|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
||||||
|
|
|
|||||||
|
|
|
|||||||
|
|
|
|
|
|
|
|
||
|
||
|
As costs fall, even more of us could be attracted to the appeal of investing directly into shares. But are such investments wise, or should we rely on other investment types for growth? The brief success of technology stocks encouraged many to try their hand at direct investment. People jumped on the bandwagon in the belief that tech stocks were the way to make money. But as many found out, stock market investment is not without risk. While shares offer the greatest potential for growth prospect for money, direct investment in the stock market is also the riskiest route to take. Markets can turn quickly without warning. If you are particularly adverse to risk this type of investment is probably not for you. Shares could be worth considering once you've built a solid portfolio with a mixture of investments. You should consider savings accounts and ISA's as part of your overall portfolio to spread the overall risk. There are a number of rules you should follow before investing:
Getting Started There are a number of sources of information for the beginner. Read the share columns within the quality press and learn from good commentators. Web sites offer educational workshops or help with jargon (www.stockacadamy.com). You could consider joining or forming an investment club. This could help pool the knowledge of a number of individuals and allow you to explore the markets without investing a huge amount. While you're learning how the market works, practice
a little. Create a phantom portfolio of between 6-10 shares. Select carefully
and learn as much about the company as you can before making your imaginary
purchases. Then monitor your shares daily taking note when prices change
and more importantly, try to identify why? Ask whether you should have
sold any shares and for what reason? Running a dummy portfolio will help
you learn how to make decisions. The day will come when you are confident in your own mind that you have identified a particular share worthy of your money. If in doubt you should seek advice from a stockbroker before buying shares. A to Z Of Shares A AGM An Annual General Meeting attended by the company's
shareholders, where votes are held to re-appoint the directors, views
are aired, resolutions passed and company matters discussed. An AGM is
normally held 21 days after the annual report is published. Annual Reports and Accounts All PLCs are obliged to make these available to shareholders. They set out the company's yearly financial performance. At Best Buying or selling at the best possible price in the market. At Limit Setting the minimum price at which you wish to sell,
or the maximum price at which you wish to buy. B Bargain A deal struck between an investor and the market. Base Rate In the UK, it is the rate at which the Bank of England lends to the Retail Banks. Bear The opposite to bull. A "Bear Market" is a
term used to describe a falling market, or one that is expected to fall. Bed and Breakfast The practice, often for tax reasons, of selling a holding one evening to buy back, by agreement, the next morning. Originally devised as a means of limiting capital gains tax liabilities, it is now illegal. Best Execution The broker-dealer's commitment to the client to obtain the best price for the relevant order as quickly as possible. Deals must be dealt in a fair and timely manner. (i.e. dealing "at best") Bid Price Is the price at which an investor may sell shares to
the market. The opposite is an ask-price. Blue Chip Stock The general term given to a company that is regarded as stable, and consequently a safe investment. Blue chip companies are almost certainly large, profitable, conservatively managed, and well established. The term is originally American and refers to the highest valued poker chip. Bond The term used to refer to a security issued by a company
or government that earns interest for the investor, and typically entitles
the holder to repayment at maturity. Bourse The Paris Stock Exchange, as well as some other European exchanges. The continental word for an exchange. Broker The intermediary agent between a market maker and an investor, who charges a commission for services provided. Broker-Dealer The term given to a member firm of the London Stock
Exchange, which functions both as a market maker and as a stockbroker,
but not simultaneously. Bull The opposite to bear, and is usually referred to when talking about the market trend. A "bullish market" is one that has risen, or is expected to rise. C Call A financial derivative instrument used in options trading. A call would give an investor the right, but not the obligation, to buy shares at a fixed price up to a predetermined date. The opposite of a "call" is a "put". Capital Gain The profit you make when you sell a stock. If you make
a loss, it is called a Capital Loss. Capitalisation Also known as a bonus issue in which a company issues fully paid shares to existing shareholders as a result of rearrangement of the company's capital structure. Sometimes also used to refer to the market capitalisation of the company - the number of shares in issue multiplied by the current share price. Cash Dividend A cash payment per share held. All cash dividends are
paid to shareholders net of tax, which for UK equities is at a rate of
10%. Cash Ratio The ratio of liquid assets to the current liabilities of a business. Liquid assets include cash, but also include quickly realisable assets, such as stocks and shares. The current liabilities of a business are its bank loans, overdraft and short-term debts for goods and services received. A favourable ratio means that the company is in a position to maintain its current obligations. Certificate The piece of paper that represents ownership of a stock. Commission The amount a broker-dealer charges a client for transactions.
Commissions differ from broker to broker. Compliance In the UK, all firms intending to trade on the Stock Exchange have to comply with the provisions of a compliance officer responsible for ensuring ongoing compliance within the firm. Contract Notes These are issued by Securities Houses as confirmations of orders executed, and are legal documents that should be retained by the client for tax purposes. Coupon The rate of interest attached to a bond or loan stock
that an investor would receive until redemption. For example, Treasury
2.5% 2001 will pay interest of 2.5% per year until redemption in 2001. D DTI The Department of Trade and Industry, a government department that is responsible for commercial matters, like insider dealing. Daily Official List A London Stock Exchange publication, which details the day's trading activity of every share on the exchange. Discount
Dividend A distribution of profits to company shareholders, usually shown in pence per share. Dividends are optional, and at the company's discretion. They may be distributed as cash, scrip or enhanced scrip dividends. E EGM An Extraordinary General Meeting, that is any meeting of the company shareholders that is not the AGM. EPS Earnings Per Share, used to see how a company is performing
in terms of value for shareholders. EPS is worked out by dividing total
profits by the number of issued shares. Emerging Markets The general term used to describe less well-established marketplaces. Equity An alternative name for stocks and shares. Exposure The risk that you take when buying and selling shares. F FSA The Financial Services Authority is the regulatory body
that oversees the investment industry. It was formerly called the SIB. FTSE Financial Times Stock Exchange Authority. These firms are jointly responsible for the compilation and maintenance of the main stock indices reflecting the performance of the UK's top shares. Final Dividend The dividend paid by a company at the end of the financial year. Financial Services Act 1986 An Act of Parliament designed to regulate investment
business in the UK, it set up the Securities and Investment Board (SIB),
which subsequently became the Financial Services Authority (FSA). Fiscal Year Runs between 6th April and 5th April the following year. This period is used for assessment of income tax and capital gains tax. Flotation Is when a company's shares are offered to investors and quoted on a market exchange for the first time. Fund Manager An individual or company that invests money on behalf
of clients. Futures Trading The buying/selling of a product at a fixed price for a date in the future. This is deemed as a high-risk instrument. G Gearing When a company's debts are expressed as a percentage of its equity capital. A high gearing would signify debts are high in relation to equity capital. Also known as leverage. Gilts Government issued bonds, and are so called because once upon a time the certificates were gilt edged. Gross Before the deduction of taxes or commissions. Growth Stocks Shares in companies in expanding sectors, which have
high rates of growth and therefore high P/E ratios. H Holding All the shares you own in any one company. Hostile Takeover Where one company tries to buy another company against the latter's wishes. I IPO Stands for Initial Public Offering, and is the offering
of shares prior to a market debut. Inflation A period of rising prices. It is mainly kept in check by the movement of interest rates. Insider Dealing The use of confidential, price sensitive information prior to it becoming publicly known, for financial gains. It is a criminal offence that carries a maximum sentence of seven years in jail or unlimited fines. Interim Dividends The company's distribution of profits to shareholders
halfway through the financial year. Interim Report All companies quoted on the stock exchange must release an interim report after the first 6 months of the financial year. It tends to concentrate on profitability and may or may not be used to justify an interim dividend. L LSE An abbreviation for the London Stock Exchange. Leverage Also known as gearing, leverage is the realisation that
a large return can be obtained from a relatively small outlay with risks
attached. Limit Orders Instructions to deal that stipulate the minimum or maximum price at which you want to buy or sell your shares. Liquidity Refers to how easy it is to trade in a stock. Liquid markets are those where there are a large number of people holding equities and a high volume of shares in the public domain. Loan Stock A bond issued by a company which bears a fixed rate
of interest, but which may not be secured against any assets. M Main Market Is the London Stock Exchange, where over 2,600 shares are currently quoted. Mandatory Quote Period Currently 08:00 to 16:30 Monday to Friday, except holidays. Basically, it is when the London Stock Exchange is open. During this time, market makers are obliged to give quotes for securities on the exchange. Market Capitalisation The number of shares in an issue multiplied by the share price. Market Size The number of shares a securities house is willing to
deal in at the quoted price. Meltdown A catastrophic fall in the prices of shares. Black Monday, 19th October 1987, when the DJIA lost 23%, is an example. Merges When two companies form one entity and share assets, clients, debts, etc. N NET The opposite of gross; it is the figure you receive
after deductions have been made. New Issues Companies that are coming to the market for the first time, or the issue of extra shares. Nominal Value This is the face value of the share, but bears no relationship to the value at which people are buying and selling the share. Also known as par value. Nominee Company A company that holds shares on behalf of its customers.
The shares are held in the company's name, but it cannot trade them without
the client's consent. O Offer Price Sometimes referred to as the ask price; it is the price at which an investor can buy from the market. Ordinary Shares The most common shares in issue, and reflect that the holder is a risk-bearing owner of the company. Options Are financial derivative instruments that allow investors
to speculate on future movements of the underlying stocks. If you buy
an option, you buy the right, but not the obligation to buy/sell the shares
at a fixed price on or before a predetermined date. P PTM The Panel for Takeovers and Mergers. It is a body, which ensures that takeovers and mergers are conducted fairly on behalf of all shareholders. PTM Levy A nominal charge of 25 pence on deals with considerations of over £10,000, paid to the Panel for Takeovers and Mergers. P/E Ration Allows an investor to see how a company is performing,
by dividing the share price by the company's EPS. A high P/E ratio suggests
that the market positively views the future earnings of the company. Penny Shares The term used to describe shares priced below one pound, deemed as speculative investments. Many stocks on smaller exchanges such as AIM are penny shares. Portfolio The range of shares that you hold in different companies across the market sectors. Preference Shares Are ranked higher than ordinary shareholders if the
company is liquidated. They usually come with a fixed dividend. If there
is a redemption date, i.e. when the investor gets the principal back,
they are known as redeemable prefs. Premium The opposite of a discount, refers to the increase in price of a newly issued stock. If used in the context of futures and options, the premium is the lump sum payable when purchasing a contract. Prospectus A document issued by, or on behalf of, a company when looking to invite potential investors into buying shares. Prospectuses are most commonly used during a flotation. Proxy A form, which allow shareholders to vote, even though they can't attend a meeting. The shareholder can nominate an individual or the Chairperson to vote. Put A financial derivative instrument used in options trading.
A "put" would give an investor the right, but not the obligation,
to sell shares at a fixed price up to a predetermined date. The opposite
of a put is a call. R Real Time Without any delay. Real time prices are the current prices at which orders are being executed on the market. Record Date The date set when the registrar reviews which shareholders are entitled to benefits, for example, dividend. Registrars Companies whose job it is to maintain and update the
company register. Return On Net Assets The profit before interest and tax of a company, expressed as a percentage of net assets. To calculate net assets, add fixed assets plus current assets less liabilities owed to all except the shareholders. This is very similar to ROCE, except that long-term liabilities are included in the calculation. Detailed explanations of how these work should be sought from more specialist sources. Risk Is like probability. There is always a chance that the value of share will fall. Investors attempt to minimise the risk they impose on themselves by adopting investment strategies. Risk Warning The document that must be sent out to investors prior
to dealing in options or warrants. It highlights the inherent risk involved
in the trading of such volatile financial instruments. S Securities The general name given to stocks and shares issued by the company to investors (also referred to as equities). Settlement The process of transferring ownership of stock and cash between seller and buyer Shares Shares are also known as equities, stocks, holdings
or securities. They indicate ownership of part of a company. Spread The difference between the buy and sell prices. Stag The term used to refer to an investor who applies for a new issue in the hope of selling the stock quickly, in order to make a quick profit. Stamp Duty A government tax that is applicable to purchase at a
rate of 0.5% for UK equities and 1% for Irish equities. Stocks In the United Kingdom, fixed interest securities are stocks, whereas in America, they refer to equities, that is, what we would call shares. Stock Exchange This is a forum for the buying and selling of securities.
In the United Kingdom, the main stock exchange is the London Stock Exchange. T Tender Offer An offer where potential investors are asked to stipulate the price per share that they are willing to pay. Tracker Funds Professionally run investment funds that attempt to emulate the performance of a specific share index. For example, the FTSE 100. Usually, they invest in companies in the same proportion that they constitute the index. Traditional Stockbrokers Firms that usually handle portfolios on a discretionary
basis, offering advice and handling execution. V Volume Simply refers to the number of shares traded. Volatility Describes the propensity of a share to change price rapidly. Y Yield The annual dividend or interest income received expressed
as a percentage of the price of the instrument, i.e. bonds or shares. |
|
|
||
|
Subscribe to the Pink Finance monthly newsletter and keep abreast of what's new on the site by clicking here. Your address will not be shared with any third party and you may unsubscribe at any time. ©2001-2002 Please note that the articles contained within this
site were written for Pink Finance and are subject to copyright. They
may not be reproduced in any form without prior written permission from
the editor.
Graphics/images/logos and site design are by John
Myers and remain his copyright. Likewise, they may not be reproduced
in any form without prior written consent.
|
|
