Borrowing from the bard

DEVOTEES of William Shakespeare will recall this line from Hamlet: “Neither a borrower, nor a lender be, for a loan oft loses both itself and friend”. This raises the question … is it appropriate for small investors to buy shares with borrowed money?

Commonwealth Securities, the biggest on-line brokerage firm in the land, obviously believes it is. Write CommSec a cheque for $2,000 or more and it will double that amount, which you can then invest in any of its 100-strong stable of funds. If you hand over a regular minimum of $250 a month, CommSec will double that too. What we are talking about here is leverage to the market through margin loans.

CommSec invites us to close our eyes and imagine we had invested $5,000 in the Colonial First State Australian Share Fund in July 1991. After a 10-year stretch, ceasing rather arbitrarily last June, we would have had a holding worth $25,756.

But wait. Now imagine you had stumped up $5,000, and put in $250 every month, employing the CommSec Margin Loan with Regular Gearing. Golly. You have no less than $156,970.

Sounds great. Especially working backwards over a period during which Australian equities produced unprecedented returns. Fund managers recently have been falling over themselves warning us not to count on such mouthwatering gains in the coming years.

CommSec boasts that its margin loan caper is the first of its kind tailored for direct investors. It is likely to be a dead heat, however, since an outfit called Leveraged Equities launched its WealthBuilder vehicle last week, which offers pretty much the same thing.

CommSec and Colonial First State are respected names. The scheme is a low-risk affair. The 50 per cent gearing means the fund portfolio would have to fall by an unlikely one third before you got a margin call. Their blurb says: “Most people do not have a disciplined savings plan, let alone a disciplined investment plan”. That is probably true.

If we do not want to spend our golden years playing the spoons for theatre queues because we relied on the State old-age pension, we’d better get saving fast.

Still, there is a danger that mum and dad investors might get dazzled by the riches being dangled.

Why not whack in a thousand bucks a month, or even more, and go for the jackpot?

There is no shortage of institutions that will lend you money to buy shares, with attendant tax advantages for the better off. Newspapers carried full-page advertisement trumpeting these last year. They dried up appreciably around September 11.

Going further back, many punters borrowed the cash to take up the “safe as houses” Telstra 2 issue at $7.40 a pop. They wish they had taken a tip from Hamlet.

Fels feels Telstra’s dragging its heels

THE two million shareholders in Telstra watched glumly last week as the share price back pedalled 30 cents to $5.26, after promising to go for a brisk ride following the surprisingly fat 11 cents dividend. It was the heavy tread of ACCC boss Allan Fels that did the damage.

The regulator is cross that the company has been dragging its heels over making the broadband technology it carries on Big Pond available to wholesale competitors.

Telstra faces the prospect of being dragged into court for anti-competitive behaviour. Theoretically, its competitors could sue for compensation.

It seems the telecommunications giant was about to comply anyway. But time waits for no man, particularly Allan Fels.

It is hard to see the Government achieving its ambition to sell off its 51 per cent holding in Telstra, while the ACCC persists in standing on its windpipe.

There is only a slim chance of that changing. Fels has a skin like a rhinoceros. Big business would like his hide. But he knows he has consumers, as well as the law, on his side.

The Productivity Commission has made noises about curbing some of the competition watchdog’s powers, and the Government may try to introduce some of its recommendations.

The ACCC says it could not stop Telstra buying a television station if the proposed media law changes eventuate. The company has pots of money to buy Channel Nine, if Kerry Packer was a seller. All CEO Ziggy Switkowskii and his team would have to do is persuade the market they could run a TV network.

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