Understanding the stock market trading report

Oran A. Hall, Contributor

I have had a strong interest in the stock market from I was 18 and I would like to invest in future years. How does one read and understand the stock market report? What is the minimum you can invest in the stock market? How can I make sound investments to reap great returns?

- Geoffrey

PFA: The stock market report, or daily trade sheet, as it is also called, gives a summary of stock market activity on a particular trading day and helps investors and prospective investors to see the direction of the market by following the trend over time.

It has a section for ordinary stock, which I will focus on, and one for preference shares.

Here is an explanation of the various headings which appear in the report, which is published in the newspaper the day following the trading day and is available on the website of the Jamaica Stock Exchange shortly after the end of trading.

The '52-week high' column shows the highest price the stock traded for in the past year and the '52-week low' column shows the lowest price it traded for in that period.

The 'security' column shows the name of the company whose security - ordinary stock in this case - is listed. The report also shows actual dividends paid on ordinary stock for the previous year and the current year.

'Volume' refers to the total amount of a particular stock that trades, not including block transactions, which are special transactions which do not cause any change in beneficial ownership and are effected outside of regular trading.

Any security listed on the stock exchange can trade several times during a trading session and, although the trades can all be at the same price, it is possible for each trade to be at a different price.

'Today's high' refers to the highest price the stock traded for during the trading day.' Today's low' refers to the lowest price the security traded for.

The 'last traded price' is the price paid for the security the last time it traded during the day. This is different from the 'close price', which is a weighted average price arrived at by multiplying the volume traded at each price by the price, summing all values so derived, then dividing by the total volume.

This was introduced to discourage manipulation of stock prices.

The 'change' is the difference between the closing price at the end of the trading day and the closing price of the last day the stock traded before that. If the price is higher than the previous closing price, it is shown as plus or as a minus if lower. Where there is no price change, it means the stock traded firm.

The 'closing bid' is the highest price an investor was willing to pay for the security at the end of the trading day but the 'closing ask' is the lowest price an investor was willing to sell at when trading ended. This does not mean that trades will necessarily happen at any of those prices on the next trading day.

The change in the market index is the difference between the index at any two points.

All stocks that trade and record price changes on a particular day affect the level of the index on that day. It is a function of the price change of each stock and its weight in the index.

The weight of the companies listed on the stock exchange is based on their capitalisation - the share price times the number of their issued shares.

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A company with a large capitalisation thus impacts the market index more than one with a small capitalisation. This means that a significant increase in the price of such a stock could conceivably cause the index to increase although there were more declining stocks than advancing stocks. The opposite is also true.

Most brokers charge a minimum commission of J$500 per transaction so, for practical purposes, considering that commission rates hover around two per cent, it is safe to consider J$25,000 as the minimum sum to invest in the market.

To make sound investment decisions, you should invest time and effort to analyse the market and the securities you would like to invest in. You won't always get it right.

Investors who make the bold decision to buy when others are keen to sell and sell when others are in a frenzy to buy tend to do quite well.

For the sake of your own peace of mind, it is best to take the long-term view of the market, set realistic goals, and keep a level head. Keep funds you need for your living expenses and other commitments out of the market.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning. Send feedback to finviser.jm@gmail.com