Why is research important when investing? – POST-COURIER

March 09 2022
Before buying anything, be it a car or phone, you do some degree of research about its performance and quality. Investment is no different. It is your hard-earned money that you are about to invest, so you must have a fair knowledge of what you are investing in.
February 22, 2022
Before buying anything, be it a car or phone, you do some degree of research about its performance and quality. Investment is no different. It is your hard-earned money that you are about to invest, so you must have a fair knowledge of what you are investing in.
A carefree investing style does not guarantee a profitable return when trading in stocks. As the saying goes “look before you leap”. It is always prudent to conduct thorough research before arriving at any decision.
As an investor you can do your own research or you can be informed by the research of others, such as professional research analysts. The advice a stockbroker gives you will be based upon their own research.
There are two basic forms of research:
• Fundamental Research – In fundamental research, you try to find out the value of an equity share using the information provided in the financial statements of the company. It heavily relies upon financial ratios such as price/earnings ratios, cash flow ratios, etc. Ratios allow easy comparison of performance between companies in a similar business. The investor tries to analyse various aspects of the business, competitive advantage, financial soundness, quality of management and competition.
• Technical Research -Technical research relates to the study of past stock prices to predict the trend of prices in future. It shows you the direction of movement of the share prices. With the help of technical research, you can aim to identify whether there will be sharp rise or fall in the price of a share. It is not dependent on recent news or events which has already been incorporated in the price of the share. Technical research is not appropriate for PNGX as the trading volumes are too low.
When researching a company, an investor or an analyst are trying to understand the major influences on future performance.
A researcher has to gather basic information on the company, like its records, operating structure, history of the company’s Board of directors, history and performance of the company’s management, its past financial performance in its market sector, and so on. Most of the information will be available on the company’s website, its’ annual reports, the PNGX website or other sources. Quarterly and the annual reports of the company will showcase its earnings, market value, and its current net worth.
Before investing in a company’s shares, an investor has to pay attention to its market value. The market value is a reflection of the expected future performance of the company. Knowing about the company’s success rate through research helps investors know about the viability of its future earnings and the requisite price and share ratios.
Not every company will be a single-player in its segment. Research helps investors know of the company’s competitors, their market value, their growth rate, the age of the enterprise, and how the company’s shares perform against the competition. For example, in PNG an investor might compare the performance of BSP, Kina and Credit Corporation, which are all listed on PNGX. It might not be so easy for an investor to form comparisons in the retail sector in which only CPL is listed, but a qualified research analyst would endeavour to find comparisons with similar unlisted businesses.
A private investor is highly unlikely to have direct access to a company board and management. A professional analyst will often gain direct access as companies understand the value of accurate and competent professional analysts. Research can help investors know who is leading the organization and their experience and performance. The company’s website may be the first place to look for this information. The Corporate Governance statements and remuneration reports in the company’s annual report will contain useful information.
When investing in a company, it is essential to know about its growth prospects. If the investor is going to invest in a newly formed company, they should be confident that the company has the chances to hold a significant place in the market and has the prospects to maintain the rate of growth. Remember a share’s price should reflect the historical and expected future value of its assets combined with the expected profit those assets are likely to generate.
Every investor or trader has to know the information related to the balance sheet of the company. They become aware of the debts and the assets of the company and are able to form a view on such key issues as whether the company has too much debt, what additional sources of funding the company has and whether the debt-equity ratio is favorable, and so on.
Research takes time!
In a well-developed market, research by professional analysts would be easily available to investors(even if it has to be paid for) from a stockbroker or independent analyst. Research on PNGX listed companies by professional analysts is largely limited to the clients of the country’s two stockbrokers.
The shortage of professional independent research analysts presents a career opportunity for enterprising entrepreneurs or graduates who understand company financial reporting and valuation. A good professional analyst may be employed by a stockbroker or institutional investor such as a superannuation fund. Or they may stay independent and be able to sell their research to institutional and retail investors. Professional research analysts are also called upon during an Initial Public Offering (IPO) to assist with setting the price of new companies when they become listed. They may become media commentators on the market. PNG needs more professional independent research analysts to assist the market to grow.
The information in this article is general in nature and you should take care to inform yourself about the specific characteristics of a particular investment before making a decision to invest in it. PNGX recommends discussing your investment objectives and needs with a stockbroker or qualified financial adviser. In PNG, you can either contact JMP Securities Limited or Kina Securities Limited.
By following these articles and reading more information available on the PNGX website (www.pngx.com.pg) you can build your wealth and invest in PNG.
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FROM being a purchasing supervisor in 2004 with the Brian Bell Group, Jessinta Wagambie has come a long way to now being the Vision City branch manager in Port Moresby….
The help desk will be addressing general queries that both merchants and customers have with the BSP Financial Group Limited.
It is important to regularly know the price of the shares you own or want to buy or sell.
FROM being a purchasing supervisor in 2004 with the Brian Bell Group, Jessinta Wagambie has come a long way to now being the Vision City branch manager in Port Moresby….
The help desk will be addressing general queries that both merchants and customers have with the BSP Financial Group Limited.
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