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A Millenial's Guide to Stocks

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A Millennial’s Guide To Stocks

A Millennial’s Guide To Stocks

You would be missing out on a good avenue to grow your wealth if you think that investing in the stock market is an activity only suited to the older generation. Investing from a young age gives you the advantage of time, and building a good investment portfolio over a longer period will bring many financial benefits in the long run.  Read on to learn how to get started in stock market investing and you’ll be well on your way towards building a solid investment portfolio!

Understanding Stocks and Investments

Before you begin, it is important to know that investing in stocks is a long-term decision and as such, do not expect to reap fast rewards. The primary benefit of long-term investing is the compound interest earned, being the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

 

You must also be willing to learn the skills required to invest, and take the time to do your own research on the best stocks in which to invest. Of course, if you like to keep abreast of current economic issues globally, investing in the stock market may be right up your alley as the economic standing of a country has an impact on share price movements.

 

 

Selecting The Right Stocks For Investment

In Malaysia, you can trade stocks through Bursa Malaysia by first opening a Central Depository System (CDS) account. To do so, you may enlist the services of an investment broker, open one yourself by visiting any investment bank branch, providing photocopies of your NRIC and paying a fee of RM10. Subsequently, you will receive your CDS account’s documentation by mail.

 

Next, determine the industry and companies in which you are keen to invest. Before deciding, carry out your due diligence by reading up on the past performance, cash flow and profitability of the companies to determine their value and overall standing.

 

Additionally, you should consider your risk appetite, which is the level of risk that you would be comfortable taking on. Assess whether you want a low-, medium- or high-risk investment. It is also helpful to familiarise yourself with the technical terms used in stock investments.

 

Before you can begin trading, you will need to acquire some stocks. The minimum number of shares or stocks that you can buy or sell per transaction is 100 units. For example, if the share is priced at RM1 per unit, you will need at least RM100 to make the purchase.

 

Now that you’re aware of the basics of investing, it’s time to take your first step towards becoming a shareholder! Remember, good investments will bring great rewards in the long term.

 

This article was contributed by www.CompareHero.my

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

How to Invest in Stocks like a Pro

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Recently, Tom bumped into Jerry (his college mate) while strolling in a shopping mall. They decided to have coffee together. Here is how their conversation went.

Tom began with, ‘Hey bro, what brings you here?’

Jerry replied, ‘Annual General Meeting (AGM), bro. I was attending the investor’s AGM for ABC Bhd. It was held at the convention centre just now.’

 

Tom nodded and said, ‘Wow. I didn’t know that you are into shares. How long have you been ‘playing’ shares?’

Jerry smiled. With glee, he replied, ‘Well Tom, I have been a shareholder of ABC Bhd for the last 3 years. It’s a long-term investment. Personally, I’m not one of those who ‘plays’ shares. After all, those who play shares are often not the type of people that would attend AGMs.’

Tom asked, ‘So, how’s it is performing?’

Jerry replied, ‘Well, it’s pretty decent so far. In addition to capital gains, I have been collecting some duit kopi (dividends) on a quarterly basis for the past 3 years.

Tom asked, ‘Wow, that’s great. Honestly speaking, I’ve been thinking about investing in the stock market. However, I’ve often hesitated as I think stock investing is risky. Since you’ve been in the markets for quite some time, how do you reduce risks from your stock investments?’

Jerry replied, ‘It’s simple. Just think like a banker when you invest in stocks.’

Tom exclaimed, ‘What do you mean, Jerry?’

Jerry explained, ‘For a start, banks derive interest income from lending money to people. However, banks do carry the risk of lending. This is because not all borrowers will fulfill their loan obligations. So, banks practise risk management policies to filter customers who can service their loan from bad customers who couldn’t. You can apply the same principles in stock investing.’

Curious, Tom responded, ‘Really? I didn’t know that. How does it work?’

Jerry continued, ‘Tom, do you have mortgage payments?’

Tom answered, ‘Yes, I have one for my own residence.’

Jerry said, ‘When you applied for a mortgage, did the loan officer ask for your particulars?’

Tom answered, ‘Yes. They wanted a lot of documents. I gave them my photocopied IC, bank statement, EPF* statement, pay slip, CCRIS* score and income tax statements’.

Jerry explained, ‘Do you know why your banker needs your IC?’

Tom answered, ‘Is it because they want to know who I am first before lending money to me?’

Jerry nodded. Then, he continued with, ‘How about your pay slip and income tax statement?’

Tom answered, ‘I think the banks want to know where I am working, how I made my money, and whether I am servicing other loans before lending money to me. But Jerry, where is this heading? How does it relate to stock investing?’

Jerry answered, ‘Everything. In a way, investors are like bankers. Stocks are like customers who intend to borrow money. Before investing, an investor would ask for a stock’s annual reports, quarterly reports and investors’ presentations. This is because, an investor wants to know:

  1. What business or sector is the company involved in?
  2. Who are the customers?
  3. How much profit is it making?
  4. What is the current debt level of the company?
  5. What is it going to do to make in the future.

Taking out a pen and a piece of paper, Jerry drew the following diagram:

No.BankersStock Investors
1Lend MoneyInvest Money
2Interest IncomeDividend Income
3CCRISBalance Sheet
4Pay SlipIncome Statement
5Income TaxIncome Statement
6Profiling CustomersProfiling Stocks
7Avoid Bad CustomersAvoid Unprofitable Stocks

 

Jerry continued, ‘From this, investors are able to separate stocks that are financially solid from mediocre stocks that are not. As a result, investors would reduce their risk of making bad investments as they avoid investing in stocks that display continuously poor financial results.

Impressed, Tom commented, ‘Wow! This is amazing. I’ve never viewed stock investing in this manner.’

‘But Jerry, I have another problem. You know I’m not good with maths. I don’t know how to read financial reports. Where do you think I can start learning about stock investing?’

Jerry replied, ‘I’m glad that you asked. Did you know that InvestSmart, an investor empowerment initiative by the Securities Commission Malaysia (SC) organises stock market and unit trust seminars for retail investors?’

Jerry continued, ‘The seminars aim to encourage members of the public to take control over their finances so that they can be responsible for their own future and wealth, equip investors with the knowledge, skills and tools needed to exercise good judgement and discretion in making investment decisions and encourage more informed retail participation in the capital market. To find out more, you may log on to ‘www.investsmartsc.my

*EPF: Employees Provident Fund

**CCRIS: Central Credit Reference Information System

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Have You Started Investing?

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Have you ever dreamed of being able to travel the world? If yes, are you still dreaming or have you made it come true? Regardless, I’m sure we can all agree on one thing: Being able to travel comfortably usually requires you to make an “investment”, be it your time and effort in saving money for the trip, or actually investing your money, where you can then use the returns or dividends to finance your trip.

Some of the most common ways to achieve your long term financial goals include savings & fixed deposits, investing in property (a second home, perhaps?), and of course, unit trust funds & investing in the stock market.

However, fixed deposits tend to yield average returns, and while buying a second home is a simple enough investment option, the 2016 property market is expected to be a bit subdued, so your rental returns may not be enough to offset your monthly mortgage, leaving you in more debt.

And then there are stocks, unit trusts, bonds, derivatives, and other investment products. Well, they can get complicated, no?

Enter InvestSmart, an investor empowerment initiative by Securities Comission Malaysia (SC), organising seminars for retail investors (like you and me) so that we, the public can be better educated on investment methods, taking control of our finances and  being fully responsible for our own investment decisions and (hopefully) achieving future wealth.

The seminars will cover basic fundamental topics such as how to:

  • Understand the role of market sentiment, technical analysis and identify the trading risks involved;
  • Spot the right opportunities for trading or investing;
  • Conduct fundamental research on listed companies in Bursa Malaysia, and
  • Distinguish between stock trading and stock investing.

These seminars are held NATIONWIDE every SATURDAY and will equip investors with the necessary skills, knowledge, and tools needed to exercise good judgement and discretion in making sound investment decisions, very important not only to new and aspiring investors, but perhaps even the seasoned veterans as well. Guess what, you can even keep up with InvestSmart via Facebook! Find out where the next seminar is happening, or when InvestSmart’s Mobile Kiosk will be coming to a location near you at https://www.facebook.com/InvestSmartSC. Interestingly, InvestSmart has also roped in local celebrities Neelofa, Aaron Aziz, Scha Alyahya, Awal Ashaari, Shaheizy Sam and Elfira Loy to promote simple and witty investment messages on Instagram, so be sure to follow them!

Based on what I’ve read on the InvestSmart website so far (www.investsmsartsc.my), I’d say that articles such as 5 Investment Tips For Beginners would be really great if you are looking to kick-start your investment knowledge with the basics.

Do yourself a favor and check out www.investsmartsc.my and do plan to attend their events to learn more. The future is in your hands!

Disclaimer: This story was edited/written by InvestSmart, a Securities Commission Malaysia initiative and featured on featured on KYspeaks, a Malaysian blog

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Making Dividend-Paying Stocks Work in Your Favour

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This article is sponsored by Securities Commission Malaysia, under its InvestSmart initiative

Dividend-paying stocks play an active role in a long term investment portfolio because they may provide a somewhat predictable stream of income, can be used as a potential indicator of capital appreciation and is a key diversification method for weathering portfolio volatility.

Here are the factors you should consider when deciding which dividend-paying stocks would work best in your favour:

1. The higher the dividend yield, the better

The dividend yield of a stock depends on your purchase price. If your stock’s price rises after a dividend announcement, the dividend yield will drop.

You can find out the dividend yield of a stock just by reading the company’s past annual reports. You can also calculate the dividend yield ratio by dividing the total dividend of the financial year (not calendar year) by your buying price.

2. Mid- and large- cap stocks

Lookout for stocks offered by large, mature companies capable of providing stable revenue, profits and cash flow, as they are typically considered the best dividend-paying stocks. These companies are no longer expanding aggressively; therefore the majority of their earnings are distributed to investors in the form of dividends.

On the other hand, a small, high-growth company may require more financial resources to grow and expand their business. They tend to not distribute gains to their shareholders, instead using them to reinvest into the company to boost growth.

3. Ability to be consistent in paying out dividends

The company you intend to invest in should have a long and stable track record of paying dividends. It would not be too beneficial for you as an investor if the company is large and successful, but only makes sporadic dividend payments to their investors.

The best way to decide if the dividend-paying stock is worth your while is to check if the company issuing has been paying consistent, growing dividends to its investors over a period of at least five to 10 years.

If you want your investments to be a stable source of income, then focus on and invest in companies that are stable enough to finance their growth without compromising on dividend policy.

4. Sustainable and strong company fundamentals

A company’s historical data is important, but it will never guarantee that the company will always perform as it has in the past. Besides the dividend yield and consistency of dividend distribution, investors should also look into the overall aspects of the company’s fundamentals and ensure that they are healthy.

Even if a company has a consistent dividend pay-out policy, deteriorating fundamentals such as declining revenue, reduced profits and inconsistent cash flow may affect its ability to sustain its dividend pay-outs in the long term.

The less revenue or profit a company makes, the less dividends you will receive. Companies with weak fundamentals may also see their stock price affected as investors may no longer find it financially attractive. A fall in stock value will then eat into any dividend gains you might have had in the beginning.

Therefore, always make sure that the company you want to invest in is fundamentally and sustainably strong, robust and will continue to do so for many years to come.

5. Low capital expenditure

To reasonably foresee if the stocks you are buying will be able to deliver the dividends that you are expecting, it pays to look into the company’s capital expenditure (CAPEX).

A company with a high CAPEX indicates that it is in a growth stage and has been continually reinvesting its profits back into its business instead of distributing them as dividends to its investors.

On the other hand, if a company has a low CAPEX, it could mean that it’s no longer looking at aggressive expansion and is unlikely to reinvest its earnings. Thus, they would be more likely to pay good dividends.

6. Stable cash flow

When it comes to evaluating cash flow, choose large, stable companies that produce high amounts of free cash flow annually.
Smaller companies that are still expanding may have negative or inconsistent cash flow, and hence, will not be able to consistently pay dividends to its investors.

Analyse the company’s balance sheet to determine the net cash or net debt position of the company. This figure will give you a rough idea of how long the company can maintain its dividend pay-out even when cash inflow is low or negative.

Conclusion: Always do your homework!

As investors, we all love earning dividends. Besides the thrill of watching your stocks rise higher in value, you equally look forward to receiving passive income in the form of dividends from your investments every year.

We must always scrutinise the companies we are looking to invest in based on our objectives. If you are focused on dividends and it looks like your stocks are not meeting a few of the points above, do not hesitate to invest in different stocks or sectors. Remember, investing for dividends is a long term game filled with changes, volatility and the need for constant diversification!

 

https://www.imoney.my/articles/making-dividend-paying-stocks-work-in-you...

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Why Cash Flow Matters … Even if You Invest Only for Capital Gains!

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College mates Ian and Tim recently met up at a coffee shop, when their discussion turned to investing. Here is how their conversation went:

Why Cash Flow Matters...

Ian started off with the usual, ‘Hey man, what’s up?’

With enthusiasm, Tim replied, ‘The stock market, bro! I’ve just started to do some trading.’

Knowing Tim’s almost non-existent investing habits, Ian was indeed pleasantly surprised. Usually, they would just talk about anything under the sun. Except they have never talked about finance and investments.

‘Wow! That is definitely something new, for both of us!’, Ian responded.

With glee, Tim said, ‘Yeah! It sure is.’

Ian asked, ‘But I’m curious, what exactly got you started on trading?’

Tim then revealed how a colleague of his had made huge gains from stock trading. Tim explained that since he was looking for an honest and legitimate means of boosting his income, stock trading seemed ideal as it could be done on a part-time basis.

Ian nodded. Casually, he asked, ‘So Tim, what kind of stocks are you looking at right now?’

Tim replied, ‘I’m looking at ABC Bhd.’

Ian asked, ‘I see. What does ABC Bhd do? What kind of business does it run, and in what sector?’

Tim replied, ‘I don’t know.’

Ian asked, ‘Err…. Okay. Well, do you know how much of earnings ABC Bhd made last year?’

Tim replied, ‘Come on, bro. You know me. I’m not an accountant. Why would I need to know about ABC Bhd’s finances? I’m interested in ABC Bhd because their stock price went up from RM 0.20 a share to RM 0.50 a share, and I think it can go higher, man! What do you think?’

Ian responded, ‘Tim, from what you have told me, it seems you know very little about ABC Bhd. From my perspective, being absolutely new to stocks with almost no knowledge, don’t you think I would at least want to know:

  1. What business ABC Bhd is involved in?
  2. If ABC Bhd is not a new company, does it have a track record of making profits in the past?
  3. Is cash flowing into ABC Bhd from its business operations?

Tim questioned, ‘Come on Ian, is cash flow really that important? After all, I’m just in it for capital gains!’

Ian remarked, ‘Of course! It is important to look at cash flow even if you are investing for capital gains. Let me ask you this: Do stock prices go up if there are more buyers than sellers in the market?’

Reluctantly, Tim replied, ‘Yes.’

Ian continued, ‘Tim, if that’s the case, what kind of stocks do you think most buyers would want to buy? Stocks that are increasingly profitable? Or, is it stocks that continue to make losses?’

Tim responded, ‘Obviously, the profitable ones.’

Then, Ian asked, ‘How do stocks increase their profits? Don’t they need to invest more to grow and expand their businesses? On research and development? On innovation? On more factory space, etc, etc?

Cutting off Ian, Tim exclaimed, ‘Oh, I get the idea now! That is why cash flow is important. If a company does not generate cash flow from its business operations, then, it may not have the funds to expand its business. Without expanding, the company may not be able to make additional profits. This may influence investors’ decision to buy the shares of the company and thus, affect its share price, right?’

Ian added, ‘Yes! Tim, a company with abundant cash flow would also be capable of paying you dividends. I understand that you are aiming for capital gains, that’s fine. However, you know that we are not the all-controlling, universal masters of the stock market. We will never be able to control which stock goes up in price and which one comes down, ever! So, if the price of the stock you’ve bought just happens to drop, at least (if they have good or future cash flow) you will still receive some dividends from your investment.’

Tim nodded in agreement.

Ian shared, ‘You know, a cash-rich company is usually more resilient and may even withstand a downturn in the stock market. But, a company without cash or facing cash flow problems may need to raise funds through borrowings, issuance of new shares to investors, or even to dispose its assets and inventories at a discount. As you can see, cash is crucial to the survival of a company. After all, isn’t there a saying, ‘Cash is King’?’

Feeling impressed, Tim replied, ‘Wow! I had never realized the importance of cash flow when investing in shares. You have really opened my eyes, especially since my eyes were focused on shares of ABC Bhd!’

Laughing, Ian replied, ‘You are most welcome, bro.’

Tim asked, ‘But, I have another problem. You know that I’m not a financially savvy nor “smart investing” type of guy. Where do you think I should go to start learning about stock investing? You know, the right methods, the proper channels, the right subject matter experts. What should I do?’

Ian replied, ‘I’m glad you asked! Did you know that InvestSmart, an investor empowerment initiative by the Securities Commission Malaysia (SC) organises stock market and unit trust seminars for retail investors? Ian then showed Tim the link to www.investsmartsc.my on his phone.

Fascinated, Ian continued, ‘It says here: The seminars aim to encourage members of the public to take control over their finances so that they can be responsible for their own future and wealth, equip investors with the knowledge, skills and tools needed to exercise good judgement and discretion in making investment decisions and encourage more informed retail participation in the capital market. To find out more, you may log on to www.investsmartsc.my. I’m registering RIGHT NOW!’

http://kclau.com/investment/why-cash-flow/ 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Three Popular Investment Mistakes That You Should Avoid

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Three Popular Investment Mistakes That You Should Avoid

Successful investing involves doing a few things right and avoiding serious mistakes.

Having the right mindset will allow investors to obtain a realistic perspective of their investments. Due to misconceptions about investing, some investors may be disappointed when their expectations are not met which can lead them on a downward spiral of poor performance. Investors who have (and set) a realistic expectation of their investments are more likely to achieve their long term financial goals.

To avoid failing to achieve your long term financial goals, here are 3 popular but WRONG investment tips and why you should avoid them:

investment mistakesImage from bedelfinancial.com

1. Timing the market

When it comes to investing, market timing is one of the most controversial subjects. Some insist it is impossible while some “experts” claim that for the right price, they can do it for you perfectly. The truth, however, often sits somewhere in between. Successful market timing requires two correct decisions: know when to get out and when to get back in. That’s it, right? In reality, it is never that simple to time the market.

Warren Buffett says that people who assume they can predict the short-term movement of the stock market by following other people who time the market are making a big mistake. Even Buffett himself doesn’t try to time the stock market, although he has years of experience in investing and has a very strong knowledge of how the stock market works.

How to do it right:
Remember: Trading is for the short term, investing is for the long term. Focus on a balanced portfolio with the aim of achieving long term gains. If you don’t devote the appropriate time, financial resources, education and desire required to actively trade, chances are you will get “burned” by market timing!
investment mistakesImage from biggerpockets.com

2. Following investment trends blindly

Buffett once said, “Be fearful when others are greedy, and be greedy when others are fearful!” and this has proven to be timeless advice for investors of any level.

When an investor invests blindly, the investment decision is typically influenced by the actions of his acquaintances, neighbours or relatives because they got too excited and fell into a herd mentality without realising it. However, this strategy is bound to backfire sooner or later, so investors should strictly avoid basing their decisions on someone else’s decisions!

Blindly following trends is probably one of the most common mistakes most investors make. When you see others getting handsome returns from the rising market, it is not unusual to follow in pursuit for a slice of the pie. The result can be catastrophic, because the more people buy into the trend, the higher the price gets pushed up, resulting in a buy that’s well above its true value.

Remember, investment trends always come and go. If you are chasing trends, how can you be certain that you are not the last to get off the bandwagon?

How to do it right:
Ignore short-term noise and stay focused on your long term goals and objectives for the future.
investment mistakesImage from za-men.eu

3. Waiting too long or failing to wait

Sometimes, the stocks you choose to invest in might end up becoming losers. These losing stocks must be dealt with in order to limit their impact on your overall investment performance.

Many make the mistake of holding on to their investments for too long, hoping that the stock will eventually rise again. However, this is akin to sweeping the dust under the carpet and pretending it’s not there.

Taking corrective action before your losses worsen is always a good strategy. In investing, avoiding losses entirely may not be possible; successful investors accept this and try to minimize their losses rather than avoid them.

Investing successfully requires you to find the right balance between being too risky and too conservative.

This is why experienced investors would always consider the potential loss of opportunity costs before making their investment decision.

How to do it right:
To succeed, in the stock market, it is always best to invest for the long term. Investors who apply this approach tend to have a competitive advantage over their peers as they would base their decisions on careful consideration, analysis, alignment of investment goals and not getting emotionally involved.

Conclusion

To achieve your long term investment goals, you must strategise and plan ahead. Establish the right mindset and a realistic perspective in your investment strategy, and then stay focused and never stray from it. By diversifying your portfolio and remaining realistic and unemotional, sooner or later you will be able to build your wealth comfortably over time while minimising investment mistakes!

 

https://www.imoney.my/articles/three-popular-investment-mistakes-that-yo...

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Special Purpose Acquisition Companies (SPACs): What Are They?

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securities-commission-malaysia      invest smart

Before investing in a company, there are many things to consider such as the company’s profit track record, its business model, annual earnings, growth projections and its P/E ratio. However, for Special Purpose Acquisition Companies (SPACs), none of this information would be available during its initial public offering (IPO).

Without all the necessary information to make an investment decision, what can potential investors rely on? Read on to find out.

What are SPACs?

A SPAC is a corporation which has no operations or income generating business at the point of IPO and has yet to complete a qualifying acquisition (QA) with the proceeds of such offering. In simpler terms, a SPAC is basically a publicly-traded buyout company that raises money to pursue a merger or acquisition of an existing company. SPACs raise monies through an initial public offering (IPO) for an unspecified acquisition in a targeted industry.  A substantial portion of the monies raised would be placed in a trust and if an acquisition is not made within a specified period, the monies held in trust would be returned to investors.

SPACs have no operations or income generating business at the point of its IPO, but will utilise proceeds from the IPO to undertake mergers or acquisitions. It is effectively a group of experienced industry specialists coming together to raise money through investors for a business venture, and the success of the SPAC is entirely dependent on the quality of its management team.

A SPAC operates like a reverse IPO. As it has no assets prior to its IPO, its listing is also sometimes referred to as a ‘blank cheque IPO’. Investors in a SPAC typically buy a unit and receive a warrant, which trades separately and can only be exercised when the company completes a takeover. Once the qualified acquisition has taken place, the shares will continue trading as a regular listing on the stock exchange.

The structure of SPACs is similar in most countries, with about 90% of the IPO funds held in a trust until a takeover target is found. Because the IPO proceeds are invested in Government bonds or money market funds until the SPAC makes an acquisition, in theory the returns should mirror those of a fixed-income fund, but that is not necessarily always the case.

Suitability of SPAC for investing

A SPAC must place at least 90% of the gross proceeds raised in its IPO in a trust account immediately upon receipt of all proceeds. The monies in the trust account may only be released by the custodian upon termination of the trust account. The trust account may only be terminated if the QA is completed within the permitted time frame, or upon liquidation of the SPAC.

From the SC’s perspective, the suitability for listing of a SPAC is assessed on a case by case basis, and may take into account any factor it considers relevant. The SC may refuse to approve an application notwithstanding the requirements contained in the Equity Guidelines if the SC has reason to believe that the approval of the application would be detrimental to the interest of investors or contrary to public interest. In assessing the suitability for listing of a SPAC, the SC will take into consideration, among others:

  1. Experience and track record of the management team;
  2. Nature and extent of the management team’s compensation;
  3. Extent of the management team’s ownership in the SPAC;
  4. Amount of time permitted for completion of the qualifying acquisition prior to the mandatory dissolution of the SPAC;
  5. Percentage of amount held in the trust account that must be represented by the fair market value of the qualifying acquisition; and
  6. Percentage of proceeds from the initial public offering that is placed in the trust account.

Under the SC’s Equity Market Guidelines, SPACs are given 36 months from the date of the IPO listing to make a QA by utilising up to 90% of its funds or a minimum of RM150 million.

Additionally, the resolution on the QA must be approved by a majority in number of the holders of voting securities representing at least 75% of the total value of securities held by all holders of voting securities present and voting either in person or by proxy at a general meeting duly called for that purpose.

Why should investors consider investing in a SPAC?

With the stringent regulations put in place by the SC in its approval process, the emphasis is on ensuring that the management team’s experience and track record commensurate with the SPAC’s business objective and strategy, whilst the management team’s compensation and reward structure commensurate with the potential returns to public shareholders. Ensuring the needs, interests and concerns of investors are met will also ensure that the potential of SPACs can be fully realised.

Aside from its investment value, SPACs have an important role in encouraging and stimulating the growth of their respective industries. This is because their key management consists of experts in the field. Thus, they are able to exploit the opportunities available and create values based on their strong foundations in trade and market knowledge.

SPACs also offer an opportunity to invest in a potentially high growth company with a risk exposure of about 5% to 10% (not guaranteed), while the returns can be as high as 3 to 4 times (not guaranteed) depending on the value created upon the SPAC’s QA.

Additionally, the funds raised from the IPO are “protected” as they are placed in a trust fund which will be returned to investors if and when the SPAC cannot meet the deadline set. All investments to be made by a SPAC will be scrutinised by independent third party experts, the regulator and even shareholders themselves.

SPACs represent a promising new investment platform for investors with a stronger risk appetite and looking to get into an investment at the earliest possible opportunity.

What should investors pay closer attention to when investing in a SPAC?

1. Low-Cost Entry

Imagine being offered the opportunity to buy into Facebook when Mark Zuckerberg was still in his Harvard dormitory (or Bill Gates or the late Steve Jobs, for that matter). Unlike traditional IPOs which bring established capitalised assets, employee productivity and revenue streams to the market, SPACs offer investors a unique opportunity to buy into a company at the beginning of its business development and growth cycle. Due to the fact that they have nothing (hold no assets) at the time of listing, SPACs present a unique opportunity for retail investors to participate in the start-up of established and operational private companies that are usually only accessible by private equity or hedge funds.

2. The Management Team

The founding stockholders or promoters, who usually hold up to a 20% stake in SPACs, are the brains behind the operation of a SPAC. They would bring with them a distinct blend of first-hand industry knowledge and experience, asset transaction and risk management expertise and experience, their own entrepreneurial spirit, and profit motivation and a desire to create value for their shareholders.

3. Risks & Returns

SPACs may be asset-less at the time of listing, but they do have a business plan that is as detailed and robust as that of any IPO. No two SPAC business plans, models and strategies would be alike. However, due to market pressure to execute a QA quickly after listing, SPACs can fail at the point of making their QA because the due diligence process was rushed, or they bought a QA that was in a sector that was outside of the management’s expertise. As a shareholder, one would need to understand the SPAC strategy and realise that selecting the right asset that fits the SPAC strategy may take additional time to ensure that quality assets are delivered and shareholder value is not compromised.

Conclusion

So, can SPACs offer investors a higher payout upon completing a successful QA and forging a sustainable business model? The quick answer is “Yes, it may be possible”. However, understanding and judging the management team’s experience, track record and ability to execute its acquisition and growth strategy is the most important key to enjoying great returns from SPAC investing.

Since investors receive warrants which are immediately tradeable (but only exercisable after a QA is complete), some investors prefer to take a position on a SPAC’s warrants. Whilst warrants are cheaper than shares, the risk is that the warrants would expire worthless if no acquisitions are made.

Also, because the IPO proceeds placed in trust are invested in Government bonds or money market funds, returns would typically mirror that of a fixed-income fund until the SPAC concludes its QA. Only then will the shareholders get to enjoy dividend pay outs similar to other share investments. Investors must be willing to put their money away and be patient until the SPAC either completes its QA or liquidates itself (which could take up to three years).

There are rewards and risks associated in any capital markets trade. Ultimately, it is the responsibility of the SPAC Management Team and the regulators to present all the factors clearly so that investors can make their own informed decision.

We have all heard it: Nothing ventured, nothing gained. What do you stand to gain if you undertake the risk of investing your money?

https://www.imoney.my/articles/special-purpose-acquisition-companies-spacs-what-are-they

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Investment Guide: Understanding The Prospectus

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Investment Guide: Understanding The Prospectus

The Securities Commission Malaysia (SC) has always advocated that investors should conduct their own due diligence by researching, evaluating risks and returns and understanding the potential investment before making a decision.

To do this, one of the most powerful documents you should get your hands on is the prospectus. By reading the prospectus, you will know exactly what the investment intends to do with your money.

What You Should Pay Attention To

A prospectus contains forward looking statements, consisting of predictions about future business conditions. While no one can predict the future, management is often in the best position to see new trends that may be occurring and to speak about what the company has planned. Fortunately, you don’t need to be able to predict the future when reviewing the prospectus. Instead, just focus your attention on these key sections:

1. Investment objective

This section covers the primary goal(s). For example, some funds will aim to achieve short-term growth while others may focus on long-term stability.

Investment objectives will vary from one investment to another. Certain investments may attempt to generate income for their investors, while others focus on reaping tax benefits or are geared towards capital appreciation or preservation.

Ensure that the investment’s objectives match your personal investment objectives. For example, a fund with an objective of capital growth would not be a good fit for a 60-year-old retiree who needs regular income from investments to cover his day-to-day expenses. On the opposite end, a young investor with time on his side would not feel too worried when faced with higher risks or inconsistent returns in trying to achieve his investment objectives.

2. Investment strategy

How does the fund plan to accomplish its objective? When designing its strategy, the fund will strongly take into consideration its asset allocation and investment restrictions (i.e. investing only in a specific industry). For example, if its objective is to generate income, it would most probably adopt a strategy of investing in fixed income securities such as bonds.

The prospectus usually doesn’t specifically indicate what stocks or bonds it will invest in, but simply describes the types of assets to be purchased, such as corporate bonds or small cap stocks. This will give you an idea of the types of assets that they will be buying into.

A fund’s investment strategy should be in sync with your personal investment style. Although a small cap fund and a large cap fund both aim for long-term capital appreciation, they each use very different strategies to attain this goal. Before choosing one type of investment over another, make sure that you are comfortable with the investing style and are confident with the perceived performance.

3. Fees and expenses

Funds charge their investors a variety of fees and expenses, all of which are documented in a detailed breakdown in the prospectus. This should make it easy for you to compare fees and expenses across other investment schemes. Remember, fees and expenses can eat into your total investment return from the fund, so remember to compare the fees and expenses for all the investment funds that you are interested in.

4. Risks

This is one of the most important sections in the prospectus as it describes the level of risk that the investment is exposed to. It details the specific risks associated with a particular investment, such as credit risk, interest rate risk and/or market risk. if a fund invests a large portion of its assets into foreign securities, take note that this may pose a significant foreign exchange risk, country risk as well as political, economic or social instability risk.

As investors have varying degrees of risk tolerance, this information can help you decide the level of risk you that you can cope with in your investment portfolio.

investor profile

To get the most out of this section, you should familiarise yourself with different kinds of risk, why they are associated with a particular investment, and how they would fit into your overall portfolio.

5. Performance

This section indicates the fund’s performance over the last one year, five years or ten years (depending on how long the investment has been around).

While historical performance is not necessarily an indicator of future results, you need to know how the fund performed in the past before you can make a calculated and informed investment decision. Depending on the age of the fund, its average annual returns will be provided, including a comparison with its benchmark index over the same period.

You can judge how well the investment has performed compared to its index. Other useful information such as the investment’s volatility, dividend payments, and turnover is also indicated here.

In addition, keep in mind that many of the returns presented in historical data do not account for tax, while some funds present data based on an after-tax return. As an investor, read the fine print to see whether the taxes have been taken into account.

6. Distribution policy

Should a fund prove successful or profitable, it may choose to reward investors in the form of realised gains, dividends, or interest (subject to what is indicated in its distribution policy). Some funds may distribute returns directly to investors, while others would reinvest the distributions back into the investment.

7. Management

This is your opportunity to find out more about the people in charge of your money.

Additionally, you can find out about his or her experience and qualifications. From this, you can try to make sense of his or her past strategies and results and use it as a guide to make an informed investment decision.

Conclusion

Reading a prospectus will require your effort, time and concentration but the rewards will be worth it. And although it may seem like a difficult task, reading a prospectus is all about knowing exactly what to look out for.

You can obtain the prospectus directly from the investment company or fund by requesting it via mail or email. Alternatively, you may acquire a copy from a certified financial planner or advisor. Many fund companies also provide PDF versions of their prospectus on their websites.

After reading (and understanding) the prospectus, you will then have a better idea of how the investment fund functions, the risks it may pose, its historic performance, fees, strategy and many more. Most importantly, you will be able to determine if the potential investment is indeed the right choice for you.

*Screenshots taken from an actual Prospectus.

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© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

How to: Start Trading On The Malaysian Stock Market

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How-to: Start Trading On The Malaysian Stock Market

 

How-to: Start Trading On The Malaysian Stock Market

Watching share prices rise and fall can leave a beginner frozen with fear, especially those who are not used to the volatility[1] of the stock market. But whether you call it stock market trading, or owning and buying shares, the process itself is not too difficult to understand. Here is a simple step-by-step guide on how to acquire and trade your first shares in Malaysia’s stock market:

Step 1: Evaluate your risk appetite

Like ordering food from a menu, you would never just order the first dish you see. You would consider what stimulates your appetite the most before committing to order. Similarly, before deciding on whatstocks to buy, you must evaluate your risk appetite[2].

There are several aspects that can help you evaluate your investment risk appetite:

how-to-start-investing-in-stock_2

Step 2:  Open a CDS account

Investors who wish to trade in securities listed on Bursa Malaysia must first open a Central Depository System (CDS) account with stockbroking companies/investment banks.

The CDS acts as a means of representing ownership and movement of securities. It allows you to buy and/or sell shares, and to track your shares’ movements. Securities you buy will be credited into the CDS account, while securities you sell will be debited.

To open a CDS account, you will generally need to provide a copy of your identity card and RM10.

You will also need to open a trading account. This is usually done simultaneously with the opening of the CDS account.

You can find the list of licensed stockbroking companies on the Bursa Malaysia or Securities Commission Malaysia website.

Step 3: Be with a broker (who won’t leave you broke)

Once you have set up your CDS account with the stockbroking company of your choice, you will need to select a remisier (an agent of a stockbroking company that is licensed by the Securities Commission).

You can find out more about finding the right broker here.

The standard brokerage fee is around 0.40%, with the cheapest being around 0.05%. To find out which broker has the lowest fee, check out iMoney’s share trading account comparison table.

Do-It-Yourself (DIY):

Alternatively, you may opt for the DIY route by opting for an online trading account. The most attractive aspects of online trading are its lower brokerage fees and convenience.

There is also less potential for human error — Incidents such as your broker making a mistake, or execution delays when your remisier is not in the office or is busy with another client will no longer occur.

Trading online also allows investors the convenience and flexibility of trading anytime, anywhere, and on various devices. Investors are also able to check real-time stock processing, and access account portfolios and trade history online.

However, the downside is that with so many stocks on offer, a novice investor may get a little confused or overwhelmed and end up making a loss especially if they have little or no prior investing experience, which is why the next point is especially important:

Step 4: Do your homework

Trading shares is not for the weak, and especially not for those seeking an easy way out. To reap the rewards, you will have to do your homework by researching the companies you wish to invest in. This includes taking the time to analyse the company’s business strategies, the quality of management, its relationship with suppliers and customers, and more.  You must also keep track of corporate developments through sources such as the Bursa Malaysia website’s “Announcements” page and the news.

There are no sure-fire ways to make money from trading in shares, but here are some common principles that most share traders live by:

  • Diversify your investments
    As the saying goes, “do not put all your eggs in the same basket.” Prudent investors own stocks of different companies in different industries, and sometimes even in different countries, with the expectation that a single bad event will not affect all of their holdings at once.
  • Do not chase “hot tips”
    You may have heard it from your brother, your co-worker or even your broker, but you should never take any “hot tips” you receive at face level. When you make an investment by buying or selling shares, it is important that you fully understand why you are doing it. Relying solely on a tid-bit of information from someone else without doing your own research is a recipe for investment disaster. Bottomline? “Hot tips” do not exist!
  • Think long-term
    As a long-term investor, you should not panic if your investment(s) experience sudden, short-term fluctuations. When tracking the activities of your investments, always look at the bigger picture. Be confident in the quality of your investments, instead of being nervous about the inevitable volatilities of the market in the short-term.

[1] Volatility refers to the amount of uncertainty or risk regarding the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. Basically, the price (of the security) can change dramatically in a short span of time in either direction.

[2] The degree of variability in investment returns that an individual is willing to withstand.

 

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© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Investment Guide: Deciphering The Annual Report

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As a shareholder, the act of buying stocks in a company automatically makes you a partial owner of the company. Therefore, it is extremely important for you to find out how well the company has performed previously and also to determine how it can potentially grow in the future. Read the annual report check whether the company is performing according to your expectations, or if you are planning to invest in that company, whether the company is worth investing in.

When evaluating a company’s annual report, always look out for the following:

1. Financial highlights

Generally, most companies will publish financial highlights with a five to ten-year historical comparison in their annual reports. Do remember to analyse revenue trends, earnings before interest, tax, depreciation and amortisation, profit-after-tax and more, among others. Additionally, focus on shareholders’ equity, assets, debtors, liability and the total debt from its balance sheet over the years.

Example of a financial highlights page

2. Director’s report

This section provides a brief summary on financials, an explanation and key developments in the company. Terms used to discuss company operations will depend on the sectors, so get to know the industry terms or use the glossary to find out their meanings.

Read at least the director’s report from as far back as five years ago to see whether the management has achieved their revenue target over the years, or whether strategies adopted over the years were favourable, or did the management continue to perform during an economical roller coaster.

Also, take note of the Director’s report while reading. Ideally, it should sound positive when the company has a good year and negative when the company has a bad year. Being able to sense their tone will give you a better idea of what they themselves actually feel about their own performance.

3. Management discussion and analysis (MDA)

This section provides information on trends in the industry, a SWOT analysis, and insights on key items of financial statements as well as risk factors affecting the company’s performance. This section of the annual report will help you to better understand the industry the company is in.

4. Corporate governance

This section gives an insight on the corporate governance practised by the company, such as the composition of board of directors, brief background information on independent and non-independent directors, and remuneration for directors.

Use the information provided to analyse whether the profile of each independent director matches the requirements of the company and the sector which it operates in.

5. Information on shares

This section provides information on the historical performance of the company’s share price(s), shareholding patterns, pledging of shares, split of shares, bonus shares distributed, and so on.

Stock value is derived from a company’s long term ability to create cash profits from the capital that investors have contributed – and this information is intended to show how successfully the creation of value was being accomplished.

However, the key to successful investing is to regard your shares as a long-term investment and overlook the short-term movements in the market.

shares

6. Auditors report

This section provides comments by auditors on the financials of the company you have invested in. Among the things the auditors may highlight include the changes in accounting policy, lapses in compliance with rules or other abnormalities, deferred revenue expenses, wrong classification of expenses and treatment of deferred revenue expenditure.

The auditor’s report is an essential tool for identifying the authenticity of the financial information provided by the company. While many investors prefer certification of independent auditors to ensure it is authentic, many companies equally rely on auditor reports to certify their information to attract investors and improve corporate image.

7. Financial statements

In general (but not guaranteed), a company that makes a profit or performs well will see its stock prices rise, and give you a good return on your investment in the form of dividends or capital gains. To see how well a company has performed – whether to verify your returns or to gauge if the company has potential, you need to check the financial statement section in the annual report.

Here, you will also see the income statement, which shows profit and loss, balance sheet, cash flow statement and schedules of the financials from previous years.

income statement

Conclusion

While some may find reading the annual report a tedious exercise, we strongly advise you to read, analyse and understand at least two to three past annual reports of a company to make sense of its ins-and-outs financials, as well as its management’s stand in dealing with various economic trends.

Once you know what you need to look out for, extracting, deciphering and understanding the relevant information from the annual report will become a much easier experience.

The annual report can be easily obtained from the invested company through mail, email or on their official website.

Screenshots of an Annual Report’s 2013 Income Statements. 

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© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].