Financial Adviser | Finding buyers for your stock market shares
QUESTION: I read your column in the Gleaner some time ago after watching 'Shark Tank', and, becoming more financially educated, I purchased shares in a Jamaican company which has plenty of potential and already has a growing clientele. At first, I wanted to get involved in my own start-up but decided to invest my money in that company to have it work for me. Now I want to sell my shares as I want to use my money to start my own business. What advice can you give to find potential buyers for my shares?
FINANCIAL ADVISER: You have not said if you bought shares in a company listed on the Jamaica Stock Exchange or in one that is not listed. The processes are not exactly the same but, considering that you did make at least one purchase previously, they should not be foreign to you.
The process should be easier if you own stock that is listed. You would need to make contact with a stockbroker. It would probably be better to engage the brokerage house through which you made the purchase. You would already have an account there.
You would also have an account with the Jamaica Central Securities Depository, which would be holding your stock in electronic form. One major advantage of this to you is that it facilitates quicker settlement of the transaction.
You should tell the broker which stock you are selling, the quantity and the price. You may opt to give the broker some flexibility by placing a market order. In this case, the broker will sell at any price that the stock is trading at.
If you set a specific selling price, the broker will sell at that price or higher, but not lower. You may also want to indicate whether the order is just for one day or more. Although brokers generally advise their clients of the outcome, you may check if your order was executed.
There is no guarantee that your stock will be sold within the time that you want it sold or that all will be sold on the same day. It could take a long time, depending on the stock and market conditions. You should be paid within three days of the sale of your stock.
Stock exchange effective
The stock exchange is an effective means for selling stock, as it has a mechanism for pricing it based primarily on demand and supply as determined by the expectations of investors. Expectations are based on the outlook for the performance of the company, giving consideration to factors internal and external to the company. The stock exchange also brings buyers and sellers together through the stockbrokers.
If the stock is not listed, selling can be quite difficult. You could ask a broker to find a buyer for you. The extra effort means that transactions done outside of the stock exchange - over the counter - tend to cost more in terms of what brokers charge for their service. They also tend to take longer, and it is fair to say that unlisted stocks tend to trade at a lower price than a comparable listed stock, one reason being that they tend to be less liquid.
I should let you know that, whereas a contract note for a transaction that passes through the stock exchange generally shows the broker's commission, contract notes for over-the-counter transactions tend not to as brokers generally make money on the transaction by buying from the seller at one price and selling to the buyer at a higher price. The stockbroker, in effect, takes a spread instead of charging a commission.
Another option for selling unlisted stock is to sell to other shareholders, whose names can be sourced from the share register. This can be time consuming for you and can raise serious challenges with respect to determining the price, which requires competence in financial analysis. Even so, the price is what the seller is willing to sell at and the buyer is willing to pay.
If the stock you own is listed, the stock market report can give you a good indication of the price. If it is not and you do not have the required competencies, it would suit you to get professional guidance.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.