Investment Principles & Terminologies

The investment decisions that you make today will have positive or negative  implication on your life in the future. Therefore, you should have a sound  financial plan in order to achieve a safe, secure, and comfortable future.  

In order to achieve your financial and investment goals, you should seek from the advice of  experts who are specialized in financial and investment planning.

Through its’ Treasury and Investment Department, the Housing Bank for Trade and Finance can help you analyze and determine your financial goals and suggest appropriate investment solutions.

Before presenting the various services provided by HBTF Treasury and Investment Department,  it is important to identify the main investment terminologies and principles: .

Investment Terminologies:

-          What are the  Financial Markets?

-          What is a stock?

-          What is a bond?

-          What is the difference between a stock and a bond?
 

Investment Terminologies:

Investment Principles:

-          How to invest in the Financial Markets?

-          What are the measures that you should consider whilst investing in the Financial Markets?

-          What are the elements that affect the  appreciation and depreciation of stocks?

Investment Terminologies:

What are the Financial Markets?

The Financial Markets  are places where dealers and market makers of a particular asset gather to buy and sell securities.  They  facilitate  the trading of securities and other financial instruments.

What is a stock?

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.

Two types of stocks:

1.       Common Stock: entitles the owner to vote at shareholders’ meetings and to receive dividends. It is the most frequent and commonly held form of ownership.

2.       Preferred Stock: does not have voting rights, but has a higher claim on assets and earnings than common stocks.

Owners of a preferred stock receive dividends before common stockholders and have priority in the event that a company goes bankrupt or is liquidated.

What is a bond?

A bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest. Bonds are generally issued at a fixed or floating rate for a fixed term longer than one year and extends to more than ten years. For corporate bonds are less costly than getting a loan from banks.

What is the difference between a stock and a bond?

Bonds and stocks are both securities, but the difference is that stockholders own a part of the issuing company , whereas bond holders are in essence lenders to the issuing company. Also bonds have a definite lifespan, whereas stocks may be held indefinitely.

Investment Principles:

How to invest in the Financial Markets? 

Investing in the stock market through bonds or stocks can be either a long-term or a short-term investment. Investors who wish to deal in the equity market must have the desire for long-term investment.

To invest in the stock market, you simply may buy stocks of several companies, when  the share’s value of that company appreciates your shares in that particular corporation will worth more. If the company runs into trouble and loses, its stock value may  drop and so will your shares. Of course this is not always the case because there are many variables that affect the company’s share price.

What variables should you consider whilst investing in the Financial Markets?

• General direction of the Financial Markets in the long run: It is not advisable to  speculate   on daily fluctuations of your shares. Always seek the general direction of the stock market in the long run.
• Study the market: Make an effort in  gathering all relevant information about the corporation you wish to invest your money in. Do not follow your  people’s advice, but rather ask your  broker to supply you with all the relevant data about the financial markets, and  the names of corporates  with the highest expected returns.
• Do not follow your emotions and fears: Do not let your emotions and fears guide your investment decisions. Do not invest all your funds  in one corporation because you are employed by them , the rumors surrounding it or any other reason. There is a saying “Don’t put all your eggs in one basket”. Always diversify your investments in reputable companies, who are known  to achieve  good results. When you diversify you lower your investment risk. This is because one poor performing investment is offset  by another that may perform well during the same time period.
• Study and monitor: Investment requires you to study, research and keep up with all market updates. Observe all the changes taking place in the market and their effect on your investments. Give yourself the time and chance to review your investments  regularly, but not necessarily on daily basis.

What are the elements that affect the rise and fall of stocks?

• Company Performance: Variables that affect a company’s performance include type of management, financial status, probability of growth, etc. The company’s current and expected profitability is one of the elements that affect its stocks price.
• Sector Performance: Your can monitor the sector performance through sector’s index available in the daily market journal.
• Economic Conditions: Prices of stocks rise when the economy is growing and falls when it is shrinking, thus some economic indicators affect stock prices.
• Political events: Prices of stocks are affected by political events  since they are interconnected with economic growth.