steps as close to zero as possible. The process of this development also exposed me to a somewhat different way of doing things than I had experienced in the past.

Some of the interesting problems encountered included finding and creating a way to give as much feedback as possible to the customer should something not work during the processing of the contract note. For example, if the processing failed due to the contract note selling more shares then we knew were owned, then we could tell the customer exactly why the processing failed. On the other end, the processing may have failed for a reason that could not be easily defined so we would have to send a much broader email with several things to check. We also had to build it in a way that new messages could easily and quickly be added in the future.

The contract note email import function is currently undergoing the final stage of user testing and is available to members of the Sharesight Beta Group.

Trades report and trade export function

One of the things that we have had many customer requests for at Sharesight is the ability to export all the trades that a customer has entered. The second project I worked on helps solve this issue, giving each customer the ability to export their data from Sharesight should they feel they need to. This was an interesting project that required me to look at the problem from the customer’s perspective. This meant going through each step while thinking of the ways a customer would look at the information, links, buttons, etc. and build the report in a way that would be clear, easy and quick to use.

During the development of the trades report, we researched the import/export formats of other related systems to ensure that the format we used in the trades report was broadly compatible with other similar systems.

This morning we made the Trades report available to all Sharesight customers.

Conclusion

The internship has been an interesting and good learning experience. I have learnt a lot about the development of good, solid web based software solutions. You may even see another blog post from me in the future, as I have been taken on as a full time developer for Sharesight.

The dividend reinvestment is enabled individually for each share holding. To record a dividend reinvestment, simply click on the dividend that is to be reinvested and then click the ‘Dividend Reinvested’ tick box. Record the date, quantity, and price of the new shares obtained.

Please see the help documentation for more detail on the new dividend reinvestment function.

The Excel sheets contain formulas to calculate totals where appropriate so this will make it really easy to add new rows into the spreadsheets if you need to.

The Excel export files are compatible with the following versions of Microsoft Excel:

• Excel XP, 2003 and 2007 for Windows
• Excel 2004 or 2008 for Mac OS X

Thanks to our beta group customers for the testing and feedback.

The Xero Synchronisation feature allows you to connect your portfolio to your Xero account. This allows you to send details of share purchases, sales, and dividends to Xero as draft invoices, which can then approved for inclusion in your financial accounts and used to reconcile against your bank account.

If you have a Xero account, Xero synchronisation can be set up by clicking settings, then ‘Xero Synchronisation’ for the portfolio that you wish to connect. Note that you must first generate a Sharesight Network key from within Xero. Full instructions can be found in the Sharesight help documentation here.

Below is a short video we prepared for Xero customers:

I did not recommend that people switch to shares because I believe that investing in shares should be a long term proposition and funds on deposit are often required it the short-term . Obviously you should be very cautious about investing funds in shares that you are likely to need on a specific future date because if that date falls in a period of depressed share prices, you are likely to crystallise a loss. And individual investor circumstances need to be taken into account as well.

Having said that, I thought it might be interesting to compare the performance of bank shares with interest rates now that we have had had such a dramatic collapse in share prices. Does my suggestion that you would get better returns on bank shares rather than bank deposits still hold water?

Set out below is a Sharesight screenshot of a portfolio of shares in the four major banks. Initially $1,000 was invested in each bank on 28 July 1999. You will see that the compound return across the four major banks over the last 10 years has been 10.31%. This sure beats deposit rates.

What may surprise a little, is that over the last 5 years combined bank returns have been 9.61%. Maybe even more surprising, is that over the last year they have been 11.26% – see the second screen shot.

So are bank shares always going to give superior returns to bank deposits? History says usually but not always. No comparison is complete without noting the following:

1. You will see from the second screen shot that individual bank returns over the last year have been volatile.
2. Shareholders are last cab off the rank in the extremely unlikely even that disaster strikes and a bank falls over. So in theory they carry greater risk.
3. And finally, if you look at bank returns over the past 2 years – see the screen shot below – you will see that deposits win out handsomely. The banks’ overall return was -8.01% with ANZ and NAB taking a beating.

Disclosure: I have no shares or investment deposits in any bank.

If we wanted something we saved for it. The idea that you could borrow and have things now, rather than having to wait, did not feature in our thinking. We didn’t know much about interest and we had no idea about compounding. But we did have this vague, uneasy feeling that if you paid interest you were heading down the wrong path and would be worse off in the long run.

But we didn’t have the benefit of the advice that Yuwa Hedrick-Wong gave us all a couple of days ago. He said:

“The benefit offered to the consumer to acquire a short-term loan anytime and anywhere without any security coverage is not available on any other payment option except the credit card. The importance of the option for a consumer to borrow for short-term needs is more significant today as the global economy is heading into a period of constrained credit.”

(Maybe I should mention that Yuwa Hedrick-Wong is MasterCard’s economic adviser).

I’m getting that vague, uneasy feeling again. It is telling me that we need advice like this like a fish needs roller skates.

What we knew clearly in the good old days was that if you did need to borrow, the bank might not have funds available when you needed them. So relying on borrowed funds was a bad idea. Today we have MasterCard and all those collateralised debt obligations and credit default swaps designed to ensure that banks always have the capacity to lend. But I for one am not convinced this is a step in the right direction.

We used to have this outdated belief that if you did borrow money you had to pay it back – no ifs, no buts, no maybes. Today we have revolving credit facilities and interest-only loans so that repayment is no longer necessary. I’m not sure this is a step in the right direction either.

Of course it wasn’t all bad in the good old days. Some of us did save a bit and stock exchanges were set up to allow us to participate fully in the capitalist society. These exchanges were pretty simple – they allowed you to buy and sell shares in companies. Despite this clear, simple mandate we had this irrational fear that somehow these exchanges would morph into giant casinos. Some would say this fear has now been realised which suggests that stock exchanges may not be heading entirely in the right direction either.

I hasten to add however that you can invest in the share market in a way that avoids the casino element, gives you good returns and enables you to ride out the volatility. See Why you should invest in the sharemarket

As well as the stock markets, what if the wonderful new financial instruments that are now available for us to make money were available in the old days? We wouldn’t have understood them, that’s for sure. But we probably would have had this vague, uneasy feeling that they had been developed with little regard for the risks. Risks that are inherent not only the instruments themselves, but also in the mechanisms for trading them.

However if the actions of the current generation are any guide, we would have headed off in the wrong direction. We would have ignored the risks, brushed aside our lack of understanding and gone for these  new financial instruments like rats up a drain pipe.

In a previous article on why you should invest in the Sharemarket, I gave my top 10 tips for DIY share market investment.

One of my tips was as follows:

“There are innumerable share purchase recommendations for free and there are many individuals and organisations that provide recommendations to paying subscribers. They can be a valuable source of guidance and information but don’t follow them blindly. Do your own homework and come to your own decisions.”

Clearly some recommendation services are better than others, and I didn’t want to bias the article with my own personal opinions on the matter, particularly as there are probably some great services out there that I have never used and some that I have not even heard about.

I’m sure I’m not the only one who’d be interested to hear what services others are using and what they think of them, so here’s your chance to contribute!

Please post your comments on which services you subscribe to, how closely you follow their recommendations, what you think of them and why.