Stocks Basics
Stock Related Basic Information
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Do Your Homework Before You Invest:

Don’t put in your money until you have understood all relevant information regarding the investment. Prepare yourself for the vigorous homework of analyzing company’s annual reports, accounts and other statements while keeping abreast of what’s happening in the industry, country and elsewhere that may affect your investment. Consult your investment adviser/broker to get latest market information about shares you intend to buy or sell. Be skeptical of any thing picked up from rumors, particularly if you cannot rationally explain their choice.

Think Long-term:

Bear in mind that even in the best of securities/shares, there can be short-term aberrations. It is important to have the power to hold your investments for longer periods. Studies have shown that investments properly timed and based on strong fundamentals have been very profitable for investors in the longer term.

Avoid Putting All Your Eggs In One Basket:

The best way to minimize risk is to diversify your investments across various investment products. If equities are your sole investments, it makes sense to diversify between different companies and sectors. In this way, loss made on some investments can be absorbed by gains made in others, keeping the overall return on investments positive.You can also diversify your investment by investing in open-end funds managed under various unit trust schemes. While investing in mutual funds check the rating of the instruments. Similarly while investing in any security please check the rating if any available.

Beware of Scams:

Beware of promises of quick profits or sky-high returns. Remember: higher the gain on investments, higher is the risk involved. This is the fundamental risk-reward trade-off

INVESTOR PROTECTION:

You should always ensure that the stockbroker you choose is licensed by the Securities and Exchange Commission of Pakistan (SEC) to trade. Prefer stock brokerage firms with good track record. As a shrewd investor, you should know your rights and responsibilities and should beware of the rules that govern your investments as well as the legal recourse available, in case things go wrong. You can report abuse to the SEC, whose mission is to ensure the development of a fair, efficient, and transparent securities and futures market. Although its main function is regulatory in nature, the SEC has the ultimate responsibility to protect the investor through market supervision and ensuring that its laws and regulations are complied with. Stock exchanges are the frontline regulators; they must play a proactive role. Send all your complaints in writing to the respective stock exchange(s) with full details, including the complainant’s name, address and telephone number etc. In case you do not get a response to your complaint, please contact the “Complaint Cell” in the SEC.

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN Building,Jinnah Avenue,Islamabad.Website:www.secp.gov.pk

Bear

An investor who anticipates a falling market and, therefore, sells the security in the hope of buying it back at a lower price.

Blue Chip

A large well-established company with a history of profitable operation.

Bonds

Fixed-income securities, which entitle the holder to a pre-determined return during their life and repayment of principal at maturity.

Bull

An investor who anticipates a rising market and, therefore, buys the security in the hope of selling it later at a higher price.

Capital Gains Tax

Tax payable on profit arising from appreciation in value of investment, realized at the time of selling or maturity of investment.

Carry-over Trades

Equity repurchase transactions, better known, as “Badla”; these are an established form of transactions used in the stock market for temporary financing of trades by speculators and jobbers.

Dividend

That part of a company’s profits which is distributed among shareholders, usually expressed in rupee per share or percentage to paid up capital.

Earnings per share (EPS)

A profitability indicator calculated by dividing the earnings available to common stockholders during a period by the average number of shares actually outstanding at the end of that period.

Equity

The owners’ interest in a company’s capital, usually referred to by ordinary shares.

Floatation

The occasion when a company’s shares are offered on the stock market for the first time.

Fund managers

A company, which invests and manages investors’ money, with the aim of maximizing capital growth.

Initial Public Offering (IPO)

A company, which The offering of equity shares of a company to the general public for the first time.

Insider trading

The purchase or sale of shares by someone who possesses ‘inside’ information on a company’s performance which information has not been made available to the market and which might affect the share price. In Pakistan, such deals are a criminal offence.

Investment companies

A company, which issues shares and uses its capital to buy securities and shares in other companies.

Listed company

A company whose securities are admitted for listing on a stock exchange.

Long position

When an individual purchases securities of a company he is said to have a long position in the company’s shares. For example an owner of shares in PTCL is said to be "long PTCL" or "has a long position in PTCL." If you are long, you would like the share price to go up.

Market capitalization

The total value of a company’s equity capital at the current market price.

Nominee

A person or company holding securities on behalf of others, but who is not the owner of such securities.

Option

The right (but not the obligation) to buy or sell securities at a fixed price within a specified period.

Ordinary shares

The most common form of shares, which entitle the owners to jointly own the company. Holders may receive dividends depending on profitability of the company and recommendation of directors.

Portfolio

A collection of investments

Price/earning ratio (P/E ratio)

The P/E ratio is a measure of the level of confidence (rightly or wrongly) investors has in a company. It is calculated by dividing the current share price by the last published earnings per share.

Primary market

Where a company issues new shares, either for the first time, or at the time of issuing additional securities

Privatization

Conversion of a state-owned company to a public limited company (plc) status.

Private company

A company that is not a public company and which is not allowed to offer its shares to the general public.

Public limited company (plc)

A company whose shares are offered to the general public and traded freely on the open market and whose share capital is not less than a statutory minimum.

Rights Issue

A company whose shares are offered to the general public and traded freely on the open market and whose share capital is not less than a statutory minimum.

Securities

A broad term for shares, corporate bonds or any other form of

Settlement

Once a deal has been made, the settlement process transfers stock from seller to buyer and arranges the corresponding exchange of money between buyer and seller.

Short Selling

The act of borrowing stock to sell with the expectation of price reduction with the intention of buying it back at a cheaper price.

Stockbroker

A member of the stock exchange who deals in shares for clients and advises on investment decisions.

Stock Market

The market place where shares of publicly listed companies are bought and sold.

Unit trust

An open-ended mutual fund that invests funds in securities and issues units for sale to the public. It can repurchase these units at any time.

Yield

The aggregate return earned on an investment taking into account the dividend/interest income and its present capital value.

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