“It does not take long to

figure out the major high

60.00 -13.00 t 59.75-0.78

-0.75 1,660.00
t -1.24
- 13.00 t -0.78
59.75 street
-0.75 banks t whose
-1.24shares

6.75 1,660.00
- 13.00
-10.00 t 68.25-2.24
178.75
-3.00 t

615.00 0.00 +0.00
t -0.78
436.75

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-
-10.00 t 68.2513.00
-2.24
178.75
615.00 0.00 are
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worth
+0.00
t -0.78
more

and
-1.65
which
pay dividends.”
1,660.00
436.75
3.00 +5.00 s
- 1,660.00
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67.00

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89.25
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+0.25
t
+0.25
t
s
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ts
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s
t
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ts
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436.75 436.75
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-
10.00
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t
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t -2.24-2.90
436.75 436.75
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50 0.00 +0.00 167.00 t s t +1.68-0.30 0.00 303.00 +5.00167.00 t s t +1.68-0.30
303.00 +5.00 s 28.50 +0.00
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investing
Stock market
50 0.00303.00
00 +1.00
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11.50

+5.00
0.00
+0.00
28.50 0.00
s

28.50 0.00 +0.00
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s +0.00
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42.00 t +1.00
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28.50
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0.00
11.50
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0.00
s11.50


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59.75 -0.75
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0.00 +0.00 street 59.75 -0.75 t -1.24

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178.75s
s t+2.44
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s t+2.44
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42.00 +1.00 s68.25 +2.44

42.00
banks
+1.00 s68.25
compared +2.44
-1.65

101
+0.25 s +0.37 +0.25 s +0.37
89.25 +0.25 s +0.28 89.25 +0.25
Bank s
Market +0.28 Share price Price/ Earnings Dividend per
capitalisation* (in pence) earnings ratio per share share (in pence)
67.00 -2.00 t -2.90 67.00 -2.00 t -2.90
t
Part 2
167.00 -0.50 -0.30 Barclays £34.34 bn 167.00
285.45 10.56 -0.50
26.99 4.5 t -0.30
HSBC £115.04 bn 663.3 20.36 32.08 34
Lloyds £47.83 bn 71.64 n/a -7.65 Nil
At close the FTSE was up 100 points on the RBS £26.90 bn 46.4 n/a -3.04 Nil
day. Blue chips held up well despite profit taking Courtesy of the FT.com Saturday 16th October 2010
* The number of shares in issue multiplied by the price of the shares
and gilts taking a bashing.” Any the wiser?

A
s with most matters connected
with financial services, when
you invest in stocks and
shares you find that relatively simple
concepts are wrapped up in jargon
that seems designed to cloud and
confuse. A good lesson to take on
board therefore, is not to invest in
anything you do not understand, or
which has not been properly explained
to you. However, at the same time,
it is important to make the effort to
get to know the language and do the
research, in order to be well enough
informed, to be able to make an
investment decision.
Companies quoted on the stock
exchange are broadly grouped
together for ease of reference and
comparison. For example, health care,
industrials, oil & gas and utilities,
among others. If we take a look at the
banking sector, it does not take long
to figure out which of the major high
street banks’ shares are worth more
and which pay dividends.
But share prices are just the tip of the
iceberg. Unless we are going to take a
complete shot in the dark we need to
reach an understanding of the company
we are considering investing in. First
stop is the company’s annual report.
These are mines of information about
what companies do, where, how and
why they do it. Bear in mind that they
only provide a picture of the company
as it stands at the end of the company’s
financial year. Quoted companies are
also obliged to produce half yearly and
quarterly results as well; these are worth
looking at too. The key financial reports
are: the balance sheet which records what
a company owes or is owed, and how
much cash it had in the bank at the end
of the period; the profit and loss account
or income statement, which shows how
much money it earned and spent in its
activities; and the cash flow statement,
which shows what the company did with
its cash during the year.
Reading and understanding financial
statements takes time and practice.
However, looked at in conjunction
with the written statements in the
annual report and especially the
notes to the accounts, it should not
take too long to figure out what the
company does and how it is faring.
Remember that apart from being a
document required by law, an annual
report is also a sales document for
the company. For this reason it
should only ever be one source for
our research, especially as it is largely
backward looking and therefore out of
date by the time it is produced.
Fortunately there is a vast amount of
other information available in print
and online such as, Interactive Investor

32 market
the market
the 33
 Share price information is available
online at web sites such as:

www.londonstockexchange.com
www.shareprice.co.uk
www.livecharts.co.uk FTSE 100
www.ft.com An index of the 100 largest companies
quoted on the London Stock
Profit Exchange. It started at a base of
taking 1,000 at the end of 1983. Increases

t -0.78
When a share price has risen or decreases in the index reflect the

1,660.00 -13.00 t “No -0.78

59.75company
-0.75 is an island.
t 1,660.00
All -1.24 -13.00 59.75 for a-0.75
consistently period of time movements in the prices of the shares
t -1.24

-10.001,660.00 t -0.78
investors may decide to sell of those 100 companies. There are a

436.75 -10.001,660.00
t -13.00 -0.78 -13.00
615.00 0.00 +0.00 615.00 0.00 +0.00 variety of other FTSE indices, see here:
companies plyt their trade
-2.24
178.75
within
-3.00
local, national
t 436.75
and
-1.65 t -2.24 and take their profit rather than
178.75 -3.00 t -1.65
www.ftse.com/Indices/index.jsp

+0.37
+0.37
hang on to see if the price

1,660.00
436.75
- 1,660.00
13.00

68.25 -13.00
-10.00
+0.25

internationalt t -0.78
t
s
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economies, -0.78 1,660.00436.75
- 1,660.00
13.00

68.25 -13.00

-10.00
+0.25
t
t -0.78
t
s -0.78
-2.24 will go any higher.

303.00 +5.00 s +1.68

89.25 +0.25 s
303.00+0.28
+5.00 s +1.68
89.25 +0.25 s +0.28
GILTS
436.75 436.75
-10.00
303.00 +5.00
28.50 0.00 +0.00
-10.00t
67.00 which
t -2.24
-2.00 affect

303.00 +5.00 s 28.50

167.00 better or
-0.50 sfor -2.24
them
worse.”
t
t
for -2.90
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436.75 436.75
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t -2.24
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s t
t
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bonds or gilt-edged

11.50 0.00 303.00

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s +0.00 11.50 0.00 303.00 +5.00
28.50
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28.50 0.00 buster
+0.00
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stocks issued by
the Government
to raise money.

28.50
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59.75
www.iii.co.uk, Citywire www.citywire. 42.00 t +1.00
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THE 59.75
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Blue
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CLOSE
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co.uk, Financial Times www.ft.com and

178.75s -3.00 +2.44

s t+2.44
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a great many others whose job it is to

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615.00 chips
s t+2.44
0.00 +0.00

The London Stock Exchange
-1.65
opens for dealing at 08:00 Large, well known and well
generate new stories about companies.
42.00 +1.00 s68.25 +2.44
There is also a lot of research produced
89.25
by stockbrokers, rating agencies and
+0.25
+0.25
s
s
42.00
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+0.28
+1.00 s68.25 +2.44
89.25
+0.25
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s +0.37
and closes at 16:30 every
s +0.28
day of the week except
performing companies whose
shares are regarded as high
banks; all useful as sources to a greater 67.00 -2.00 t -2.90 Saturdays, Sundays and
67.00 quality investments
-2.00 in stock t -2.90
t t
or lesser degree. However, all should be public holidays. market terms.
167.00 -0.50 -0.30 167.00 -0.50 -0.30
treated with scepticism because none of
them get all of it right all of the time and
usually they have some kind of agenda.
But if you research enough, and keep
up-to-date with the latest news on the
companies you are interested in, you will
be in a better position to decide what is
in your best interest as an investor.

Reading through the research, some
terms and ratios come up repeatedly.
What do they mean? “Earnings per
share” (EPS) is a common one. It is
arrived at by dividing the net profit,
the “bottom line” shown in the profit
and loss account, by the number
of shares in issue. This indicates
how much money the company is
generating for its shareholders.
“Price/earnings ratio” or PE, another
measure, is arrived at by dividing the
current price of the share by the EPS.
This number, also referred to as the
multiple of earnings, alongside EPS, is
useful to compare with those of other
companies to see which is producing
the best result for the investor.
This does not mean that companies
with low EPSs or PEs are necessarily
bad investments. Perhaps they have unemployment and, if they buy or sell is an island. All companies ply their
room for growth, perhaps companies goods or materials abroad, the effect trade within local, national and
in their sector tend to have low EPS that exchange rates may have on their international economies, which affect
and PE ratios. If the PE is very high costs or revenues. them for better or for worse.
it suggests that the company’s shares
are expensive, some hi-tech stocks are For example, if you were to look at a The same approach should be taken
like this, but their potential for growth graph of the share price for just about with all companies; do your research.
may be very great, like a Google or an any company quoted on the London Spend time studying the investment
Apple for example. Stock Exchange covering the last five opportunity until you understand
years, in almost every case you would it and feel confident that you have
There is no substitute for getting to notice a massive price fall following reviewed as far as possible the risks
know a company, its products, how the collapse of Lehman Brothers, the involved and whether or not the likely
it conducts itself, whether it values New York investment bank, on 16th return is fair compensation for taking
shareholders, how it behaves towards September 2008. It was a moment of that risk. No one can read the future
its other stakeholders, whether it panic in the financial markets when with any great degree of certainty.
pays its management in proportion to investors sold their shares to salvage So at times, as with any investment,
their abilities and what its strengths, their cash. Fortunately disasters of even leaving your money with the
weaknesses, opportunities and this sort do not happen too often, but building society, you have to make
threats are. But, other important this example does show how factors your decision. Because stuffing your
considerations are things like the state outside a business can radically cash under your mattress is probably
of the economy as a whole, inflation, affect its share price. No company not a worthwhile option! m

34 market
the market
the 35