THE STOCK market is an important vehicle for developing a country's economy. It has the potential to facilitate the accumulation of wealth for individuals, companies and countries simultaneously. Investing in stocks (equities), allows investors to diversify their portfolio and earn a rate of return, that may exceed what can be earned on traditional savings accounts.
Although the stock market may be perceived as a risky investment option because of its daily fluctuations, it makes sense to tolerate the losses of a declining market, in order to have a claim in the market when it rebounds. Stocks have made solid investments over the long-term horizon, when choosing to invest in equities.
HOW DOES THE MARKET WORK?
Companies need resources to expand or improve their operations from time to time. These funds can either be raised by assuming debt, or by acquiring capital from investors. The latter procedure involves selling shares to investors. Stocks can be valuable because each shareholder is an owner of the company and has a claim on the company's earnings, and the right to receive dividends when they are paid. Shares in companies that show improvements in profitability tend to increase in value. Investors stand to benefit from capital gains brought about by increases in the share price.
The stock market benefits the company, the economy and the investor, because higher corporate profits lead to a higher GDP (gross domestic product) for the economy, and investors profit from capital gains.
After deciding that investing in equities is consistent with your goals, it would be beneficial to conduct your own research or contact an investment advisor licensed by the Financial Services Commission (FSC). These individuals may provide insight about the different stocks listed on the Exchange, and guide you based on your goals. Although there are 39 publicly traded companies that have issued ordinary shares, the core of a stock portfolio should be composed of financially strong companies, with above-average earnings growth potential.
PROCESS OF INVESTING
The actual process of investing in the stock market is quite simple and begins with a visit to your stockbroker. Existing clients can transfer funds from another account to open a stockbrokerage account, in order to support the purchase of shares. On the other hand, new clients will have to bring in a cheque or cash, along with proper identification to open an account, which would facilitate the purchase of the stocks.
Once the brokerage account is opened, you can instruct your broker to buy or sell shares on your behalf by filling out a form or making a phone call providing them with the details of the transaction you would like to execute. The transactions take place through the Jamaica Stock Exchange, which is facilitated by the Jamaica Central Securities Depository (JCSD), which is an electronic medium that allows shares to be transferred from a buyer's account to a seller's account without the need for the movement of physical documents.
Transferring shares through the JCSD is much more efficient and convenient than dealing with actual certificates. The JCSD simply makes changes in its book of record showing who owns the shares and who owes money to pay for them. This facilitates faster transaction processing times.
Individuals who have physical certificates are encouraged to lodge them at the JCSD by bringing them in to their broker along with a transfer process, but it should not take more than 10-15 days for the company registrar to verify the validity of the share certificates. Once this is verified, then you can trade your shares more easily, by making a phone call if you desire. Some stockbrokerages have harnessed the power of the Internet to benefit their customers, and even allow access to account information online.
* To further discuss investing and the many options we have available, contact DB&G at info@mydbg.com or toll free at 1-888-CALL DBG.
