Almost every week someone asks me how they can invest in the Jamaica Stock Exchange (JSE). The better question should be, are you equipped to invest in the JSE?
Investing in the stock market requires some basic foundations that you must have. These include:
- A basic understanding of stock exchanges.
- A proper brokerage organization.
- Adequate time to research stocks.
- A financial plan or risk strategy
Let’s us look at these in detail.
Understanding Stock Exchanges
The stock exchange is an organized and regulated financial market where securities such as bonds, notes and shares are bought and sold. Brokers and traders basically buy and sell these securities. In order to trade a security it must be listed in the stock exchange. Trading nowadays is being done electronic communication networks.
In the primary markets, initial public offering (IPO) are done, after which trading is done in the secondary market. The stock exchange is the most important component of the stock market.
Stock prices are affected by the supply and demand in the market.
There are quite a few reputable firms in Jamaica that offer these services. Normally commercial banks and other financial institutions will cater to those needs. It is important to choose an organization that will allow you to manage your own portfolio. However, if you are not proficient in understanding stocks then the use of an adviser maybe more beneficial. Bear in mind that typically firms will charge a fee for those services. My personal preference is JMMB, due to the fact that they are linked directly to the stock exchange. In order words, I can execute my trades without an adviser, straight from their portal. In choosing a broker, ensure that you ask about the fees charged for executing a trade and their inhouse fees if you have an adviser. Find out how they send out their statements and listing of IPOs.
The same energy you take in purchasing or selling things you love, is the same energy you must put into stocks. You should never just get up and buy or sell a stock without proper research. Nowadays, you can easily read about Companies online. Information is also available on the Jamaica stock exchange website: https://www.jamstockex.com/.
You can look at a company’s financial statement, zero in on their profit and loss and their liabilities in their balance sheet. Also look at their years in operation and their management team. I go as far as investigating their Board and top management. You need to always know the company is solid, and will be around for years to come. Remember you are investing your hard earned money.
Financial Plan or Risk Strategy
You need to always make a plan when investing in stocks. While you can make great returns in the stock exchange, you can also lose money even with the best assessments. Seek to follow these guidelines:
- Don’t put all your money into one investment.
- Stocks should be mixed with other investments, such as bonds, mutual funds and other low risk investments.
- You must set a road map of why you are investing, and what your goals are in the next 10 years.
- You should pay off high interest credit card debt first.
- Invest in more than one stock to spread the risks.
- Make sure 50% of your portfolio includes blue chip stocks of companies that are highly profitable and have maintained strong stock prices.
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