The equities market, contrary to popular belief, is a market which can and has generated higher than average returns for investors. When investing in the equities market an investor actually buys into the ownership of a company. This can be rewarded in two main ways; dividend payments (reward paid out of profit, at the discretion of the company's directors) and capital gains (the difference between buy and sell price).

Inherent in the latter is the suggestion that one should aim to buy low and sell high if one is to be successful. While the implication in the former is to invest in profitable companies. Both are foundation principles in stock market investing, a generally accepted assumption is that earnings are what drives stock prices therefore investors should seek to investment in companies likely to generate good profits hence strong dividend possibility and even stronger possibility for capital gains.

Taking further look at the concept of buying low and selling high one can see that price plays a very important role in investing in the market, investors should aim to buy when the price is low, when prices have fallen off, and not when the market is bullish and prices are on the rise. The fact is that successful investors are the ones that pick value and then identify a low entry price and higher exit price.

Investors in the market must also be willing to arm themselves with information, this is a very important tool to decision making in the construction of your portfolio. The information needs for stock market investors is really unlimited as there are so many factors that can impact the performance of the market in general or any particular stock.

A quick glance at some factors for example would show that generally speaking, when interest rates are decreasing stock prices are likely to increase, this as investors seek higher returns on their funds than is being earned from safer investments (such as government paper), in other words when rates decline investors are less willing to accept the lower returns and will take a little more risk to at least keep their returns up. Another way to view the impact of falling rates is that the cost of funds needed by companies to produce become much cheaper and hence raises the possibility for these companies to increase their profits through lower costs and increase productivity.

Given the foregoing, investments in the equities market are definitely looking very attractive, we have already seen the signs the all Jamaica composite and the JSE select indices have advanced 15.81 per cent and 14.72 per cent for the first half of this year. In spite of these advances many listed companies remain significantly undervalued as a matter of fact the market continues to be undervalued just take a glance at the average market PE ratio now (apprx. 7.5 times) and compare it with the average PE in 2005 (apprx. 14 times) when the market was in full steam, shows the kind of potential for growth that exists in our equities market. The fact of the matter is that the current macroeconomic fundamentals do support the stock market as a wonderful investment option right now. In addition many of our pension funds with their long term outlook will need to acquire more equities given the great loss they will suffer from the JDX and the advent of a declining interest rate environment. Also of great significance is the number of IRAs which are now coming on-stream and will need to include equities in their asset mix.

It should be noted that while I do believe the future holds great possibilities for the equities market, investors must take note to diversify their portfolios when looking to invest. Equities is a medium to long term option and remains the best place for your medium to long term investment needs where one can always buy hold and prosper. For those looking for greater gains it might suit you to have an investment professional assist with the organization of your equity portfolio or invest through a well run professionally managed equity fund where your risks can be properly mitigated.

Neilson Rose is manager, equities and asset management at Mayberry Investment Limited. He can be contacted at neilson.rose@mayberryinv.com

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  0 comments

  4 comments

  0 comments

  0 comments

  0 comments

  0 comments