Question & Answers

“Be an informed investor.”

Question & Answers –Trading & Investment

Questions & Answers – Customer Care

What is an Index and why are there so many of them?

An Index is a statistical representation of the value of stocks which make-up the index. They serve as a reference for a given market or sector against which financial or economic performance is measured. In general, stock market indices are either price or value weighted, and they may include all or a sample of shares listed in the market. The MSM30 Index is a value-weighted index based on a selected sample of 30 stocks. It is weighted on market capitalization which is the most common type of weighting used in stock markets indices.

Historically, markets have developed at different places and at different times. Each has selected a reference point that most suits their market. What matters is relative change and whether a given index is price-weighted (based purely on share price) or value weighted (based on market value). The former depicts share price movement but does not take into account company size and therefore not necessarily the best indicator of the effect to the economy. Clearly however performance of a stock, or a business it represent, is dependent on many intertwined and often complex factors. There is no one index that takes all of such factors into account. What we have instead are limited models based on average data that have become acceptable measures of market performance. Always take indices for what they are, limited in nature.

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How is the MSM30 Index calculated?

The MSM30 Index is a weighted average index based on market capitalization of 30 representative companies selected from the 3 main sectors that form the index. With effect from June 1, 2004, MSM30 ‘beginning index’ has been changed from 3 digits to 4 digits, and can now be given by:

Index on day (t) = [Market Capitalization on day (t) / Market Capitalization on base day] * 1000

MSM operates a strict selection and maintenance regimes to ensure that the index remains representative of the price movements of listed shares. To obtain full specifications on the MSM30 Index, please visit MSM Web Site.

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How much do I need to begin to Invest?

There are no hard and fast rules to this, you can begin to invest with as little as you wish. However, there are costs to each transaction and it is good practice to minimise these costs.

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What is the minimum period required for investment?

Investment in general is a device to save and grow ones assets for the future, something we should all be doing. The minimum time required for investment will depend on ones own individual situation, objectives, and goals. Most investors tend to be cautious when investing for the future and approach the market more aggressively only when they can afford a greater risk. The right strategy is often a mixed portfolio designed to maximize ones returns within a given time frame but without exceeding acceptable risk levels. Al-Madina has helped many clients achieve excellent returns. To view our track-record, click here. To learn about investment options, click here.

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What do I need to know before I can begin to invest?

Little. You make money when the shares you have bought rise in price and loose when they fall. Investment is about purchasing a set of stocks, monitoring the investment, decide when and if to sell, and what to buy next. You will therefore need to make decisions, and the right choices will depend on your situation and requirements (ones’ needs, plans, risk tolerance, and other factors). To learn more about investment click here.

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What are the different investment options that I have?

There are three basic categories of investments one can make:
• Stocks
• Bonds
• Cash

You can invest directly or indirectly in any or all three.

An example of a direct investment is the purchase of 100 shares of a company's stock. You purchase the stock, monitor your investment, decide when and if to sell, and what to buy next.

Direct investment gives you the most control over your investment but can also be very time consuming and expensive.

An example of an indirect investment is the investment in a fund or index that own stocks. Rather than researching companies yourself, a professional investment manager chooses the companies for you. This investment manager combines your investment with the investments of others, purchases stocks, and monitors the investment for everybody. In return, all investors pay the manager a small fee.

Indirect investment still gives you control over your investment, but is less time consuming and generally less expensive.

Investing involves market risks, including possible loss of principal.

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What is a stock, and what is the difference between a stock and securities?

A stock is a share of the ownership in a company. A company issues stocks for start-up capital or to help pay for other activities. Stock is also referred to as "equity." There are two main types of stock; common and preferred:

Common stock is the most basic form of ownership in a company. It typically gives shareholders the right to vote on issues and a percentage share of ownership. For example, if you own one share of common stock in a company that has 100 shares, you own 1% of the company.

Preferred stock usually does not offer voting rights, but owners of preferred stock are generally entitled to dividends (the company's profits distributed in cash) before common stockholders. Preferred stockholders generally receive dividends at specific times and in pre-determined amounts, whereas common stockholders may or may not receive dividends based on company profits.

Whereas Securities is the umbrella term that refers to all investment instruments that include any stock, bond, certificate of interest or participation in a PSA, investment contract, or any other security instrument that may be deemed as Asset which is pledged as guarantee for a loan. For a more detailed definition of securities click here.

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What are the risks associated with investment in stocks?

Much can be done to minimise risk, but no transaction in life can come with a 100% risk free guarantee. The most prevalent risks that are present in the GCC are market risk and company risk. Market risk, which applies and refers to an entire Asset Class, arises from economic changes that are often of global nature, and may affect major segments of a financial market. Financial markets (and the GCC is no exception to the rule) are invariably exposed to economic changes, the very thing that drive these markets. Company risk, on the other hand, occurs as a result of company-specific event, such as a poor earnings report, of which can influence stock prices. Many companies in the GCC have yet to reach maturity and often undergo much change and transformation over short periods of time. Published data in the GCC can be scarce and it is for these reasons that Al-Madina conducts extensive research on all companies in its watch-list. Understanding and tracking risks associated with investment is a relatively complex and time consuming task. This is part of the responsibilities of financial analysts and fund managers. At Al-Madina we work to minimise investment risks through good research and diversification of our portfolio. To learn more about investment and market risks, click here.

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What are the rules for investing in the MSM and how is the MSM structured and governed?

The Muscat Security Market (MSM) is regulated by CMA (the Capital Market Authority). The Exchange and CMA are both government entities, but they are financially and administratively independent from one another. MSM operates a comprehensive set of regulations that can be accessed through their site www.msm.gov.om. Very briefly, these Rules and Regulations lay a foundation for the provision of information and financial data, relating to the performance of the Market and all listed companies, directly to investors.

The Exchange has a status similar to that of the NYSE and NASDAQ in the US, or the LSE in the UK. The legal status and role of CMA, on the other hand, is similar to that of the SEC in the US, or the FSA in the UK.

Trading in MSM is controlled through an Electronic Trading System, based on a Unique Shareholder Number that is allotted to each Trader. The shareholder number is obtained from the MDSRC (Muscat Depository & Securities Registration Company) which is custodian of the depository and transfer functions. MDSRC maintains, and continually updates, records of share ownership as shares are bought and sold. For first time traders, MDSRC requires the submission of a completed Shareholder Registration Form prior to trading.

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What are Financial Ratios?

A ratio expresses one value relative to another. A Financial Ratio, such as PE (price-to-earnings ratio), expresses earnings relative to the stock price. PE is obtained by dividing the share price by EPS (Earnings per share). PE relates a stock’s price to its share of the firm’s earnings in a particular period, usually a year. We would not get this information by looking at earnings alone, or price of a share alone, there is an intrinsic dependence between the two.

Many people don’t like ratios. This is partly because they did not enjoy fractions at school. But it is also because we don’t really experience fractions in the real world, as we do whole numbers. Half a cake is really only a concept! Nonetheless, there is a clear and an undeniable relationship between numbers, arithmetic and the physical world. Ratios give meaning. Consider someone travelling at 100 km per hour on a bicycle. He or she is way over speeding, perhaps impossibly so. On the other hand, someone travelling at the same speed in a car may be considered entirely feasible and acceptable. We draw meaning from context. If you purchase shares for 1 RO and sell them for 5 RO, you have made a clean 4 RO. That is a return of 400 percent on your investment. If, on the other hand, you purchase shares for 100 RO and sell them for 110 RO, you have made 10 RO. That is a lot more than your earlier 4 RO, two and half times more. But your returns this time are only 10 percent. If you consider money as units of energy, then you have had to ‘sweat’ a lot more this time around, exactly 40 times more.

There are many Financial Ratios in common use, we have listed some of the most useful ones. To see these click here. Further definitions can be found in the Glossary.

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How does the Al-Madina Trade Basket work?

Your Al-Madina Trade Basket gives you the opportunity to store a selected stock from any of the pages that contain ticker information. This will save you time and allow you to collect stocks from the following directories:

Quick Quotes
Market Watch
MSM Tracker
Company Profile
Listed Companies
Stock Screener
Accounts

The Trade Basket is accessible in MSM Tracker so that the selected stocks can be viewed live. It’s also accessible with the order request form. The stocks can later be transferred to an order form for purchase and/or sale. Shopping for stocks has never been so easy.

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When are dividends paid?

Not all companies pay a dividend. The companies that do pay a dividend will pay them on their own schedule. Most pay annually, but some pay bi-annually or even monthly. You will need to research your company(s) to see when, and if, they pay a dividend.

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I have forgotten my password, how can I access my account?

You will need to apply for a new password by emailing Al-Madina’s Accounts Management Team with your user-id and your contact email address. Click here to email.

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I am a Foreigner, Can I trade in MSM?

Any one can trade in MSM. There are restrictions on the number of shares a Foreigner can hold in any one given stock, but general trading is allowed and welcomed. MSM have posted their trading rules and regulations on their web site. To view these click here.

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What steps do I need to take to begin investing in MSM Stocks?

You will need to register with the MDSRC (Muscat Depository & Securities Registration Company) and open an account with us or any of the other Brokers registered to trade in MSM. MDSRC is in charge of the depository and transfer functions, they maintain records of share ownership. Our downloadable Accounts Registration Pack contains full instructions and all the necessary forms that you need to open an account and register with MDSRC. The entire registration process will take no more than two working days. For those who already have their investor number, and want to register with Al-Madina, it will only take a few minutes to open an account.

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How old do I need to be to invest?

To open an account, which you need in order to begin to invest, you must be 18 years of age or older. Investors under the age of 18 are required to have their parents maintain transaction decisions.

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