with Raziah Ahmed
Twain is reported to have said: October is one of the
peculiarly dangerous months to speculate in stocks. The others
are July, January, September, April, November, May, March,
June, December, August and February.
Stock investments are always high risk, with a concomitant
promise of high return. Even higher up on the risk-return
gradient, is the futures market.
Many persons unknowingly participate in this market, when
they purchase foreign currency, hoping to gain, should the
exchange rate rise in their favour.
Foreign currency forms part of the financials market,
the other aspect of the futures market is commodities.
Commodities are agricultural products: corn, soybean, cotton,
cattle, lamb, etc, and natural resources such as metals, oil,
gas, and lumber.
Average individuals do not participate in the commodities
market, but its usefulness can be well appreciated for manufactures,
food suppliers, and heavy industry. The futures market is
a derivative market, meaning that the value is
derived from a particular underlying asset.
are also derivatives. An option is a right to buy or sell
100 shares of stock at a specified price, within a specific
time period. They represent a claim to stock, and not ownership
of the stock. Many options are never exercised, but their
advantage is one of leverage.
There are other expressions in the jargon as well, eg what
are the Dow Jones, the Standard and Poors and the Nikkei
225? These are really measures of performance of the stock
market, and serve as a guide to investors. They are an average,
or else an index of performance, which measure the current
price behaviour of a sample of stocks, with respect to a time
The Dow Jones is an arithmetic average, but almost all other
market measures are based on an index. The Dow Jones is the
oldest continuous measure of the stock market, and is based
on prices for 30 stocks in the traditional industry line up
for US companies.
Standard and Poors (the S&P 500) is a composite
index of mainly New York Stock Exchange stocks that represent
the average price of the 500 stocks in the index. The Nikkei
225 is a similar measure on the Japan stock market.
Nasdaq produces 11 indices ranging from transportation to
utilities, based on the 100 largest market-capitalised firms
in the respective categories, often referred to as the tech-company
index. The most dominant stock in Nasdaq is currently Microsoft,
which accounts for about 10 per cent of the index.
A non-American world index is the EAFE: the Europe, Australia
and the East Index, which represents a bench mark for some
1000 stock in some 20 countries.
What goes on in the world markets, and in particular the US
markets, directly influences what goes on in our local market.
In fact the goals and aspirations of people remain on parallel
Listen to the dialogue of Mark Twains characters:
are you rich?
but I ben rich wunst, and gwyne to be rich
agin. Wunst I had foteen dollars, but I tuck to
specalatn, en got busted out.
did you speculate in, Jim?
fust I tackled stock.
kind of stock?
live stockcattle, you know. I put ten
dollars in a cow. But I ain gwyne to resk no mo
money in stock. De cow up n died on my hans.
you lost the ten dollars.
I didnt lose it all. I ony los bout
it. I sole de hide en taller for a dollar en ten cents.
From: Adventures of Huckleberry Finn
n Raziah Ahmed is a registered financial consultant