"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." Warren Buffett

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OPENING A BROKING ACCOUNT

Opening an account with a stockbroker is a bit like opening a bank account. You can commence the process by phoning them, filling in various forms online or going into their offices, but ultimately you will have to sign the forms and provide photo identification before the account setup is complete.

If trading online, the broker will require you to open a cash management account, into which you can deposit funds that will be used for trading. This is like any normal interest-bearing account. When you make a purchase, the broker will automatically withdraw the correct amount of funds from the account and when you sell, the proceeds will automatically be credited to your account.

If trading over the phone, you may not be required to open a cash management account and have sufficient funds on hand before trading, provided the amount traded isn’t great and the stock is a blue chip. Otherwise, the broker may ask you to deposit sufficient funds before making your first purchase.

CHESS

Traditionally, when you bought shares through your broker, you were issued with a share certificate (known as scrip), which was evidence of your ownership in the company.

These days, however, this can all be taken care of by CHESS (Clearing House Electronic Subregister System), which is a development in which shareholders in listed companies receive statements, much like bank statements, advising them of their holdings. Because this system is electronic, ownership of shares can be transferred without having to rely on paper documents.

All share transactions are made easy with CHESS. Prior to CHESS, your broker couldn’t sell your shares until you sent them the share certificate. Now, they will ask you to sign a CHESS sponsorship, which means they can buy and sell shares a lot more easily on your behalf.

Another important benefit is the ease with which you can accept a takeover bid for shares you own in a target company. Rather than filling out a myriad of forms, you can simply phone your broker and ask them to accept the bid on your behalf. They will require a signed authorisation, but the process is made very easy with CHESS.

A holding statement is issued to you whenever the amount of shares you own is changed by either a sale or a purchase of shares.

HIN

You also have a HIN (Holder Identification Number). This HIN will be the same number as for CHESS-sponsored holdings, no matter what the shares. If, however, your holdings are issuer-sponsored (individual companies send you a share statement as evidence of your ownership), then you will receive a different HIN for the holding you have in each different company.

When CHESS sponsored, you may need to quote your HIN when you place an order to buy or sell. The CHESS system speeds up settlement (the payment or receipt of funds after a buy or sell) and transfer of all transactions.

Profile: Warren Buffett

Far and away the most famous and successful stock market investor of all time.

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Why Invest in Shares?

Beyond shares being the best long-term investment and having tax benefits, they also offer other advantages, including flexibility and liquidity.

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