Author: Ho KhinwaiKhin Wai is a Year 3 Banking and Financial Services student from the School of Business Management (SBM). He started his foray in finance in 2011 and has his roots in value investing. Archives
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Understanding Stock Market Lingo20/9/2013 Have you ever been on a stock trading platform or on SGX.com and found that there are some pretty confusing stock terminology that you stop to think for a moment about why you even bother to invest in the first place? You’re not alone. Entering the stock market can be a daunting task, with quite a steep learning curve. If you’re blindly invested without having sufficient knowledge about investing, you could potentially be burned by your mistakes – and you may not even know it. Warren Buffett gives us a piece of wisdom, “Only when the tide goes out do you discover who’s been swimming naked”. NCPS NCPS stands for Non-Cumulative, Non-Convertible Preference Shares. You may be wondering what this means. As with all technical jargon, let’s break it down. Preference Shares are shares which carry a higher priority and standing over normal shareholders. Preferred shareholders who have these shares get the right of dividend payment during the lifetime of the company, if anytime the company decides to issue dividends. If the company winds up (hopefully not), preferred shareholders will receive their part of the liquidation amounts before normal shareholders. Also, preferred shares usually have a fixed rate of dividend. So what this means is that you can consider preference shares as a bond, which pays you periodically, and at a fixed rate. Non-Convertible basically means that the holders of the preferred shares are barred from any additional rights to CONVERT their preference shares into ordinary (normal) shares. As you might have guessed, CONVERTIBLE preferred shares will receive this extra option. As such, convertible preference shares will most likely be priced higher than non-convertibles. This is as convertibles give the investor BOTH the (1) assurance of a fixed rate of dividend, plus (2) the opportunity for capital appreciation, while non-convertibles only provide the investor with (1). Non-Cumulative indicates that the shareholder is not entitled to any arrears of dividends (the dividends that are “owed” by the company to the investor, for the years the company did not pay out dividends – hence it accumulates). This means that if the company did not pay dividends in 2013, NCPS investors will not get dividends as well for that year. Again, cumulative shares tend to be pricier. So now we have explained the whole term, you might be wondering “Is this type of equity available in our Singapore market?” The answer is yes! One of our more familiar NCPS is: OCBC Bank’s 5.1%NCPS 100 (Ticker: F4B.SI). 5.1% indicates the fixed rate of dividend per annum (year). The 100 at the end indicates trading size of 100 shares. This means the minimum buying of 1 lot will be equivalent to owning 100 NCPS shares of the company. There are also other variations of preference shares like Hyflux’s CPS. (Hyflux 6%CPS 10). You may have guessed it – CPS stands for Cumulative (Non-Convertible) Preferred Shares. Preference shares also vary in terms of redeemable/irredeemable, participating/non-participating, classes, lot size, maturity, voting rights, etc… CD/XD This is a more commonly seen remark on stock screens. Let’s take a closer look… A CD is not your old circular disk that contains your files and documents. CD in stock market lingo stands for Cum-Dividend. A stock with a “CD” sign in the next column of your stock screener means that that stock is entitled to receive a dividend that has been declared, but not paid out yet. So, if you buy a stock with a CD, you will receive the dividends that they have declared for that period. A little language nugget here – “cum” basically means “with” in Latin. XD comes right after a CD period. XD stands for Ex-Dividend. XD is the cut-off date that the company sets to end the entitlement of dividends to shareholders for that period. This means anyone who owns the shares before the XD date will be entitled to the dividends, while investors who have just bought on or after the XD date will not receive the dividends. ADR ADR stands for American Depository Receipts. ADRs are basically stocks that trade in the United States, but the companies of these stocks are not incorporated in America. Let’s take Baidu for example (Baidu is a Chinese web-services company incorporated in China). If Americans wanted to trade Baidu shares, they would have to go to China and open a trading account with them to buy the shares. This ridiculous process is simplified with ADRs, where Americans can now buy a bundle of Baidu shares (as one lot), using their own American trading accounts and paying with their own currency. In Singapore, this process is the same. One such ADR listed on SGX is from Baidu. BIDU ADR 10US$+ (Ticker: K3SD.SI). BIDU represents the name of the company – Baidu. For example, if Baidu is trading at US$150 per share, one ADR would cost US$150 X 10 = US$1500. 10 refer to 10 shares of Baidu that equal one lot. US$ refers to the trading currency of the ADR. + refers to single-listed ADRs. This means that the Baidu ADR stock is only listed on the US stock exchange, NASDAQ, and no other stock exchange. ------------------------- So, now you know three of the many jargons and abbreviations used in the stock market! Understanding some of these lingoes will definitely help you in your investing journey by broadening your knowledge on the different types of equity. Came across any other terminologies not listed here? Leave a comment down below, and we might answer it on our next article!
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3/9/2014 08:10:15 pm
Very good topic and content you share in this post. it really very informative for every investors who trade in market. i suggest to everyone for visit this and get important knowledge from here.
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14/10/2014 08:23:01 pm
greate blog!Unless you absolutely know what you are doing in the real estate markets, stocks are the best way to go for the long-term investor. Short -term, options with equities as a hedge.
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