Growth & Jobs | Do the necessary research before investing
The year 2021 is shaping up to be an active one in the Jamaican stock market, with companies issuing initial public offerings (IPOs) and additional public offerings (APOs).
An IPO is when a company initially offers shares, or stocks, to the public. It is also called ‘going public’. An IPO is the first time the owners of the company give up part of their ownership to stockholders. Prior to that, the company would have been privately owned. Subsequently, any additional offer of shares to the public is known as an APO.
Ann-Marie Thomas, assistant manager of research at JN Fund Managers, is, however, cautioning investors to do the necessary research prior to investing, especially amid the current economic uncertainties.
According to Thomas, “Fundamental analysis should be done on the companies by looking at their earnings, assets, liabilities and cash flows. The investor should also look at the stock from a technical standpoint; examine the price and volume performance over the last few months and possibly years, depending on the circumstance.”
Stable Long-term Earnings
She added further that investors should satisfy themselves that the company’s earnings are stable over the long term and that the company is not racking up significant debt, which they may find difficult to pay.
Thomas cautioned that regardless of how good these stocks are at face value, the risks are still significantly high; as such, investors are advised to diversify their portfolio and take a long-term view, at least three years, when investing in stocks.
She explained: “You have to separate stock purchases by industry, as you do not want to place all [your] funds in a manufacturing sector per se, as if that sector gets hit, then it will affect your entire portfolio. You may want to diversify your portfolio across various industries, such as manufacturing, retail, telecommunications, finance, among other areas.”
In addition, Thomas noted that investors need to diversify across asset classes, whether it is fixed income, equity, even alternative investments.
She continued, “In fact, we at JN Fund Managers recommend that collective investment schemes, such as mutual funds, are more appropriate for most investors. There is a lot of time, work and expertise required to conduct appropriate and effective company analysis. It is not beyond the ability of most persons, but the time and effort required is substantial. For example, by investing in the Global Equity Fund offered by JN Fund Managers, investors are able to participate in IPOs that the JN Fund Managers’ team deem to provide acceptable risk-adjusted returns and achieve a diversified portfolio, knowing that a competent team of investment professionals manage the portfolio on their behalf.”
Other matters to consider when investing are:
• How does this investment could help you meet your investment objective and how it fits into your overall strategy?
• How does the company make money?
• What are the company’s key products or services?
• The potential risks and rewards associated with investing in the company.
An investor should understands that there are risks associated with investing, where you can have big gains, but also equally big losses. This makes it even more important to ensure that you diversify your portfolio in terms of industries and asset classes.