Sun | Jun 13, 2021

Selecting stocks

Published:Sunday | April 15, 2012 | 12:00 AM

Oran A. Hall, Contributor

 was reading The Sunday Gleaner where I encountered an article you wrote on where to buy stocks. I'm also a university student but my field of study is the sciences, which means I'm ignorant to the field of business. I would like your opinion on three companies: JBG, CPJ and PROVEN. The pros and cons of investing in each would be nice. I would also like you to recommend 10 stock picks for me but please indicate whether it's an income, value or growth-based stock. The pros and cons of each would be nice but I wouldn't want to burden you too much. Thanks in advance for your advice and I will be eagerly awaiting a response.

- Travis

It is pleasing that young people are taking an interest in investment matters and seem serious about planning for the future. I encourage you and others like you to take full advantage of the available opportunities to invest and to learn how to invest successfully.

You seem to believe that, as a science student, you are not expected to know about business or investments. I hope you do not believe that it is alright to confine your knowledge to science.

Today's reality requires that you are knowledgeable about your main area of interest and many others. Start learning, then, about finance and other subjects. Even specialists need to extend their knowledge and competence beyond their immediate area of interest and competence.

You are asking me for a lot. I am not, however, able to give you all that you are asking for. A stockbroker is the best person to give you that guidance.

Stockbroking companies hire analysts who do detailed research on companies, the market, and the economy. Several of them make their research and recommendations available to their customers and the public. Research is one of their core functions. As a rule, I do not express opinions on specific investment instruments and companies in my column. It is not hard to see why.

I would encourage you to equip yourself to depend less on others for the kind of assistance you are seeking. That is not to say you will not need professional advice. Far from it.

Although you are a student of science, you can learn about financial matters so you can make your own decisions or understand better the advice you get from others. There are several courses in the local market for people like you.

Many of the students I have taught up to now have no plans to work in the financial sector. Their main objective is to learn so that they can empower themselves to manage their financial affairs better.

As I have said to many before, the investor is ultimately responsible for the success or failure of his investment programme. That is not a matter to be left to anybody else, not even the expert. This is why it is so important to understand financial and investment matters, to know what your goals and objectives are, and to understand what level of risks you are able and willing to tolerate.

Here is how you may assess the kinds of stock you have identified.

An income stock pays high, regular dividends. Its price does not generally fluctuate significantly.

A value stock is a good stock that trades for less than it is worth: it is underpriced. It generally has a high dividend yield and trades at a low price-earnings ratio and may also have a low price relative to its book value. Book value is derived as follows: total assets minus total liabilities divided by the number of issued shares.

The price of a growth stock tends to be high relative to its earnings per share—which is net profit divided by the number of shares—because its earnings are expected to grow above average relative to the industry or the market. Profits are generally re-invested so dividends are low or not paid at all.

In selecting stocks, I suggest the following: Know about the company and the industry it is a part of by doing some research; and select a company that consistently has a good return on equity or shareholders' funds and is in an industry that is experiencing strong growth. If you want a good dividend yield, identify companies that consistently pay good dividends and have strong earnings.

You do not have to start with 10 stocks although you may choose to have a look at that amount before making your selections.

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