JMMB Preference Shares A Big Hit With Investors
The JMMB preference share public offerings seem to be a big hit with investors. At least 2 friends have questioned me about it, and I know that there are a lot more out there. The preference share offers have become a big win for investors and an almost guaranteed funding source for the company. With the continued growth, strong leadership, acquisitions and expansion of the JMMB Group, they have definitely made a name for themselves; and when you add their preference share promotional machinery to the mix then you realize how hard it is to ignore their offers.
In fact, this is probably the company’s 2nd or 3rd preference share offer and I’m sure that by now they have their execution strategy down pat. (I laughed to myself thinking that by now they would have had a team that dusts off the old prospectus and re-works it every few years).
Good For Investors As Well
For investors, the preference share offer is a good mix for your portfolio. It offers a higher rate of return than regular savings accounts and also gives investors a chance to wet their feet in the equities market. But the question is, now that I’ve bought these preference shares what’s next? Now that all the promotion and paperwork is done, what do I track and how will I know if I’m doing well or not? Do I just take the interest and sit tight? With all the fuss and promotion that went on, what should I be doing now, and when it is listed on the Jamaica Stock Exchange?
Here’s what we think.
Firstly, congrats on buying this stock. For most people this is probably your first stock. The preference share may be one of the ways a lot of persons get into the whole JSE and JCSD system. I’m sure Marlene and her team love it as well. I know you know how it works; the preference shares will be traded on the JSE while JMMB will make regular interest payments to you (investors). So you have an investment that pays a fixed rate of interest at specified periods, and that same investment also has the opportunity of price appreciation over time. Price appreciation means the price of the stock can increase (but don’t ignore the fact that it can decrease as well).
Since the interest rate is fixed and won’t change over the life of the investment, the only other thing to track regularly is the performance of the preference shares on the stock market and also the performance of the company itself. So this is what you need to do.
Track the Price and Performance of the Stock on the Jamaica Stock Exchange
This is what we suggest that you do. Now that you have your first stock, you will have to become very vigilant as to how it is performing on the stock market. Yes, despite whatever else you may have been told you still need to be aware of how it performs on the stock market, just like a regular (Ordinary) share, as this investment is still subject to price fluctuations. Of course it will make regular interest payments and all you may want to do is hold it until maturity, however here’s why you need to track the stock price on a regular basis:
1. It can appreciate significantly, providing a good opportunity to sell – Remember that while you have bought a stable investment that should be providing consistent returns over its tenor, there is also the opportunity to sell it to somebody who may not have been able to participate in it at the start, or even to someone who wants to purchase more units. I will give you an example.
Take me for instance, I did not get to buy any this time around as I did not have any funds. If you spent $62,500 buying the minimum amount for non-clients you would have 25,000 units of a stock that you bought at $2.50.
If when it is listed on the stock market I decide that I now want to purchase it, I might have to pay more than the $2.50 for it (based on the whole demand supply theory). Now say the share is selling for $2.55 and you decide to sell your 25,000 units, you would end up getting 25,000 x $2.55 = 63,750. This from your initial investment already nets you $1,250 (fees not included). This is a simple example of how price appreciation works. Also note, that if you sell, you will not be eligible for future interest payments, so that will be a trade-off.
However, apart from an increase in the price, you need to track the stock as it can move the other way.
2. It can depreciate so rapidly that you may become locked in or may have to sell at a loss. (Or present an opportunity to buy more shares) – The converse is also true. JMMB will make regular interest payments and you will also have a share that you can sell. However this is all based on faith in JMMB to remain a solid company providing consistent results. Once people loose faith in the company (which is represented by its stock), they will be less interested in purchasing it, and you may have a hard time selling it, if you need to cash out quickly. This is only if you need to sell your stock (just in case you need the money that you would have invested up front).
Also you may realize a depreciation in the stock price and decide that this presents a good opportunity to buy some more shares to add to your portfolio. This is another good reason to keep up-to-date with how the stock is performing.
However another good reason to track the performance of the company now that you have purchased their shares, is that…
3. It is will help to build a good habit as you develop your portfolio and investing skills – Which is why investing in a preference share offer (as a first step in ‘trying out’ the stock market) can be considered a good thing. It will encourage a good practice, that of tracking a stock and remaining abreast of the company and its performance. I’m not sure if you realize what you signed up for, but what you have done by investing in the JMMB preference share offer is essentially lending your money to JMMB for the promise of regular interest payments and the repayment of your principal at maturity. However this is all based on a promise and the premise that JMMB will be around and will continue to perform, which is why they tried to convince you to invest in them.
This is the very same thing with investing in the stock market. It’s no different and so, once you get into the habit of watching the performance of your JMMB 7.25% or 7.5% shares you will also build that habit of checking on the performance of a company, something that you can convert to investing in other companies.
Now that you know the importance of what you’ve invested in, remember to track the stock’s performance when it becomes listed and look out for any buying opportunities (fall in the stock price) or opportunities for capital gains (increase in the share price) on a regular (daily) basis. Also continue to look at the performance of JMMB as they are the company that you are depending on to repay you your principal at the end of the investment period.
One Free Resource
At MoneyMax101 we have a number of relevant, regular and rightly timed resources that can help you. One such resource for you is our daily stock market updates. Each day we will post and send by email a summary of the major movements on the stock market (which will include JMMB and your JMMB preference shares). From time to time we will also update you on any significant movements on JMMB and their preference shares. Subscribe today and keep up-to-date with our daily email alerts.