Oran Hall|Investing in ordinary shares

Question: I’m interested in buying some stocks, but I don’t know where to start. I saw your email address on the Internet, so I’m writing to find out more.

– Shane

In Jamaica, shares trade on the Jamaica Stock Exchange (JSE), which is a company that facilitates and promotes the trading of stocks and other securities that are listed with it. Trading is done electronically and not physically at the stock exchange.

Stock brokerage firms authorised to trade on the exchange execute buying and selling orders for their clients through their authorised representatives. For a list of the stockbrokers, see the website of the JSE (www.jamstockex.com.) You may also check the telephone directory under ‘Investment Advisory and Securities Service’.

Stock brokerages charge a commission for executing buying and selling orders. They also provide research and give advice on the securities to buy and sell, provide regular information about market conditions, and help clients keep an accurate record of their market transactions. Although the broker provides you with advice and information, you are ultimately responsible for making the decisions.

Before selecting a stock broker, do what research you can, including speaking to your friends or acquaintances who have previously dealt with those you may have an interest in engaging and, thereafter, maintain a keen interest in your account by keeping in touch with the brokerage house.

You must open an account with the brokerage company before you can transact business with it. You can find valuable information on how to open an account as well as the forms required to do so on its website. You will need to produce two references, proof of address, and your Taxpayer Registration Number.

I suggest you first learn about the stock market: read, read, read. The Jamaica Stock Exchange has resources that 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 a lot of 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. The information includes the companies’ annual reports and most, if not all of these reports contain historical information on the financials of the companies.

Learn about the economy. In time, you may develop special interest in particular sectors of it. This is not bad as it will give you reason to watch particular companies in those sectors closely and buy shares in them.

Once you have chosen the stock you want to purchase, after careful research, you will indicate, preferably in writing, how many units you want, and the price you are willing to pay, but expect your broker to ask for a deposit of about 50 per cent of the cost of your order when you place it.

You may place a market order, which specifies the number of shares you want to buy or sell at the best available price. You may also place a limit order, whereby you specify the maximum price you are prepared to pay or the minimum price you are prepared to sell at. You may choose to place a day order, which is valid only for the day on which the order is placed.

Transactions are done on a cash basis, that is, you are required to pay in cash or by cheque for the stock or stocks you purchase, and you must have clear ownership of any stock you are selling. Transactions are settled two business days after the execution of the order by your broker.

The minimum size of orders varies. One broker, for instance, requires a minimum of $25,000, but others require less. Another requires a minimum of 100 units of stock but charges a fixed minimum commission. Once the order has been executed, your broker will issue a contract note giving details, including commission and other charges.

In addition to the stockbroker’s commission, there are fees payable to the Jamaica Stock Exchange: a trade fee that varies, depending on the size of the transaction; and a cess, which is based on the value of the transaction. General Consumption Tax applies to all fees.

The norm is for securities to be held in electronic form, which is facilitated by the Jamaica Central Securities Depository (JCSD). This enables transactions to be processed by book entry. Your broker will set up an account for you at the JCSD from the information you provide for the setting up of your broker account.

In summary, learn what you can about the economy and the stock market, including the listed companies you may have an interest in. Determine how much money you are investing. Select a stock broker and make an appointment. Complete the account-opening process and place your order. It is best to have initial face-to-face contact even if other arrangements can be facilitated.

- Oran A. Hall, the author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email finviser.jm@gmail.com