Mon | Nov 29, 2021

The next step in buying stocks

Published:Sunday | June 29, 2014 | 12:00 AM

Oran Hall, Contributor

QUESTION: I have done my research on stocks and would like to enter the market. Can you help me with some financial advice?

- Tarik

FINANCIAL ADVISER: You have started at the right place by doing research to assist you in making your decision about which stocks to purchase. You will become an owner of each company whose stock you purchase.

I assume, then, that you have identified some solid companies with strong balance sheets, effective management, superb historical earnings and even better earnings potential for the future because you are buying the future earnings of these companies.

You have quite likely selected some companies that pay reasonable dividends as well.

I believe you have selected companies from several sectors of the economy because it is important to diversify your entire portfolio and its various elements to manage risk effectively. Additionally, I believe that you have funds already invested in or earmarked for other types of investments.

You have decided, no doubt, that you are investing for the long term and are prepared to accept fluctuations in the prices of the stocks you intend to purchase because this is a natural part of the business of investing in the stock market, but nevertheless, you have determined the basis on which you will reduce or liquidate your holdings of a particular stock. For example, this could be based on a particular level of return being achieved or poor performance of the company and its stock price such that it makes sense to cut your losses and move on.

You have quite likely resolved that you will devote time to assess market conditions and the performance of the stocks you will purchase and that you will pay attention to the financial reports issued by the companies in keeping with the requirements of the Jamaica Stock Exchange.

Surely, you have decided to invest funds you will not need in the short term nor will require for day-to-day expenses or other necessary financial undertakings later on.

Having satisfied yourself that you have set the right platform for making your entry into the market, your next step is to do just that. You should go to any of the stockbrokerage firms authorised to trade on the exchange. They are listed in the telephone directory, but the Jamaica Stock Exchange can help you to identify them; you should not expect to be told which company to engage as your broker. That is your decision.

Alternatively, you may also engage the wealth-management or portfolio-management company of your choice. These companies do not trade on the Jamaica Stock Exchange, so they must engage the services of the dealer members of the exchange. I mention them because you may find it convenient to engage them and I doubt that it would cost you more.

The investment professionals employed by these companies and the stockbrokerages are able to advise you and thereby further empower you to make suitable decisions, but you must make the decision ultimately.

Once you have opened an account, you can place your order indicating how many units you want, and the price you are willing to pay. You may place a market order, which specifies how many shares you want to buy at the best available price.

You may, however, place a limit order whereby you specify the maximum price you are prepared to pay and you may choose to place a day order, which is valid only for the day on which the order is placed.

You have started off on the right foot. Happy and successful investing.

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