BusinessDay... the voice of business: Your share certificates: Verify them now or regret later Your share certificates: Verify them now or regret later ================================================================================ Okoko Davidson Chidiebere on 06 February, 2008 04:13:00 When you buy shares of a company during any of their Public Offers,which may be Initial Public Offer(IPO) or secondary Public Offer,you are usually sent a certificate which stands as a proof that what is stated therein is true. A certificate is a document,in this case ,a financial document stating how many shares an individual or company owns as equity in another company. If you had bought shares in the last Public Offer of Intercontinental Bank PLC in 2006,you may have received a rectangular hard-paper document in which your name and address are typed therein, together with the units of shares of that company you bought. That certificate also bears the signature of the secretary of the company and also the official number and account numbers of yourself at that company’s registrar. If you are yet to receive your certificates from Intercontinental Bank PLC,you may have received from Oceanic Bank International PLC,or Transcorp Nigeria PLC or a dozen of other companies that recently offered their shares for sale during IPOs.Ownership of shares in a company entitles you to reap part of the profits of that company,usually once yearly,as dividends,or extra stocks as stock dividends(during stock splits or bonus offers).You can also participate at Annual General Meetings and Extra-Ordinary General Meetings of these companies,as a result of your shareholder status. So your share certificates your shareholder status should never be joked with. In fact,you can litigate a company or question its mismanagement based on your shareholder status. One of these strategies is to “Sell Into Strength”.A famous expression in Wall Street is that”No one ever went broke taking a profit”.So making profits in the stock market is the key to wealth. You cannot afford to lose. You must have also read Robert Kiyosaki saying that “Average investors do not make money.While he may not necessarily lose money, he fail to make money”. And that was why his Rich Dad’s advice for him to the average investor was “Don’t be average!”. Selling into strength means anytime your stock makes a major move on the upside(i.e increases in price),you should sell a portion of your holdings. For instance if you own 500 shares of Zenith International bank PLC and you make big gains,sell 100 shares each time it appreciates 10%.This enables you to reduce risks and simultaneously sell those stocks at higher prices.Well,selling these shares quickly will be determined by many factors,the most important of which is having the shares already credited to a CSCS(Central Securities Clearing System) account. That forms the core of our discussion: why postal delays in mailing out certificates and the non-verification of these certificates early(if received by investors) impedes their efforts to sell into strength. You will also have read the last time that if you did not make up to 20% profit in your sale transactions,you were not really an investor,although you will factor in your buy and sale commissions.In selling into strength,you become a speculator which is much more important than an investor.William O’Neill took time in his book, “How To Make Money In Stocks” to differentiate the words “investor” and “speculator”.It will be advantageous for you to read it yourself.. “Are you a speculator or an investor”,he asks.He continues that: “When you think of the word ‘speculator’,you might think of someone who takes big risks,gambling on the future success of a stock.Conversely,when you think of the word “investor”,you might think of someone who approaches the stock market in a sensible and rational manner. According to these conventional definitions, you might think it’s smarter to be an “investor”. But Baruch, a notable stockbroker defines “speculator” as follows: “The Word “speculator” comes from the Latin “speculari” which means to spy and observe. A speculator, therefore, is a person who observes and acts before the future occurs.” This is precisely what every shareholder or prospective shareholder should be doing. You should watch the market and individual stocks to analyse what they are doing now,and then act upon that information.Another stock market guru,Jesse Livermore defined “investor” as big time “gamblers”. He maintains that they make a bet,stay with it,and if it goes wrong,they lose it all. So “investing”in the strictest sense of the word is not the best way to approach the stock market. “Speculation” is! That is why there is no such thing as long-term investment once a stock drops into the loss column and you’re down 8% below your cost(William’s stop-loss percentage). Worry when your stocks goes down in price! Some “investors” are not worried that their stocks are losing value.They are consoled by the dividends and bonuses which they anticipate or had already gained from these companies.They think they will continue to receive this dividends from these companies but that is not true.If you are in this category,you should rethink this idea and belief and consider changing them.They are dangerous! Let’s take an example of a stock that that goes down 55% in price and pays a dividend of 10%.Would it be logical to retain that stock knowing that a 55% loss plus a 10% dividend gain equals a catastrophic net loss of 45%?So wake up and act smart.Develop precise rules and hard-nosed selling disciplines and you’ll gain a major advantage. Have you ever bought shares in an ipo or po? If you answered yes to that question,chances are that you may not have received your share certificates.If this applies,try and get in touch with the registrar of that company,or failing the company itself.The company should at least be able to tell you who its registrar is.If you have received your share certificates,congratulations!You are one of the fortunate Nigerians who will not be bedeviled by the vagaries of postal delays.Well act quickly to sell your shares into strength.I know most of the shares sold as IPOs have made major price gains,while the shareholders were yet to receive their certificates. For instance,Dangote Sugar Refinery PLC which sold for N18 per share now sells for N39;Zenith Bank PLC which sold shares at PO for N16.90 now sells for N44;Oceanic Bank International PLC which sold its PO at N16.50 now sells for N31;Intercontinental Bank which sold at N13.50 now sells for N23;though Transcorp PLC which sold for N7.50 now sells much below at N2.71, recently rose to N9.71 before it plunged.Other stocks which had made great gains include: First Bank of Nigeria Plc which sold at N33 later sol at N39,though it attained a price of N54;United Bank for Africa(UBA) PLC which sold for N34 now sells for N54;Mutual Benefits Assurance PLC which sold at N0.60 now sells for N3.03;Stnadard Alliance Insurance which sold for N1.10 now sells for well over N4.You can imagine how dramatic some of these increases are.Some investors who had received their certificates have sold into strength,but those who are yet to take advantage of this strategy had witnessed their stock fall back in price after a high price attainment. What they did not tell you when you bought that IPO When you bought those shares,you were probably not told that: * You needed to have a brokerage(NOT BANK) account sooner or later * You needed to open a checking(current) account in any commercial bank wherein the cheques of your sales proceeds will be lodged * You will be charged sales commissions anytime you want to sell all or part of your IPO shares when you must have verified the certificates.Please note that currently,a levy of 2.6745% of your holdings is charged you. * Your certificates take time to be mailed to you.In fact most certificates take almost a year to get to the investing public.Some do not even get to them at all.A lot of them get lost in the mail,and others are returned due to improper addresses. * Having a brokerage account,and consequently a CSCS account is not a guarantee that the shares allotted to you will be credited directly to your CSCS account.But thanks to the Securities and Exchange Commission,the Nigerian Stock Exchange and the Central Securities Clearing System,most companies are now effectively implementing the e-IPO,e-Bonus,e-Dividend options.In e-IPO,your shares are directly credited to your CSCS account,and there will be no need anymore to wait in the mail for the certificate, no need for the arduous verification process, and no need for delays in running from one broker to another. In e-Bonus,the extra stocks declared and allotted by these quoted companies are directly credited also to the CSCS accounts of investors. Please note that you must have opened a brokerage account and obtained your CSCS number before e-IPO,e-Bonus can work for you. For e-Dividend to work for you,you must have a bank account in any of the banks stipulated by the company.Though a Savings Account may work,it is advisable to have a current account. 6.They may not have told you also that when you get these certificates,you cannot sell them for cash.Trying to do so is illegal.You will only need to go through a stockbroking firm to have that certificate verified(or authenticated) and then sold.This undercores the need for you to open a brokerage account for yourself. Opening Brokerage Accounts Any investment adviser or financial professional can guide you on how to open a CSCS account with any brokerage firm. You simply need to fill out a form,and submit evidence of identification and residential address.The account is usually set up in a week or two.When ready,you can buy stocks already trading in the exchange through your account.You can also buy IPOs and indicate your number at the application form.This will enable the company credit your account directly. Verification of certificates and why it is of great importance Let me begin by saying that unless your share certificate is verified and entered into the CSCS depository,it cannot be sold.So you had better bring out all those certificates in your safe boxes and begin to get them verified.Again,if you have not verified your certificates,you can not take advantage of the immediate price gains on that stock.Since your certificates are yet to enter into the CSCS,your order to sell will not work.And by the time you verify it in the future,the stock had fallen again in price.Also once you have your certificates verified,you can simply view your portfolio online.Thanks to the NSE and the CSCS,you can log on to the Internet and check your holdings.It would not be possible if your holdings are still in paper form as certificates.You can view your portfolio while you are in any city in the world,as long as you are hooked to the Internet.Verification entails checking out the name,address,number etc on the certificate against that on the original and transfer forms whether they correlate them.This process is also called authentication.Time for verification varies from weeks to months.Some even may take up to one year,if nobody intercedes.Again,depending on the registrar handling these certificates,the time could be shortened or prolonged.After verification,usually within 48hours,your shares are sent to the CSCS.Please note also that you must have had a CSCS/brokerage account for verification to take place. Limitation of Share Certificates If you have a CSCS account,e-IPO,e-Bonus,e-Dividend may work for you.But if you are not yet a CSCS account holder,which means your certificates are still in your safe box,you may not benefit from some of these facilities.Here are the shortcoming of keeping your certificates in your safe box: 1. Forgery:Your certificate could be simply be forged,if you carelessly place it into a wrong hand.It could also be stolen or confiscated by a known or unknown person.It could be defaced,solied or mutilated. 2. Inability To Accesss Account Online:Since you are yet to have your certificates deposited at the CSCS,you will not be able to view the stock position of your holdings online or even offline through your broker’s computer networks. 3. Postal Vagaries:Since you are yet to have a CSCS account,and have vehemently decided to keep certificates,the quoted company’s registrar will always mail you your certificates for bonuses and IPO allotment to your address of record.This means that you further expose these documents to more danger,mutilation.,loss,theft and postal delays.These can all be avoided if you own a CSCS/brokerage account. 4. Inabilty To Take Profits Quickly:Because you are yet to deposit your certificates for verification,neither have you opted to have your IPO credited to your CSCS account,you will not be able to quickly take your profits.It is practically impossible to advise your broker to sell your stocks when you have no stock record in the CSCS depository.But if you have stocks in your CSCS account,and notice a major price move on that stock,you can simply make a phone call,send an email or fax to your broker and he/she will quickly sell your stock. The above are some of the challenges you might face or are facing in the course of your investing career.But the question is: “What are you doing to abate this situation?”.If you have share certificates received from the post office and have locked them in your safe box,it is high time you unlock those boxes and bring them out for verification and ultimate sale.You can take a cue from the various definitions of an investor and speculator by William O’Neill,Baruch and Jesse..If you say you are a long-term investor, and your stocks are losing value day by day,you have to pause and ponder.If you are yet to have a brokerage/CSCS account,now is the right time to do so. Please, try and grab your copy of my new book,”Teach Yourself Investing and Grow Rich In Capital Markets and Global Electronic Money”.It will greatly enlighten you as to the workings of the complex stock(capital) market both within and outside Nigeria. Please call me on 08063643742 or email:investmenthouse1@yahoo.com for more details.