A Brief Introduction to Stock Market Investing

This article is intended for those who are interested in investing in the stock market. The intent is to give an overall picture of "how to make money in the stock market" as briefly as possible and guide the reader to other credible resources.

Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) are the platforms where all the primary and secondary shares are bought and sold. The market is regulated by a government organization called the Securities and Exchange Commission (SEC) located in Motijheel, Dhaka. DSE is also located in Motijheel, Dhaka and the CSE is located in Agrabad, Chittagong. However, both the exchanges have their own branch offices across Bangladesh.

When a company declares share offerings in the market to collect capital from interested investors, it is then called the primary shares. Primary shares are offered through the process called the Initial Public Offering (IPO). Recently, Grameenphone (GP) offered IPOs with huge success and efficiency setting a remarkable example for other companies to follow. The whole IPO process was handled within forty two days including refund of warrants.

People feel lucky when they succeed in getting the IPO of a company at the offered price. The advantage of winning an IPO is that it allows the winner to sell the shares at a higher price through the stock exchanges at a later time. Take for instance, the GP shares worth of Taka 10.00 per shares were offered at Taka 70.00 to the IPO applicants. On the first trade day the price for each share went up as high as Taka 200.00! Which is a huge capital gain compared to the purchase price. It is the demand for the shares that propels the price.

Among the IPO winners who intends to hold on to the shares for a long term looks forward to playing an active role in the Annual General Meetings (AGM) of the company, earning dividends from profits made by the company in the ratio of their investments. Often the companies' offers investment perks like Right and Bonus shares attracting old and new investors.

Since winning an IPO depends on luck as they are normally distributed through random lotteries, to increase the chances of winning the regulators allow the investors to open multiple accounts in the following manner. The main applicant can open a Beneficiary Owner (BO) account with a Broker House commonly known as the Depository Participants (DP). If the applicant is married, then he / she can open a joint account with his / her spouse. And then the spouse can also open another account making it three in total.

On the other hand, there are some investors who are not interested in holding the shares for long. Rather they look for an opportunity to release their shares in the market when the price is high enough in their consideration. Often one would find a group of investors who are so frequent in buying and selling that they do their trades on a daily basis and hence they are called the "Day Traders". Their aim is to earn a daily income for themselves to sustain on from the price differences. Often they gamble with their funds putting themselves in high risks.

It is important to stay up-to-date on corporate matters in order to be successful investor in the stock market. Many investors are dependent on their broker's advice in investment decisions, which is not always wise. Believing in market hypes in investments may result in loss of capital and financial hardships for investors. And when it would happen, no one could be blamed for it.

Rumor says that there are syndicated investors who manipulate or control the market trends. Although there is always a possibility of this being a fact, but an investor should do considerable research and investigation before investing on those stocks that may seem like a "get rich quick scheme". At the broker houses one would come across with other investors where an intellectual and healthy discussion on the investment matters could take place that could lead to an informed decision on behalf of the investor. However, in the end of the day, it is the investor who is responsible for his or her won actions.

There are still some paper shares in existence today that are also traded through the stock exchanges. But majority of the shares are now transformed into electronic shares. Central Depository Bangladesh Limited (CDBL) is the key player in converting the paper shares into electronic shares, which is called de-materialization or demating or demats for short. SEC has recently declared that all the companies that are still trading with paper shares are required to demat their shares before the end of this year. Which means, hopefully, if all the companies comply, all the shares that are traded in the stock exchanges will be in the electronic form. The demat process is held at the share issuing companies, called the Issuers.

To indicate a risk factor in the decision making process, the stock exchanges use letter grades for each company that are listed with them to indicate the strength and weakness of a company. For instance, a company under the category "A" indicates that the company complies with the rules and regulations and acts responsibly to the share holders or the stakeholders of the company and provides at least 10% yearly dividends. Companies under "B" category provides at least 5% annual dividends. A new company that has recently joined the stock exchange (take GP for instance) is kept under category "N", which is a temporary category indicating that the company is new in the stock market and therefore has not be categorized yet. Similarly, a "Z" category company indicates that the company does not pay any dividends. Therefore, an investor should take caution before investing in such a company.

This categorization is done for the sake of the investors so that they could differentiate between a good and bad company before making an investment decision. Company's background checking acts as a part of risk management process for the investors.

Studying charts and records of market trends from the DSE and CSE websites as a part of risk management is crucial for all investors. An investor should develop a habit of browsing the web sites at their convenience as the sites are up twenty fours a day seven days a week (24/7).

SEC, DSE and CSE – all conducts introductory trainings, workshops and seminars at regular intervals for the interested quarters. Getting onboard through proper guidance from the experts in the field would pay off nicely down the road. Contact them to inquire about their on going programs if one is interested. In most cases, those programs are offered free.

CDBL is in fact a back office of the stock exchanges and the central bank handling their daily transactions and doing the accounts settlements at the end of the day. However, it is an independent organization also under the SEC directions.

Previously, when the paper shares were transacted, it used to take several days to complete the transactions. Upon arrival of CDBL the process has been shortened and a transaction can now be settled in only three days (T+3). The Bangladesh Bank (i.e., the central bank) is now exploring the option for a T+0 transactions. If this is materialized then the transactions could settle in just a day. This could become possible for having CDBL in place. Furthermore, CDBL also works as source of verification of account transactions and settlement for the BOs through the services called the Online Balance Inquiry (OBI) and the SMS Alert services. Both services are on subscription basis. Please inquire with CDBL if one is interested to subscribe.

CSE is the pioneer in offering Internet based Online Trading that could be accessed from anywhere around the world through Internet connectivity facilitating the BOs to handle trades online. However, this service is currently offered in a limited manner through only handful of brokers. The feature was mainly intended for the foreign investors.

A "BO" has options to trade either at a broker house where there are listed or from home or office over the phone. Many broker houses would accept buy and sell orders over the phone for the convenience of the clients. One can monitor stock activities online through the exchange web sites to decide what to buy and what to sell and then place the order to the broker agent over the phone.

Usually three groups of people are seen in this market; business people, career professionals and those who depend of foreign remittances sent to them by their spouses or a family member. Normally all of them have considerable amount of money to invest compared to local middle class wage earners and small business owners. However, there is no bar to anyone who is interested in entering this market. Anyone with considerable amount of money could join in to play the game at their own risk.

It is better to take the time to familiarize one with the stock game rules. Only through experience and proper exposure one could become savvy in this business. It is recommended that one stay as an observer during the novice period rather than acting like a pro. Since it is all about ones own money, so take the time to ensure proper safety of the investments.

One may begin journey through browsing the following websites and getting into their free training programs. Developing a habit of browsing the sites is recommended no matter how busy one gets with investments even at a later stage. These sites are quite resourceful and contain all the latest information and news about the companies and market. Welcome to the world of capital market and good luck in your exploration!

Securities and Exchange Commission (SEC): http://www.secbd.org/

Dhaka Stock Exchange Limited (DSE): http://www.dsebd.org/

Chittagong Stock Exchange Limited: http://www.cse.com.bd/

Internet Trading Service (ITS) of CSE: http://www.bangladeshstockmarket.com

Central Depository Bangladesh Limited (CDBL): http://www.cdbl.com.bd/

The writer is Chief Operating Officer, Central Depository Bangladesh Limited (CDBL)

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A Brief Introduction to Stock Market Investing

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