Many of our online readers are asking the question “How do I buy shares at Port Moresby Stock Exchange (POMSoX? With our experience as a value investor POMSoX, we wish to share with our reader basics steps involved in buying shares at POMSoX.
Now before you blast away, we have a question for you. Why do you want to buy shares? Do you want to buy shares because someone told you that you can be rich overnight? If so, stop here and go learn more about stock market investing. It is really a No-Rich-Quick method. Investing in stock market requires education, commitment and strong discipline.
People forget that buying stock in a company means you are actually buying a PART of that company. It’s just the same as owning part of the local grocery store. By looking at every investment in this way, it forces you to step back and re-evaluate whether you are buying for the right reasons.
Here we give you the 6 steps you can follow to buy shares at POMSoX basing on the assumption that you have already read previous post and acted by opening a brokerage account with the two brokers in PNG, the BSP Capital and Kina Securities
Step 1: Decide What Type of Shares You Want to Buy
The first step is to decide what type of shares you want to buy. This is a critical decision and I recommend you to seek assistance from your broker. Your decision would be based on your personal investment strategy. Never let your broker do your thinking. You should already know what you want and the broker should only guide your through to making an informed decision on which type of shares you wish to buy.
Individual Shares – If you would like to purchase specific shares listed on the POMSoX you will require a stockbroker. You will have complete control over each individual investment.
Managed Funds – These can be bought directly from the company and do not require the use of a stockbroker. Financial Planners often push this avenue as they aren’t experts on specific stocks, but instead follow the “time in market” over “market timing” philosophy.
A Whole Portfolio – If you would like to buy a portfolio of shares and are looking for a well-balanced and market average approach, either a financial planner or stock broker can be of benefit. They can recommend a portfolio suited to your risk tolerance and invest accordingly.
And how will you buy them?
Initial Public Offering (IPO) – Involves buying shares when a company lists on the sharemarket. It is at a set price as specified in the Company Prospectus.
Off Market – You can buy shares “off-market” through a transfer. This is simply the transfer of ownership of shares, normally done between family members or different trading accounts for the same person.
Capital Raisings – If a company wishes to raise additional funds, they can do so via a capital raising. This is where they offer shares in the company at (usually) a discounted price to the current market price.
On Market – This is the fancy way of saying “buying them in the market”. The rest of this article refers to this type of purchase.
Step 2: Call your broker
Call your broker. We have BSP Capital and Kina Securities. Kina securities is a bit more straight forward and their fees are affordable.
Step 3 – Select the Company (Share) You Want to Purchase
There are countless investment strategies you can follow to select which shares to buy, though they will usually fall into three categories.
Technical Analysis – Using charts to make stock selection decisions. This strategy is normally used with a shorter investment time-frame. This technique may not work in PNG since POMSoX has low liquidity and you can’t get in and out of the market as quickly as you can in overseas exchanges.
Fundamental Analysis – Scrutinizing the “books” of a company (PE Ratio, Dividend-Yield etc.) to establish the “intrinsic value” of a share and investing accordingly. I advocate on this since I am a disciple of billionaire Warren Buffet, who is the living legend of value investing. More articles will be published on Value Investing soon.
Whichever way you do it, don’t just choose a company on speculation. Have some solid facts to justify your decision on which company you wish to buy.
Step 4 – Placing the Order
You have to call up your broker or visit in person and place your orders. Your broker will (or should) do everything for you. If you have a good relationship with your broker, they will know your risk tolerance and what type of shares you are interested in. They will also give you specific price recommendations as they have the market depth in front of them (the list of buyers and sellers currently in the market) and can therefore recommend the optimum price to buy or sell your shares at. If you ever come across a full-service broker who is not meeting your needs, or you simply do not feel comfortable with them, then you should change broker until you find one that feels right for you.
In overseas countries, there are also online brokers that allow investors to buy and sell online. In PNG, we haven’t come to that stage as yet so it’s better I live them out for time being.
5 – Settlement
To “settle” your shares is industry jargon for saying, “to pay for”.
The current rule for POMSOX settlement is T+3. That means, three business days after you make a purchase (or sale) the trade is settled. On this day you will be required to pay for (if buying) or will receive the money (if selling) proceeds from your transaction.
If you are using a full-service stock broker, there are two possibilities.
1. If you are new client, you might need to provide a cheque or similar before he/she will place the trade for you. This is because if you fail to pay for the share purchase by T+3, the broker is legally required to front the funds.
2. If you are well known to the broker, they will place the trade the moment you call them, in anticipation of receiving the funds within three business days.
6 – Monitoring Your Portfolio
Once you have established a share portfolio, it’s important to monitor it regularly. If you are a long-term investor, it’s wise to only monitor it every week or so. If you check more often that weekly, you will be distracted by market “noise” which is the daily fluctuations of the market. If you are a short or medium-term trader, then daily monitoring may be required. Intra-day monitoring should only be done by those with very short investment timeframes (i.e. less than 30 days).
But as I said earlier, if you are a value investor who established the true value of the company and invests accordingly, you really don’t need to be watching the market like and eagle. I love doing that because it’s really less stressful than if I have to watch POMSoX like crazy every day.
Note: Keep an eye on our next post on how to sell shares at POMSoX.