This the editorial of our monthly Shareholder Yield Letter published on 2024-03-12. Sign up here to get it in your inbox the first Tuesday of every month.
More information about the newsletter can be found here: The best large cap investment strategy ever
This month you can read how to best get your orders executed.
But first the portfolio changes.
Portfolio Changes
Buy Four
Four new recommendations this month as the MSCI World index is above its 200-day simple moving average.
The first is a €45 billion Germany-based transportation and logistics company with a shareholder yield of 6.7%. Over the past 12-months, it has bought back 1.9% of its shares and paid a dividend of 4.9%.
The second is a $14 billion US-based media and entertainment company with a shareholder yield of 12.8%. It made share buybacks of 11.0% and paid a dividend of 1.8%.
The third is a JPY 8.6 trillion ($58bn) Japan-based auto and motorcycle manufacturer with a shareholder yield of 7.1%, made up with share buybacks of 3.8%, and a dividend yield of 3.3%.
The fourth and last recommendation is a CHF 190 billion Swiss-based healthcare company with a shareholder yield of 10.6%. It made share buybacks of 6.5% and paid a dividend of 4.0%.
How to get your order executed
Even though the newsletter only recommends large companies I am sure you the same as me, try to buy them on your local exchange as it is easier and in most cases the brokerage costs are lower.
Always use a limit order
Except if trading volumes are extremely high, I recommend that you always use a limit, not a market order.
This will make sure that your order does not get executed at a price substantially different to the current market price, even if the number of shares traded is low.
What is a limit order?
As the name suggests, with a limit order, you tell your broker to buy or sell the share at a certain maximum or minimum price that you set. This means the order will only be executed if the price is the same or better than the limit you have set.
For example, if you enter a buy limit order with a price of €50 but the current market is €60, the order will not be executed unless the price drops to or below €50.
You may need to pay a slightly higher commission when you place a limit order, but it is worth it.
Remember with a limit order your order will not get executed if the price you set is not reached.
This means if you gave your broker a sell limit order at €40 and the current price is €30, your order will not be executed unless the share price increases to or above €40.
What if it's a different currency
Check with your broker but usually your limit order must be in the currency of the market where you are buying or selling.
For example, if you live in Europe and your brokerage account is in Euro but you are buying shares of a company on the London Stock Exchange your limit order must be in British Pounds (GBP) or Swiss Francs (CHF) if you are buying and selling on the Swiss Stock Market.
Practical order example
Let’s work through a practical example.
You want to buy 8,000 shares in XYZ Group, and your online broker shows you the following information:
- Last trade price €1.14 (+0.76% from yesterday)
- Volume traded so far today: 46 764 shares
- Bid (buy) price: €1.14
- Bid (buy) volume wanted: 1 000
- Offer (sell) price: €1.16
- Offer (sell) volume offered: 9 571
(Keep in mind that this information is in most cases 15 minutes old so it may have changed)
If you buy foreign currency socks on your local exchange like I do in Germany (for example a large Hong Kong company) I always check the price Euro price against the converted Hong Kong Dollar price to make sure it is fair.
My brokers charge about 0.5% to 1% to convert currencies so if the local price is about 1% more expensive, I will still buy on the local exchange.
Also, if you are buying foreign stocks on your local exchange make sure the home market of the company is open (Hong Kong in the above example). This makes sure you have a current price to compare the local price with and your local broker can also trade if necessary. This will result in a lot tighter bid offer spread locally.
What can you learn from this?
You can see if you offer €1.16 (1.75% more than the last trade price) you can get your order of 8 000 executed as there is someone in the market that wants to sell 9 571 shares at that price.
This is good to know because it’s important to get your order executed in one day as in most cases your broker will only charge you brokerage once (remember to ask your broker) even if the total order is executed in a few transactions on the same day.
If €1.16 (+1.75%) is more than you want to pay to get your order executed immediately (I am usually willing to pay about 0.5% more) you can enter your buy limit order at €1.14 or even €1.15 (+0.88%) to see what happens.
How long to make your order valid
I suggest you make your orders valid for a month. That way you can wait for the order to be executed as well as change the limit price if it does not get executed.
Remember you can cancel your order at any time.
How to keep dealing costs low
If part of your limit order has been executed – for example if 100 shares of an order of 1000 shares have been bought or sold – change your limit so that the whole order is executed.
This is to avoid that your order gets executed over a few days, in which case you would have to pay the minimum broker costs every day. Check if this is also the case with your broker.
If 80% of your order has been executed and the price has moved substantially away from your limit, I suggest that you cancel the rest of the order and live with a smaller position.
When selling, this is different as you usually want to exit the investment completely. So, if 80% of your sell order has been executed and the price has not fallen too much, I suggest that you sell the remaining 20% at the lower price rather than be left with a small investment.
If the share price has fallen to a lot lower than your limit, you must compare the lower price with the minimum broker costs. If the broker costs are small compared to the amount of the 20% position remaining, I recommend that you not sell but watch the price closely as you may get a better price if you sell over the next few days.
What if nothing happens?
If nothing happens on the day you entered your limit order, I suggest you wait to see what happens in the following few days.
If the price keeps going up, change your limit order to make sure your order gets executed (€1.16 or higher in the above example) as there is nothing worse than running behind a rising share price if you want to buy, or a falling share price if you want to sell.
Bonus Tip – How to sell if the price is far away from your limit
Here is a great tip I got from a broker (thanks Vaughan) on how you can you sell a position if the buy (bid) price is a lot lower than your limit.
Sell a small number of shares at the low bid price - shares worth about €100 for example. This large fall in price will make other buyers aware of the company and result in more buyers and a higher bid price.
Even though you may have sold a few shares at a very low price, the overall price you will get for the remaining shares will more than make up for this.
“Fill or Kill” and “All or None” orders
It is possible to improve your buy and sell limit orders. Do this with Fill or Kill (FOK) or All or None (AON) orders.
When you place a FOK limit order, it will either be executed in full or cancelled (executed in full here means buying or selling the exact number of shares you ordered).
On the other hand, when you use an AON limit order, it will only be executed if your broker can buy or sell the exact number of shares you ordered. And if it cannot be filled, it will not be cancelled (as is the case with a FOK order) but will be held for later execution if the order is valid.
The AON is a very good type of order to use when you are buying or selling illiquid shares as it helps you avoid high dealing costs. It will avoid multiple transactions of small amounts that can be very expensive.
Unfortunately, this type of order is not available from all brokers or on all stock exchanges.
I hope this has given you a few ideas to better get your orders executed and lower your dealing costs.
