Access Financial Services profit has grown regularly from 2005 to 2017.
“I recently began trading stocks on both the main and junior market, and I was hoping that you could guide me through the analysis of the market and stocks and IPOs, I am not sure which stocks might likely break out on either market and my portfolio is sitting in the red for a year now,” a reader asked recently.
That is a bit tough when several stocks have delivered very good returns in 2017 with the JSE main market up more than 50 percent for the year to date and with 9 Junior Market stocks rising more than 100 percent. It is worth noting that investment is not an endeavor that will always produce quick positive results. One of the stocks in the portfolio was clearly bought at far too high a price and value. Currently, although the price has fallen it can be considered overpriced. If you were following IC Insider.com you would have seen from last year that the stock was highly overvalued. Important it was the top performing Junior Market stock and there is good evidence suggesting that buying the top performing stock for a year is unlikely see that stock performing strongly in a subsequent year.
JMMB peaked in 2005 and only exceeded that price in 2017.
The number one rule in investing, get good reliable advice. Rule number 2, compare the price earnings ratios of stocks and focus on those that are the lowest and those companies that are doing well, that is, their profits are growing in a consistent manner and likely to continue that way into the future. A very good case in is that of Access Financial with a virtual increase in profit every year since listing.
Be very careful of popular stocks there may have run their course of gains and have little fuel let to go much higher.
Future earnings are important in investing, but it makes no sense to buy a stock at a high price with the hope that in a few years, profits will then grow and make a profitable investment for an investor, while one waits on the big pay day, other stocks are rising and the investor misses out on other good opportunities. Companies that are expanding can provide good investment opportunities.
Three stocks in the Jamaican market, made historical highs in 2005 and it was not been until 2017, that two recovered enough to exceed the previous highs, these two are JMMB Group and Scotia Group. Mayberry Investments is the third and is well below the peak after so many years. Even as two have exceeded the 2005 highs, the gains from then to now, is not very great while many others have gone on to record considerable gains. The lesson from these three is that, while investors wait to recover losses by holding on to poorly performing assets, they are missing profitable investment opportunities elsewhere.
Stock market moves in opposite direction to interest rates.
Why is it so important to get good advice? In August a brokerage house recommended that investors sell Caribbean Cement as in their opinion it was overvalued. At the same time IC Insider.com had the stock highly placed in the TOP 10 stocks to buy. The other is Berger Paints where some investors sold their stock for $10.88 only to see a big price gains since. Some persons have not factored in a number of developments in some of these companies and other developments in the wider economies, all of which can push revenues and profits. What are some of these, Cement has cut cost and likely to do so in 2018 when they refinance the current leasing arrangement. Most importantly, demand for cement is going to explode locally as demand for construction rise. The same will be happening at Berger as more buildings mean more demand for paints.
Consistent growth| Most investors should really be investing in companies where there is a consistency in annual growth in profits. They should shun ones with a checkered earnings history, unless they can be adept of picking tops and bottoms. That is a task persons who use technical analysis can do well.
Dangers of investing| When stock prices rise much faster than the growth in profits, it is time to take serious note of what is happening, this is a telltale sign of a correction ahead, unless the company is recovering from past period of undervaluation, interest rates are falling or the company is expanding and will be expected to enjoy a boost in profit as a result. Investors in such stocks should be fully conversant with what are the factors at play, to ensure their investment can be properly protected if, and when, the factors change.
Other factors| Look at developments in each company and what is happening to the local economy and the likely impact on companies. Most importantly, movement in interest rates have been shown to move markets in one direction or the other and this is a critical factor in investment assessment. One last point to bear in mind is the Investor’s Choice 80/20 rule.
The 80/20 rule| The rule is simple but profound, only 20 percent of the stocks that end up in the top 10 in one year reenter in the subsequent year and in some years just one or none make it, while 40 percent of the 10 worst performing stocks, make it to the top 10 best performers in the subsequent year. This is backed up by data going back for several years to the 1980s. This rule is only broken in a few years that are bearish. this rule is a very good guide for investors in knowing which stocks to buy or sell and when.
