Article: Investing in Stocks
Wouldn’t you love to be a business owner without ever having to show up at work? This situation might sound like a pipe dream, but through investing in stocks it is closer to reality than you might think.
Stocks are, without a doubt, one of the greatest tools for building wealth. The stock exchanges of central and eastern European (CEE) countries are serving an increasingly useful role in providing capital to local companies; they have also been very successful in attracting foreign capital. And they are likely to have a solid future grounded in the region’s economic potential.
Warsaw leads the way
The Warsaw Stock Exchange has been leading the way in CEE in creating a transparent, efficient and liquid market. It has attracted a large, active and diverse community of investors and is known for its operational excellence.
Its success can be attributed to favorable macroeconomic conditions and a good market situation, but also to the high standards of the Polish capital market. With a comprehensive product offer and a dynamic increase in the number of listed companies, WSE is now a clear leader among CEE exchanges. As stock markets all over the world consider consolidation, CEE’s exchange landscape may well evolve into something bigger as well. Cooperation can také many forms, as exchanges’ interests are very much aligned.
Looking forward, it is fair to assume that stock exchanges in the region will need to get bigger, and to substantially raise their profile, in order to compete.
Potential problems
There are potential problems when investing in CEE stocks, including over-weighted pricing, and difficulties operating in a limited market with low liquidity. The CEE markets are heavily weighted to the energy and banking sectors, which are quite volatile, and the possibility that this upswing may mask potential problems in the economic profiles of the countries and markets spooks some investors. The numbers posted by CEE exchanges are good and robust, but it should be remembered that they are, to some extent, the result of a revaluation of the local currency, which increased the value of dividends, interest warrants and price advances. And this revaluation was taking place, because investors bought into the positive effect of EU accession.
Getting involved
How do you actually go about buying stocks? Thankfully, you don’t have to go down into the trading pit yelling and screaming your order. Investing in the stock market requires the assistance of a stockbroker to execute your orders even if you don’t feel like you need their advice.
What type of stockbroker is right for you? Online, discount, full service or money manager – each has advantages and disadvantages. Remember, you get what you pay for. Fullservice brokerages offer you (in theory) expert advice and can manage your account; they also charge a lot. Discount brokerages offer little in the way of personal attention but are much cheaper. Successful examples of discount brokers include Brokerjet (www.brokerjet.com) or Cyrrus (www.Cyrrus.cz), a Brno-based company that focuses especially on securities trades within the SPAD system of the Prague Stock Exchange, as well as in Poland and Hungary.
The bottom line
There are many market and macroeconomic forces that impact stock trading that investors should be aware of prior to buying or selling shares in any security. However, while it is important to heed these factors and forces, the most important thing to consider is the attractiveness of the company itself and whether it is worthy of an investment. As an individual investor you should also not only be aware of which firms have an ownership position in a given stock, but also of the potential for other firms to acquire shares and reasons that a current owner might liquidate its position. Institutional owners have the power to both create and destroy value for individual investors.
As a result, it is important to keep tabs on and react to the moves the stock’s biggest players are making.
