What is an IPO?
The term IPO is the acronym for Initial
Public Offering. As the name suggests,
this alludes to the first time that
the shares of a company are offered
for sale to the investing public.
Many times, this is the best time
to buy a stock for the simple reason
that many of these IPOs go on to
become outstanding investments. Some
do this through rapid appreciation
in their share price. Others achieve
it through the dividend that they
pay and still others do so from both
sources. Total returns, Q # 49) A
major part of our Mission at “TRY” is
to get more Caribbean Citizens from
their adopted homes over seas to
participate in these IPOs in the
CSME and share in the wealth that
most of these new companies go on
to generate for their shareholders.
Some outstanding IPOs over the last
20 years or so are:
a) Jamaica: BNS Ja 1967; GraceKennedy
1986; Dehring, Bunting & Golding
(DB&G) 1992 Capital & Credit
Merchant Bank (CCMB) 2003
b) T&T
c) Barbados
d) Eastern Caribbean
What is a Primary market?
A primary market refers to the time, (not place!) when an investor buys a stock.
This ‘time’ is when the stock is first offered to the public by
a new (IPO) or existing company. The essence of an IPO is that the share is
bought directly from the company who is putting it on the market and the purchase
money goes directly to that company to increase its capital base.
What is a secondary market?
After the shares of a stock are sold on the primary market to individual investors,
these investors are now free to buy or sell more shares to and from each other,
through a broker. When this happens, the sales price (less broker’s fee
and statutory charges) goes to the individual shareholders who sold them because,
they (shareholders) are now the owners…not the company that initially
put them (the shares) on the market.
What are warrants and rights?
A warrant (or right) is the entitlement of a shareholder to buy additional shares
in ‘his’ company as detailed in a document to all shareholders.
This is a technique that many companies use to increase their capital base
from their existing shareholders. Warrants normally carry time limits. There
usually is a basic formula like one additional share for every X number now
held. The purchase price of a warrant is usually defined. The expectation is
that at time of exercise, this warrant price will be below the market price.
Warrants are many times used as ‘sweeteners’ at an IPO. Also, they
are tradable on many stock markets. A well known warrant was issued by the
Caribbean Cement Co Ltd (Jamaica) when it went public (had its IPO) in June1987.
The price was J$2.30 and the expiration date was end Dec 1988. Unfortunately,
instead of the hoped for market upswing, the economy took a dive and so, at
the warrant’s expiry, the market price was J$1,60 while that of the warrant
was J$2.60, meaning that the warrant was now useless since a shareholder could
buy the stock cheaper on the market.
Warrants and rights are closely related! They serve the same objective within
roughly similar conditionalities. Maybe, the biggest differences between the
two are that 'rights' are outstanding for very short periods of time (just weeks)
and may have ‘backers’ called underwriters. This means that if shareholders
did not take up all of their allotments, the underwriter would be obliged to
do so. In other cases where shareholders did not exercise all their rights, the
difference would be sold to the general market at market price (which is usually
above the rights level
Who are percent Investors?
This is another new term that will not be found in any investment text. There
are probably as many investing techniques as there are investors but a few
easily definable investor-groups come to mind Some of these can be called:
a) growth investors because they like growth stocks
b) others, value investors because their portfolio is mainly in value stocks
c) dividend investors because they mostly buy dividend paying stocks for
income supplement
d) ‘buy and holders’ like Warren Buffett and Michael Lee Chin who
know
the wealth-building multiplier effect of holding good stocks ‘forever’,
and
e) those I call ‘percent investors’ because their buy/sell decisions
are based, almost exclusively, on the percentage (which they set) by which the
price of a stock changes (whether up or down from the buying price)
From this perspective, it could be said that the philosophy of Percentage Investing
is characterized by:
Ø positive percentage price increase which triggers a profit taking sale
of the stock whatever is its intrinsic value
Ø negative percentage price decline which triggers a “cut lose and
run” decision, similarly regardless of the intrinsic value of the stock
Ø frequent trading which tends to increase transaction cost and therefore
impact Portfolio Returns negatively
Ø Loss of impact of bonus shares and the additional dividend income
that they engender
In a manner of speaking, these investors can be visualized as the charismatic
100 meter sprinters. They are always in the media. Everybody knows of them. Weather
or not, they make or generate the most wealth, is another story
What should
subscribers/readers do after reading
any of these Q&As
or the individual Essays which expand
on these and other points about investing
(especially where either assists in
explaining concepts, issues and strategies
in wealth creation?
A very good place to start is to put the new or re-called knowledge into practice.
The question may be “how” One procedure might be as follows
a) Re-visit FAQ #14 and start implementing the ten (10) Strategies.
b) while re-viewing the Ten strategies, have a family conference and share
the wealth creating vision with everyone to get their suggestions on
how to do the implementation
c).go on the internet and head straight for the four regional stock exchanges
(see site
plan for websites) the website of selected companies, and the websites of stockbrokers
and analysts to get a feel of what they (brokers and analysts) are saying about
each company. Meet with a recommended Broker or financial planner to help map
out where (and why) to make your first investment
d) At each company’s site, read as many Annual Reports as possible to get
a feel of where the mind is of it’s Chairman and CEO to see if you feel
comfortable with them and their investment philosophy
e) Start with some of the major and successful Caribbean companies that you already
know
f) Diversify across the CSME. Look, along with your advisor for the best prospects
for dividend and long term capital appreciation
g) Start loading up on investment knowledge through the many strategies discussed
here (One Essay is devoted to strategies for growing one’s investment knowledge)
h) Invite family, friends and acquaintances to register at this site so that
they too can benefit from our efforts in encouraging, and helping to educate
them, on how to become investors in the listed and successful companies in the
Caribbean
Any last word on wealth creation
for members of the Diaspora?
Yes. Three. They are:
a) If you want one year of prosperity,
plant grain. If you want ten years,
plant
trees. If you want 100 years of prosperity, grow people. (Chinese Proverb)
b) Nothing is easy anymore. Every
achievement is a testimony to challenges
overcome. It is still possible, however,
either to create wealth for oneself
or, at least, to set the stage for
this to happen for the benefit of one’s
progeny be it child, grand child, great
grand child or others yet unborn. The
Mission of our company, Transformyourselfnow
Limited, is to help show how this can
be done. To begin with, we believe
that one of the biggest obstacle to
wealth creation in our community (whether
we are in the Caribbean or overseas)
is the absence of the awareness…knowing
what can be done and how. This a blindfold
that we have worn for much too long.
It is our hope that the responses to
these FAQs will hasten that process
of knowing. We believe that the vast
majority of our readers can and should
become wealthy because, it is within
our ability to achieve if we set out
minds to it. Philip Fisher, author
of the critically acclaimed book “Common
Stocks and Uncommon Profits” said,
in 1958 (page 7), that “within
the life time of most investors and
within the period in which their parents
could have acted for nearly all of
them, there were available scores of
opportunities to lay the groundwork
for substantial fortunes for oneself
or one’s children”
c) And Professor of Finance, Jeremy J. Siegel of the Wharton School of Business,
University of Pennsylvania, says in his 1994 book “Stocks for the Long
Run” (page 290) that “It is within the grasp of all investors to
avoid the pitfalls of investing and reap the generous rewards that are only
available in equities” Also, that “as the proliferation of stock
markets around the world attests, stocks hold the key to enriching the lives
of all peoples everywhere” This is the objective of Transformyourselfnow
Ltd. for you, dear Reader, and all members of the Caribbean Diaspora.
