Ask Yourself

No form of investment offers you all that you want in income, growth and security. You have to compromise to some degree.

Most people require a combination of income, growth and security. Differences in investment strategy and decisions are only a matter of emphasis on risk, income, security and capital gain.

A properly diversified and balanced portfolio should attempt to combine income, security and capital gains so that you can take advantage of the investment alternatives which suits your needs.

Evaluating your alternatives is the most important step in investing.

Each investment must be evaluated in the context of your personal position and objectives. Each investment has some common characteristics which must be considered very carefully. These include – return, risk, liquidity, maturity, costs, minimum investment and time.

1. Return – What is the expected return? Some investments promise a fixed return (such as fixed interest investments like government and corporate bonds) while others make no promises (such as shares). The return can be as either dividends, interest and/or capital gains, all of which can have different tax implications. As an incentive to encourage more people to buy shares, there is currently no capital gains tax and no stamp duty for share transactions on PNGX.
2. Risk – Risk is the chance that the return from an investment will be significantly different (either higher or lower) from what you expected. There is an element of risk in every type of investment. There is a risk that you may not get the earnings you expect. There is a risk that you may lose some or all of your money. There is risk that the economy may slow down which will have an impact on your investments. You may incur any or all of these risks. It should be emphasized that the stock market provides a broad spectrum of investment risk, which caters for various needs of investors. It is therefore up to each investor to determine the degree of risk they are prepared to accept.
3. Liquidity – How quickly can you sell an investment? If you sell it quickly, will you maximize the value at that point in time. Both of these questions relate to access and liquidity. Deposits with a bank in savings accounts are highly liquid and can be easily withdrawn. Conversely, real estate liquidity is low as it can take a long time to sell property. Shares are liquid because there is an organized marketplace with investors available with visible pricing. Stamps, coins and antique furniture are not liquid because to sell them you have to search for a collector prepared to pay the item’s value and if you have to sell quickly to a dealer you may not receive the true market value.
4. Maturity – Some investments, such as government and corporate bonds, have a limited life. Others such, as shares, continue indefinitely or until the company is wound up or is taken over.
5. Minimum investments – Many investment alternatives require minimum investment amounts. Some even have maximum limits. This may restrict your access to some investments.
6. Costs – A trap for investors can be extra costs, which are sometimes hidden. Always talk to your stockbroker about all possible costs involved in buying and selling shares.
7. Time – Some investments require more of your time to manage than others.

Buying and selling shares is simple

When you do business with a stockbroker, you normally instruct them to act as your agent. Your stockbroker is an intermediary, acting between you and the person on the other side of the transaction.

Your stockbroker acts on your behalf going to the stock market to buy or sell for you.

Before you buy or sell shares you will need to open an account with your stockbroker. This is similar to opening a bank account.  You will need to provide all the identification details you would be required to provide to open a bank account.  You will also need to provide your bank account details so the proceeds of sales ca be paid to you.  There may be other details your stockbroker requires to open your account.

Once you have opened an account with your stockbroker you may place an order with the stockbroker.

Once you are ready to place your order you will need to tell your stockbroker what shares you wish to buy or sell, how many and at what price. If you are a new client, the stockbroker may ask you to give them enough money to cover your initial transaction in advance of the order being placed in the market.

Any order, whether placed by phone or in person, should be stated clearly so that there is no room for misunderstanding. PNGX recommends that you ask the stockbroker to repeat your order back to you so that you can be sure that their interpretation is the same as yours. PNGX also recommends that you make a written record of the order you gave.

Your broker will then place a bid (if you are buying) or offer (if you are selling) on your behalf into the on the electronic trading system operated by PNGX.

If there are other buyers and sellers in the market, there may be multiple bids and offers at different prices.  The gap between the highest bid and the lowest offer is called the “spread”.

There are generally two types of orders:

• At market orders – this means that the transaction will be done by the broker at the best market price prevailing at that time. For example, if you are buying KSL and there is an existing bid at 2.80 and an offer at 2.90, your broker will place an “at market” bid which will automatically be at 2.90 and your trade will be at 2.90.
• Limit orders – means that the order will only be transacted at the price limit (or better) which you have stipulated. For example, if you are buying KSL you could instruct your broker to place a “limit order” bid at 2.80. As there is already another buy order in the market at 2.80, your order will sit behind that first order and only trade after that first order has fully traded at 2.80.  Alternatively, if you want priority over the existing order you will need to improve the price by making a higher bid that 2.80. You could instruct your broker to place a “limit order” bid at 2.85 so that your bid will trade before the bid of 2.80 once a seller matches your price.  This is called “price – time priority” as orders at a better price have priority over orders at a worse price and earlier orders at the same price have priority over later orders at the that price.

Once the order is placed and matched on the market your broker will send you a contract note setting out the relevant particulars of the transaction.

The contract note will show the cost of the shares purchased and separate charges of brokerage and tax (if there is any).

Your transaction will be settled on the third business day following the transaction. On settlement day, the buying broker gives the selling broker the funds for the sale and the selling broker gives the buying broker a transfer form for the number of shares transacted.

After the settlement, PNGX sends the transfer forms to the company’s share registry to register the buyer as a shareholder in the company. As a buyer, you will receive evidence of your shareholding directly from the company’s share registry office telling you how many shares are held in your name. As a seller, your stockbroker will transfer your money to your bank account and you will receive evidence of your reduced shareholding directly from the company’s share registry office.