Share Market Wrap 13th Oct 06

Since the launch of the marketing campaign to promote the sale of Telstra’s T3 float, people have been wondering why they should buy it and if they did buy it how much money they would make from it. I certainly won’t be promoting it, but if you want to buy Telstra there is a way you can almost guarantee that you will make a profit. Let me explain.

Let’s say you decide to purchase 1000 shares for the first installment at $2 and you borrow the money from a margin lender at a cost of 8.25%. Over 18 months you would receive a 14% dividend yield giving you $420 in income and you would pay $247.50 in interest on the margin loan resulting in a profit of $172.50 or a 69% gross return on your investment. The story gets even better if you use installment warrants to buy into the T3 float. While on paper this looks like a great return, this assumes the price of the Telstra won’t rise or fall during the 18 month period, which, of course, no body can guarantee.

So what is happening on the market this week?

 The All Ordinaries Index has continued to move up strongly in the last week, breaking through my target of 5200 points. However, I doubt whether this strong rise can continue for much longer as we are now entering into the period where I am expecting the next peak to occur which should be between 5260 and 5275 points around the 15th to 20th October. It is possible that the market could rise to its previous all time high of 5352.10 achieved on 10 May 06, although I believe this is unlikely