Earning the extra buck: How to Invest in Kuwait Stock Exchange

Part 1: Terminology

One of Warren Buffet’s pearls of wisdom instilled to the masses; ensure that your salary is not your single source of income.

For some, that constitutes a dilemma, how else are they to make a steady stream of income that is not related to their 9-to-5?

It has come to my attention recently that people are different. Surprise! The information I might deem boring, monotonous and tedious as it deals with my chosen profession and field of qualification, may be vastly unknown and hopefully interesting to someone who is say, a dentist, or an architect, or a nurse.

First off, a little introduction to trading, the act of buying and selling shares.

There are two ways to earn revenue from shares: sale price and dividends.

Simply put, revenue from sale price means you no longer own the shares, so it is a one-time deal. You bought 100 shares for at 100KD in January, in February the total share price was 150KD, you sold for 50KD profit.

Dividends are rewards for investing in the company, paid annually. They come in two forms: cash and stock. A cash dividend is a percentage paid per share owned, so if you owned 100 shares in company X and the cash dividend was 10%, you would get 10KD. Stock dividend means you get paid in shares, so instead of owning 100 shares at 10% stock dividend, you would own 110 shares.

However, sometimes companies do not pay dividends. So it is not guaranteed.

There are also two ways to invest in the market: through portfolios or funds. The difference being when you invest in a portfolio, you control it yourself; you set the buying and selling, you own the shares until you decide to sell them. In funds, run by banks and investment companies, a fund manager is responsible for purchasing and selling shares, you are merely one in a pool of investors, you do not technically own a specific stock as the buy/sell action takes place at the fund managers’ whim.

With portfolios, you keep all the earnings. With funds, the fund manager skims a percentage off the top for admin fees etc.

Class dismissed.

Next up: Round lot & Odd Lot markets, Primary & Secondary markets, Opening an account.

August 2011 ( View complete archive page )

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