The 5th Annual MSEI Investor Education Conference

On the 6th of November, 2019, the 5th Annual Malta Stock Exchange Institute Investor Education Conference was held at the MSE’s premises. This was my second visit and attendance, the first being a “careers visit” way back in 2005, I believe.

Suffice to say that the Financial Sector is not my career of choice and this very fact is what qualifies me to write the article. Because I am an investor at the doorstep of its vastness, I can write from the point of view of a fellow “uneducated”.

In so doing, I also want to put like-minded readers into perspective that to penetrate this sector, if only to test the waters, sound knowledge on the subject and the advice of proficient fellows along with due diligence will, in the long run, lead to substantial earnings.

May I take the time to point out that the information mentioned in this summary is not exhaustive. Many points have been omitted out of necessity for the scope of the article is to provide an overview of the conference as well as general and basic information on the subjects covered. This said, let us delve into the subject matter of the conference.

It was opened by the Chairman of the Malta Stock Exchange, Mr. Joseph Portelli, who highlighted the importance of continued development in terms of education for the general public in this sector which foothold when compared to other nations, is until now moderate. Subsequent to this opening speech was the outlining of the MFSA’s strategic initiatives which for the new investor should mean that the regulator is not only supervising the course and performance of its licensees but also the general security and feel of pulse of the general public specific to this sector. Notwithstanding the implementation of key aspects of a more modernized financial authority, the general public is also protected by the Arbiter for Financial Services. Dr. Reno Borg promoted peace of mind that if the claim, mostly resulting from loss of money, is genuine and in conscience, reconciliation and mediation are assured. The role of the arbiter is complex indeed. The retail investor may be outpaced by the knowledge of the service provider and the arbiter has to find a harrowing balance in who is right and whether the offence is justifiable. One notable point that I was personally interested in is that the office deals with cases that involve online platforms and not necessarily for institutions that are based in a brick-and-mortar edifice locally.

The above may have been too technical but this is only testament to the vastness of the sector.

The next discussions and speeches were more attune to the needs of a fellow newcomer. Methods on how to avoid classic mistakes often made by investors followed. From here on I was well able to follow for there is no shame in writing that I, in my infant steps, have already made significant mistakes in assessing which equity to choose, which news source to heed and which platform to invest in. Pity that this discussion spanned only half an hour. Then again, any longer would have probably served to bewilder and panic the potential investor. One notable nugget I took away from this panel discussion is that certain news sources, however educative they might be, they are still advertising platforms topped with speculation. This reinforces the need for due diligence and to never rely on feisty TV shows on the subject or the fancy website adamantly proclaiming the next best top-tier stock!

Alas, this financial journey proceeded with how REITs work. Real Estate Investment Trusts are a vehicle native to the USA. This concept is, figuratively speaking, still in its infancy in the European region. Malta, ever so progressive, has its lawmakers devising appropriate legislation to introduce this instrument within the folds of the MSE. REITs are essentially properties under a trust having the equivalent of a fund manager at their helm as well as a property manager tasked to maintain the buildings themselves. In a nutshell, the prevalent construction boom is being positively exploited through the financial sector by means of investments for the general public.

The subsequent talk was on how to value companies. A basis on how to evaluate a company is first necessary to be established. This is the consequence of the many differences between any given firm to compare. Just two examples out of many are that companies may trade with different currencies and also operate in two completely different and unrelated sectors. The potential investor may for some reason or another not wish to consider two firms from the same industry, hence a common denominator is essential.

So, how are any two firms compared? In these situations, one has to also consider factors that for the new investor would seem unnecessary and out of scope. Amongst others, global events such as political power plays, the national and local economy native to the selected companies and mergers and acquisitions capable of crushing competition can all be factors hindering or bolstering any chosen firm.

Naturally, each and every company has to be analyzed thoroughly prior to comparison with another. The more informed one is the more enlightened the decision.

Various models were presented on how to evaluate a company. The general consensus is to find a common denominator on which to base all the information collected pertaining to the selected firms. As reiterated above, one cannot pit one particular company with another if each and every aspect is different and unrelated. This is a very interesting subject needing hours of study and research. These few words do not do it justice!

The similarities and differences between ETFs and funds were pointed out in the next talk. We were walked through the risks each has. Of particular interest is the fact that they promote diversification at lesser risks than other instruments such as trading in individual equities. They are both open-ended. The two investment types can have more units created scaled to the prevailing demand. Those who are picky about which sectors to pour their money in also find a home in ETFs and funds as products are designed for specific and niche sectors.

Funds and ETFs also differ in more ways than one. Notable is the fact that the new price of a fund is established at the end of the trading day in relation to its Net Asset Value whereas an ETF is traded just like a stock is, and that is during trading hours. Funds do not suffer from minimum initial fees but ETFs do - a consequence of being actively managed and tracked. Because ETFs follow the performance of a collection of stocks this tracking has to reflect those doing well and also the others faring adversely. A significant price drop of a single equity can potentially negatively affect the price of the ETF unless the other components, i.e. stocks, compensate for the offending loss.

Moving on, a panel discussion on how to build an investment portfolio ended the educative aspect of the conference. For those who have just started trading and investing the importance of diversifying their portfolio cannot be stressed enough. Amongst the panel, the following points were key to a healthy portfolio. These same points are discussed when appraising a client. How can a professional offer sound advice or manage a client if the risk tolerance of the same client is not known? One may prefer to be on the bearish side of the spectrum, whereas another would prefer a medium risk basket.

These licensed individuals embark on a fact-finding mission to recognise the risk tolerance of the client, the current stage of life one is at - a pensioner would want to boost and add some more coin to his pension whereas the younger generation might lean toward a riskier bit of investing in hopes of compounding a considerable sum in time. Based on the outcome of such a meeting, the adviser or appointed investment firm can give more enlightened advice or shape a well-founded strategy. Essentially, the new investor has to be open and not withhold information. Trust is key.

The conference concluded with a speech by the honourable Minister for Finance, Professor Edward Scicluna, who professed on the necessity of a sound and educated investor. The latter is key to the upkeep of a healthy trading environment.

In conclusion, investor education is paramount more so for those who prefer to trade without the ever-useful advice of licensed professionals. As such, the courses offered by the MSE Institute should alleviate the lack of general knowledge the public seems to be suffering from. I, for one, am using this educative platform to boost my knowledge of this fine sector.

Published in issue 48 of MASS Shareholder's News in December 2019.