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Stocks: Time to be careful

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With stocks up 10% this year & 23% in last 6 months (highest since 1990s) bigger established companies, not IPOs, right for small investors. 

An small retail investor smiles as he monitors share prices at a stock broker's office in Bangkok (Photo: EPA)

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Economics

Yellow flashing on IPOs

Brokers' group warn against sky-high prices
18 Feb 2013
Nuntawun Polkuamdee

Retail investors should exercise caution when investing in newly listed stocks, considering the last three listings on the market all saw heavy price movements due to speculative trade, according to the Association of Securities Companies (Asco). 

... there is reason for concern when new stocks jump sharply on the first day of trade only to drop two or three days later.

Such volatility can result in heavy risks and losses for some retail investors who are unable to unload their holdings before prices correct...

Investors have to consider the risks and whether the valuations are reasonable. If you see a stock rise sharply in price, with a price-to-earnings ratio of, say, 40 or 50 times, then you shouldn't invest,"...

...The Stock Exchange of Thailand (SET) is trading at its highest levels since the mid-1990s, with the index up nearly 10% since the beginning of the year and more than 23% over the past six months.

On Friday, the SET announced that stocks singled out for potential speculation can only trade using cash balance accounts for at least six consecutive weeks, double the period stipulated by the previous measure. Cash balance accounts limit investors to trading securities with cash up front, rather than on credit or margin. To date, 44 stocks have been singled out for the measure, compared with 50 stocks for all of 2012.

...the cash balance requirement should help curb speculative trading, adding that regulators typically monitor newly listed stocks in the first week before deciding whether to impose trading restrictions...

..."Investors have to exercise caution and should consider the fundamentals of each stock. If prices are out of line with the fundamentals, you shouldn't invest simply to follow the crowd."...

Stocks which see share prices increase two- or three-fold from their IPO prices can only do so as a result of speculation by investor groups with sufficient capital to sway price trends, he said. Most retail investors are at a clear disadvantage in investing in such stocks.

Mr Nives said investors should remember that the IPO price typically is set near the fundamental value of the stock.

He dismissed the widely held assumption that IPO prices were set at a discount of 20% to 30% from fair value, saying that any new listing had already spent the past several years cleaning up its books and boosting its financial numbers before entering the market.

Companies floating only a small proportion of their total outstanding stock in particular are subject to manipulation by speculators.

Mr Nives said the SET, now priced at a P/E of 19-20 times earnings, was at a "scary level" for any value investor.

"It's quite difficult to invest now I think, since there aren't any stocks priced under their fundamentals and with low risk," he said, adding that he suggested value investors focus on large-cap bellwethers of their industries...

(Source: Bangkok Post, Economics, Yellow flashing on IPOs, Brokers' group warn against sky-high prices, 18 Feb 2013, Nuntawun Polkuamdee, link


Stock Market Vocabulary

IPO (Initial Public Offering) - when a new company sells it stock shares on a stock exchange for the first time (See Wikipedia)
yellow flashing on IPOs

sky-high - very high
sky-high prices - very high prices, very expensive

broker - a person who helps people buy and sell things
stock broker - a person who helps people buy and sell stocks

warn - tell people about something dangerous that might happen
warn against

warn against sky-high prices
brokers' group warn against sky-high prices

retail investors - small investors, not large companies making investments (not institutional investors like banks or insurance customers)
exercise caution
- be careful

listing - (of a company) the process of becoming a member of a the stock market and having shares sold to the public
listed stock - a stock with shares that are bought and sold on a stock exchange (traded on a stock exchange)

newly listed
stocks - stocks that just began trading on a stock exchange
retail investors should exercise caution when investing in newly listed stocks

trade - the buying and selling of things such as stocks or goods การค้าขาย
speculative trade
heavy price movements due to speculative trade

a listing on the stock market
new listings
the last three new listings

the last three listings on the market all saw heavy price movements due to speculative trade

reason - an explanation of an event, why an event happened เหตุ ; เหตุผล ; สาเหตุ
concern - a worry ความกังวล
reason for concern

... there was reason for concern when new stocks jump sharply on the first day of trade only to drop two or three days later.

retail - to sell directly to the public for their own use ขายปลีก
retail investors

holdings - stocks or investments that you own
unload holdings - sell the stocks or investments that you own

volatility - a measure of risk in financial markets, the degree to which asset prices swing up and down อัตราความเสี่ยงต่อการลงทุนทางการเงิน

Such volatility can result in heavy risks and losses for some retail investors who are unable to unload their holdings before prices correct...

valuations - 1. the value the market (supply and demand) gives to traded stocks and bonds; 2. an estimate of the value of something;
reasonable valuations

risk - danger, how likely or possible it is for a bad event that causes harm and damage ความเสี่ยง
consider the risks

price-to-earnings ratio (P/E) - the relationship between the present market price of shares in a company and the earnings per share used to compare the company's performance with other companies (See Wikipedia)

a P/E of 19-20 times earnings

..., say, ... -
for example ....
a stock with a price-to-earnings ratio of, say, 40 or 50 times

Investors have to consider the risks and whether the valuations are reasonable. If you see a stock rise sharply in price, with a price-to-earnings ratio of, say, 40 or 50 times, then you shouldn't invest,"...

speculation - buying an asset hoping that its price will go up and you will make money, it could go down with a loss of money, assuming the risk of loss in return for the uncertain possibility of a reward (See Wikipedia)

potential - possible ความเป็นไปได้
potential speculation

measure - an action taken to solve a particular problem มาตรการ
the previous measure.

single out (for special treatment)
stocks singled out for potential speculation
To date, 44 stocks have been singled out for the measure, compared with 50 stocks for all of 2012.

cash - money in the form of notes or coins เงินสด
cash balance accounts

consecutive - happening one after another อย่างต่อเนื่อง ติดต่อกัน ที่ต่อเนื่องตามลำดับ
six consecutive weeks

stipulated - say clearly that something must be done (in a contract) The pig farmer said he spoke for many who
the period stipulated by the previous measure.

double - to become twice as big, twice as much or twice as many เพิ่มเป็นสองเท่า
double the period stipulated by the previous measure.

stocks singled out for potential speculation can only trade using cash balance accounts for at least six consecutive weeks, double the period stipulated by the previous measure.

cash up front - buying something with your own money (not borrowing, not going into debt to get the money)
credit - loans or total loans in an economy เครดิต เงินกู้ทั้งหมด

Cash balance accounts limit investors to trading securities with cash up front, rather than on credit or margin.

curb - stop or reduce a harmful thing ลดหรือยุต,ิ   ระงับ, ควบคุม
curb speculative trading
the  requirement should help curb speculative trading

typically - usually; normally อย่างเป็นแบบฉบับ
monitor - to regularly check something or watch someone in order to find out what is happening ตรวจสอบ ตรวจตรา  เฝ้าจับตาดู  เฝ้าดู จับตาดู
typically monitor

regulators - the government agencies that make rules and laws about how businesses can operate
regulators typically monitor newly listed stocks in the first week

impose - to introduce something such as a new law or new system and require people to accept it  กำหนด,บังคับ นำกฎหมายมาบังคับใช้
impose trading restrictions

...the cash balance requirement should help curb speculative trading, adding that regulators typically monitor newly listed stocks in the first week before deciding whether to impose trading restrictions...

fundamentals - the underlying health of a company or economy (that will determine whether it is profitable and survives in the long-run) ที่สำคัญ ที่เป็นตัวกำหนดความมั่นคงของบริษัท

investors have to exercise caution and should consider the fundamentals of each stock.
the IPO price typically is set near the fundamental value of the stock.

out of line with - not agreeing with, not consistent with
prices out of line with the fundamentals

follow the crowd - do something that everyone is doing (here: buy when everyone is buying)
you shouldn't invest simply to follow the crowd

two- or three-fold - 2X or 3X, 2 or 3 times as great 
share prices increase two- or three-fold

sufficient - enough พอเพียง
capital - investment money (money invested in the stocks and bonds of companies and governments)
sufficient capital - have enough investment money

sway - to influence or change someone's opinion มีผลต่อการตัดสินใจ
sway price trends - change the direction of in prices (through your actions)

investor - a person or organisation that puts money into a company in exchange for a future profit นักลงทุน
investor groups with sufficient capital to sway price trends...

Stocks which see share prices increase two- or three-fold from their IPO prices can only do so as a result of speculation by investor groups with sufficient capital to sway price trends...

clear - easy to understand
disadvantage - something that makes someone or something less effective, successful or attractive ข้อเสียเปรียบ ข้อด้อย
at a clear disadvantage

Most retail investors are at a clear disadvantage in investing in such stocks.

assumption - something that you consider likely to be true even though you have no proof ข้อสันนิษฐาน
widely held assumption - something that many believe to be true

dismiss - refused to accept that something might be true or important ปฏิเสธ not take seriously แย้งกลับ โต้กลับ
dismiss assumption - refuse to accept something that people believe

dismissed the widely held assumption

discount - substract money off
IPO prices were set at a discount of 20% to 30% from fair value,

cleaning up its books - changing how assets, liabilities, revenue, expenses are reported from the accounting system

spent - used ที่ใช้ไป
spent the past several years cleaning up its books

boosting - increasing เพิ่ม
boosting its financial numbers - making the company look more valuable (more profitable with valuable assets) 

He dismissed the widely held assumption that IPO prices were set at a discount of 20% to 30% from fair value, saying that any new listing had already spent the past several years cleaning up its books and boosting its financial numbers before entering the market.

outstanding - currently exists
outstanding stock - the stock of a company that has been issued and people own 

float stock - to sell a company's shares on a stock exchange for the first time
Companies floating only a small proportion of their total outstanding stock

manipulation - controlling or influencing something for personal gain (illegal or immoral)
subject to manipulation

speculators - investors who put their money at risk in hope of making more money when an asset increases in value
subject to manipulation by speculators.

Companies floating only a small proportion of their total outstanding stock in particular are subject to manipulation by speculators.

value investor - an investor who buys shares that they believe are being traded at less than their real value and whose price will probably soon rise

scary - frightening, makes a person afraid or frightened

Mr Nives said the SET, now priced at a P/E of 19-20 times earnings, was at a "scary level" for any value investor.

large-cap - a company on the stock exchange that has a high total value of shares (market capitalization) 
bellwether -
something that shows what will happen in the future (here: a stock that shows true stock trends)
large-cap bellwethers of their industries

focus - the main thing you are working on or concerned with ให้ความสำคัญ

It's quite difficult to invest now I think, since there aren't any stocks priced under their fundamentals and with low risk," he said, adding that he suggested value investors focus on large-cap bellwethers of their industries

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