Ambitious at 18 - 'I want to secure my future as investor and business owner'

QUESTION: I am 18 years old and interested in the world of business. I am very interested in stocks and want help and guidance on how to invest. How do I get started? Where do I go to get started? What is the minimum investment in a stock? How do I read the stock-market report?

When I start to obtain all that cash, how do I start to manage my money? What measures should I take to secure my money? I have been a very good saver since I was 12 years old. Whatever I wanted, I saved my money and bought, so saving won't be a problem.

I want to be a business person and a very dynamic one. I want to own supermarkets, clothing stores, and real estate. I read the papers regularly so I watch the real-estate market and have a slight understanding of it.

- Geoffrey

PFA: Before beginning any investment programme, it is important to understand yourself, to know your goals, and to recognise that your programme is unique to you. Even if you have experienced advisers, it is you who should make the decisions concerning your programme.

educate yourself

Before investing in stocks and other instruments, it is important to educate yourself, and you have started already. Read, attend seminars, listen to and watch financial programmes, but evaluate carefully the information presented.

Do your own research and do due diligence on the source of the information. Do your research on the economy, the market, and individual companies. Note that buying ordinary stock, or equities, is buying a share of a company.

Ask yourself if you would really want to own that business based on what it does and how it is performing. Would you invest in a business you know little or nothing about?

In a worst-case scenario, how would total failure of the business affect you? Could you afford to lose your investment? You are investing based on expectations of future returns. How well is the business likely to do in the future?

It is important to diversify your investments.

Buy in different sectors of the economy, in different markets if possible.

Invest for the long term but take profit when it makes sense to do so.

Determine what level of return you want from your investment and let that guide you in making decisions to sell.

Sell to cut losses if necessary.

The stock-market report summarises what happens on the market on a particular trading day with some historical information. The report is published in the press and on the Jamaica Stock Exchange (JSE) website (www.jamstockex.com).

The index gives the trend of the market and, in the case of the JSE, is influenced by price changes and the capitalisation of the companies that trade on that day.

Two companies may record the same price change but the one with the larger capitalisation will have a greater effect on the index.

The 52-week high and low figures stated on the daily reports give the highest and lowest prices at which a stock trades over that one-year period and, if followed closely, gives a good indication of the price movement of the stock.

'last traded price'

The 'volume' is the total of all units that trade on the day. The report also gives the amount of each individual stock that trades and the dollar value of all transactions. A stock may trade at many prices in a trading session and the report gives the highest and lowest prices of each stock for the day.

The 'last traded price' and the 'close price' are often the same but differ sometimes because the latter represents the weighted average of all prices at which a stock trades during a session.

This was introduced in March 2009 to counter price manipulation.

The 'change' represents the difference between the 'close price' of the session being reported and that of the last time the stock traded prior to that, be it a day before or a year before.

The 'closing bid' and 'closing ask' represent the prices at which investors were prepared to buy or sell a stock, through their broker, at the time the market closed. Although it is likely the next trade could be at any of those prices, there is no guarantee of that happening.

To get started, see one of the stockbrokers listed in the telephone directory.

commission

Considering that they tend to charge a commission of about two per cent and a minimum commission of $500 per transaction, plus other charges, $25,000 should be a reasonable minimum level.

For someone with little experience, though, unit trusts is another option, especially if funds to invest are limited. These are pooled funds invested in a mix of real-estate equities/stocks and bonds/fixed income securities, and managed by a 'unit trust manager'.

The investor would buy units in the pool.

Only four companies in Jamaica sell unit-trust products - Barita, Capital and Credit, Pan Caribbean, and Scotia DBG.

Unit prices change constantly, but the 10 unit-trust products on the market are now trading between $4.61 and $26.24 per unit.

Oran A. Hall is principal author of 'The Handbook of Personal Financial Planning' For free money advice, email: finviser.jm@gmail.com.