So Thriving Dollars finally returned November with their bimonthly Money Meetup. It was nice to know my gentle draping up of Kenishia did not go in vain. November’s Meetup was live and did not disappoint.
The sole panellist was Randy Rowe, who you might know from his blog Every Mickle and his podcast Earning Season. Kenishia asked all the questions we would have wanted to ask and it’s been one of the best stock seminars I’ve been to this year.
Anyway let’s get into the valuable information
What to bear in mind when an IPO comes out
- Randy gave us the acronym MVVUP (pronounced Move Up) M-Money, V-Value, V-View, U-Universe, P-Plan to evaluate companies.
- Read the prospectus.
- Note how the company makes money.
- Note how the company is valued (check their book value, P/E ratio etc). In terms of the PE ratio, the lower the better. It’s in comparison to the other stocks fyi.
- Note how the company is viewed by others, a positive view of the company is always better.
- Note how people who are big on investment feel about the IPO, are they excited?
- Note what’s happening in the company.
- Note the plans they have for the company moving forward.
- Check out the other companies that offer similar service, how does this one compare?
In case you’re wondering about where you’ll get all this information, read the prospectus, go to jamstockex.com and follow the #FinanceTwitterJa hashtag. You can also check out my post on IPOs: What You Need to Know About IPOs
Reading Financial Reports
Financial reports are posted on the Jamaica Stock Exchange’s website. When reading a financial report, Randy says to look for their profit/loss statement and management reports. It might sound obvious but successful businesses make profits. Look at their revenue (total amount of money they’re bringing in), debt etc.
Investing for Capital Gain vs Investing for dividend
To clarify, capital gain refers to a rise in the stock price and dividend is the amount of money paid out to you based on how many stocks you own. What Randy was basically saying is if you want to be a casual investor, you probably won’t make a lot of gain because you’d have to take the time to learn and study the market. Capital gains requires work and understanding of the company.
If you’re investing for dividend then you’d have to be risk-averse, have lots of money and lots of patience.
Unit Trusts- Pros and Cons
Pros– Unit trusts are good if you don’t have a lot of time to follow the market or you don’t have a lot of money. It doesn’t require any experience.
Cons- There is usually a buy out fee and some places take an annual fee that is pretty static and may mean you don’t make much money on your investment.
I you do decide to do any kind of unit trust or anything where they manage your money make sure you check on it.
To Diversify or Nah
You’ve probably heard that you should diversify your investment. Diversification refers to basically investing in stocks of varying industries or even using completely different investment vehicles (eg: having stocks, bonds, unit trusts etc). It’s a risk mitigation tool.
Randy quoted Warren Buffet who stated that wide diversification is for people who don’t know what they’re doing (or lack patience.) Before you get alarmed he’s saying that people shouldn’t diversify for the sake of diversifying.
I took that to mean that it may not be a good idea to just buy 10 stocks just because I need to diversify when I could put my money in 2 or 3 good stocks.
Randy made the point that, if you split up your money into 5 different places then they’ll all have to win. Pay attention to what your money goes into.
Are US Dollars a better investment than stocks?
Stocks are a better investment because it’s easier to understand how the market operates and it outpaces the other investments.
How do I pick a broker?
Randy posits that picking a broker is dependent on your individual needs. For example if you want to be able to use Jtrader (an online trading platform) then you’ll have to pick a broker that offers that option. Remember that you can have multiple brokers.
I’d just like to add that brokers require various amounts to open accounts so that could be a factor in choosing a broker.
Tips on Buying Stocks
- Have a measurable goal
- Know where you’re starting and where you’re going
- Pick a big company
- Pick a company where you spend a lot of your money.
You can always use an excel sheet or the JSE’s trader game to “buy” for free. You can track the cost of your fake investments to see the gains yourself before you invest.
For more info on stocks you can check out:
Missed 2019’s Money Meetups?
No worries I have them all right here:
Remember neither Randy nor I are licensed, financial advisors.
(Photos from @Thriving Dollars)