Becki Patterson, Freelance Writer

A graphic showing performance of the stock market.

If the stock market is trending up, it is easy to make money with the stocks of some solid performers, but knowing how to read the market is key to successful investing.

It is something that financial expert John Jackson, who tracks the Jamaican market, is known to do well. The most savvy investors tend to buy stock when it is cheap, or conditions suggest the price is about to appreciate. They sell when the price peaks - or, in market jargon, has made a substantial 'capital gain' - to make a profit.

The Jamaica Stock Exchange, (JSE) according to Jackson, publisher of the Investor's Choice magazine is, "relatively speaking, small, with a limited number of listings that makes it easy for an investor to read as the tendency is for all stocks to behave similarly".

This behavioural trend is, of course, largely predicated on 'environmental' factors such as the inflation rate, interest rates, the individual perfor-mance of the company, and the growth or changes in the industry of the listed company.

Stock-market activity in Jamaica is also affected by hurricanes - after Ivan, there was noticeable and predictable sluggishness - impending national elections, and government-imposed taxes. All these factors spell one thing: uncertainty. Investors tend to retreat from markets during such times.

What is a stock market?

What is a stock market? It is a a system through which investors buy and sell shares issued by a company. It is the listed company that is referred to as the stock, so a holder of its shares or stock units is typically described as part owner of the business or entity.

To become a stock-market investor is simple. Study the listings on the JSE, research the companies whose stock you want to buy, and identify the amount of funds you have to invest. It is a myth that you have to start with a large sum. You can start with say $10,000 or $25,000. The more you invest, the bigger your returns, but conversely, the more you stand to lose.

The JSE has more than 40 stocks listed whose prices range from $0. 80 to $500 per share.

Stock-market trades are done through brokers who match the orders of a buyer with those of a willing seller. So, the next step is to select a broker. There are 11 brokerage houses in Jamaica found in the Yellow Pages.

Heavy demand

Seek his or her advice on your stock picks and have an order placed.

The rule of thumb in picking stocks is to stick with the companies or industries whose workings you know, or whose products are popular and in heavy demand.

Note that the brokerage provides the service at a cost, so be prepared to pay transaction fees, which will be determined by the size of the investment being made.

The broker will charge a commission, but there is also a JSE cess of 0.15625 per cent on the transaction, and 15 per cent GCT on both the commission and cess. Your broker will advise you of the charges, once you have completed your order.

Brokers transact the business through an exchange, for example the JSE, the Trinidad and Tobago Stock Exchange, or the New York Stock Exchange. Though markets world-wide have physical locations, it is not necessary for the broker to trade from the floor of the exchange if the system is online.

Workstation trade

In Jamaica, for example, brokers trade from their workstations, but are linked to the JSE through its electronic-trading platform.

Jamaica's market is entirely electronic, so the stock units you purchase will be held electronically at the Jamaica Central Securities Depository (JCSD), a subsidiary of the JSE. Your broker will provide you with documentation proving purchase, and register your share ownership at the JCSD.

The JCSD issues statements to stockholders on a regular basis that track the performance of the shares they own. Your broker does the same.

Stock issues are done by a company or institution to raise capital to finance the business without going into debt, that is, taking out a loan with a bank or other lenders.

Common or ordinary stock ownership gives the buyer voting rights in the company, and a share of profits, known as dividends.

Companies also issue preference stock. Ownership of 'prefs' does not entitle the holder to voting rights, but on the plus side, the returns are usually guaranteed.

The upward or downward movement in the price of stocks is referred to as capital gain or capital loss, respectively.

The general trend in the market place is also characterised by these general terms. For example, if a company makes money, the value of its stock, all things being equal, is likely to appreciate or gain in value.

If you bought some of its shares for $10 each and the stock is now worth $15, the value of your portfolio would have increased by 50 per cent, or you could make a profit of $5 from selling at the current price.

But if the company is not performing well, or some of the environmental factors referenced earlier come to bear on the market and the stock price falls, then the value of your investment will fall.

The often bantered-about description of investors as 'bears' or 'bulls' is a reference to how much risk you are prepared to take. The terms reference bears as being cautious animals who deliberate on their moves, while bulls move with boldness, charging right ahead. A bull is always expectant of good things in the market.

Markets are also characterised similarly. A market is said to be bearish when stock prices are generally falling, and bullish when stock prices are going up.

According to Jackson, the JSE is now bullish, rebounding from last year's decline and showing upward-moving tendencies.

As an investor, you can move your money around on their advice and or watch the markets and indicators yourself for instructing a broker what stocks to buy and sell on your behalf.

The three most recurrent questions asked by both investor and trader are: What stocks to buy? When to sell? When to buy?

If the answers to these questions were straightforward, there would be no market crashes, recessions and bankruptcies.

It is said that stock-market investing is not for the impatient. The returns often come over time and should be seen as a medium- to long-term investment.

beckipatterson@hotmail.com