Oran Hall | Learning to invest in equities
QUESTION: I just want to know how to pick a stock. When do I buy and sell my stocks when I invest? What indicators do I use to choose a stock-broker and how do I choose which stock broker is beneficial to me?
FINANCIAL ADVISER: If you want to invest in the stock market, there are several matters to consider before thinking of picking stocks. You do not have to be in a hurry nor plan to lean on a stockbroker to succeed.
I suggest you first learn about the stock market: read, read, read. The Jamaica Stock Exchange (JSE) has resources which can help. It also publishes daily trading reports and news. There is much information on the Internet about investing but you must be selective. Listen, too. The electronic media also provide information on stock market activity.
Read about the companies listed on the stock exchange. They provide much information on their websites, but the website of the JSE - www.jamstockex.com - is a very convenient place to visit. It carries current and historical data on the listed companies. That includes their annual reports and most, if not all, include historical information on the financials of the companies.
Learn about the economy. In time, you may develop special interest in particular sectors of the economy. This is not bad as it will give you reason to watch particular companies in those sectors closely. As you get to know them better, you will very likely decide to invest to become part owners, which is what happens when you buy shares.
Decide the kinds of companies you prefer. Do you favour growth stocks or income stocks, for example? If you like growth stocks, you should not expect to get generous dividends because profits tend to be reinvested to facilitate expansion. Such stocks have good potential for long-term capital appreciation. Income stocks pay relatively good dividends due to the companies being mature. They are also less risky.
Determine if you want to be an investor or a trader.
Traders want to turnover their money fast. To do so, they have to be involved in the market on a very regular basis. They have to keep up with market trends and are active in the market. They must always be ready to buy and sell, be prepared to spend much time on research and recognise that each transaction has associated costs. Investors take the long view and spend less time monitoring the market.
If you are to determine how well the companies are doing, you should be prepared to do some financial analysis. That is something to learn if you are not now equipped to do so. You want to be able to make independent decisions. Don't you?
Test yourself to determine if you are up to participating in the market. Before seeing a stockbroker, create a notional portfolio with an assigned dollar value. Select some stocks that appeal to you. Follow their progress. Record the movement in the value of the portfolio. If you are able to do so consistently, more than likely, you will be able to keep up with the demands of investing. If you are not able to, you should perhaps take a pass.
If you are like many people that I meet, you will want to buy when the stock is at its lowest and sell when it is at its highest. It is better to be able to know when the price of a stock is low enough to make it a good buy and high enough to sell. To be able to do so requires a combination of knowledge, experience, timely information and good intuition. But be warned that even the gurus often get it wrong.
It is reasonable to determine the level of return you want and how long you want to hold the stock. Sell and move on when you have reached those points. You should also determine the level of loss you are willing to tolerate and take your losses and move on at that point. If the price of the stock that you own falls, ask yourself if you would be prepared to buy it at that price if you did not own it before rushing to sell it.
If you intend to invest, prepare to get involved. It is important to be served by a competent and reliable stockbroker, but how well you do is up to you. You can ask people who have investment experience to recommend a stockbrokerage.
You can also call or visit and observe how well the employees treat you and others. Are they well informed? Do they have time for you? Are the advisers willing to listen to you, and do they care to know about
your objectives? What are the services that the company offers? Does it do good research? What does it say about itself on its website, and what do you learn about it from its website?
To get started, seek out knowledge - knowledge of the stock market, the stockbrokers, the economy, the companies, their history, management, industry and competition. Know yourself, too - your willingness and ability to take risk, your objectives, your resources.
- Oran A. Hall, the principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.