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THE KARACHI STOCK EXCHANGE

Karachi Stock Exchange is the biggest and most liquid exchange and has been declared as the "Best Performing Stock Market of the World for the year 2002". As on November 07, 2005, 662 companies were listed with the market capitalization of Rs. 2,467.60 billion (US $ 41.38) having listed capital of Rs. 465.01 billion (US $ 7.79 billion). The KSE 100 Index closed at 8664.02 on November 07, 2005.

KSE has been well into the 4th year of being one of the Best Performing Markets of the world as declared by the international magazine "Business Week". Similarly the US newspaper, USA Today, termed Karachi Stock Exchange as one of the best performing bourses in the world.

INVESTING IN THE KARACHI STOCK EXCHANGE

One of the most popular and liquid ways of investing your capital is by buying shares, or stocks in publicly listed companies. Through buying stocks, you own a proportionate share of the company. A company's stockholders all have equity in the business, or own a portion of the whole. A shareholder buys the stock because one expects to profit as the company profits. Companies issue two basic types of stock: Common and Preferred.

Common Stock

Common stocks are ownership shares in a company. They are sold initially by the corporation and then traded among investors. Investors who buy them expect to earn dividends as their part of the profits, and hope that the price of the stock will go up so their investment will be worth more. Common stocks offer no performance guarantees, but over time have produced a better return than other investments.

The risks investors take when they buy stocks are that the individual company will not do well, or that stock prices in general will weaken. At worst, it's possible to lose an entire investment-though not more than that. Shareholders are not responsible for corporate debts.

When corporations sell shares, they give up some control to investors whose primary concern is profits and dividends. In return for this scrutiny, they get investment money they need to build or expand their business.

Preferred Stock

Preferred stocks are also ownership shares issued by a corporation and traded by investors. They differ from common stocks in several ways, which reduce investor risk but may also limit reward. The amount of the dividend is guaranteed and paid before dividends on common stock.

But the dividend isn't increased if the company profits and the price of preferred stock increase more slowly. Preferred stockholders have a greater chance of getting some of their investment back if a company fails.

Familiarize yourself with the terms used in the stock market to get a better understanding of the stock trading

Classes of Stock

Corporations may issue different classes of stock. Some, like Sears' preferred P shares, represent ownership in a specific subsidiary. Others-labeled A, B, C or some other letter-have specific investment purposes, sell at different market prices or have different dividend policies. There can also be restrictions on ownership.

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Blue Chips

Blue Chips is a term used for the most valuable stocks, refers to the largest, most consistently profitable corporations. There is no official list and it does change from time to time. Some common Blue Chips at the KSE are PTCL, PSO, NBP, OGDC, etc.

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The Right to Vote

Owning stock gives you the right to vote on important company issues and policies.

As a stockholder, you have the right to vote on major policy decisions, such as whether to issue additional stock, sell the company to outside buyers, or change the board of directors. In general, the more stock you own, the greater your voice in company decisions.

Usually, each share of stock gives you one vote. Some companies, especially ones whose founders are active stockholders, issue different classes of stock with different voting privileges. When stocks carry extra votes, a small group of people can control the company while owning less than 50% of the shares.

Most shareholders vote by proxy, an absentee ballot they receive before the annual meeting. Or they have the option of attending the meeting and voting in person.

The proxy lets shareholders vote Yes or No or Abstain on shareholder proposals and other issues affecting the corporation. The directors want you to vote yes on the issues they support and no on the others. If you don't return your proxy, your votes aren't counted.

Shareholders have one vote for each share they own. In regular voting a shareholder casts that number of votes for each director up for election. In cumulative voting, the number of votes (or shares) is multiplied by the number of openings to give the shareholder a total number of votes. For example, a shareholder with ten shares voting for eight directors would have 80 votes. Those votes can be divided anyway the shareholder chooses, giving all 80 to one candidate, 40 to each of two, or any other combination. Some states require companies to use cumulative voting and most allow it.

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Stock Value

A stock's value can change at any moment, depending on market conditions, investor perceptions, or other issues.

If investors buy a company's stock because they believe the company is going to make a profit, the company's stock will go up in value. But if investors decide the outlook is poor, and don't invest - or sell the stock they already own - the company's stock price will fall.

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Capital Gains

Most people buy stocks to make money through capital gains, or the profit from selling stock at a higher price than they paid for it.

If you buy 100 shares of PTCL at Rs. 50 a share (for a total investment of Rs.5,000), and sell it for Rs.75 a share (for a total of Rs.7,500), you've realized a capital gain of Rs.25 a share, or Rs.2,500. If you've held the stock for more than a year, your profits are long-term capital gains.

Of course, it doesn't all go in your pocket. You owe taxes on the gain as well as commissions to your stockbroker for buying and selling the stock for more than a year, your profits are long-term capital gains.

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Timely Decision

To make money you must buy a stock before others want it and sell before others decide to sell. Getting the timing right means you have to pay attention to the company's earnings growth, competitiveness of its product or service, the availability of new markets, management strengths and weaknesses, the overall economic environment in which a company operates.

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Dividends

Some people invest in stocks to get quarterly dividend payments. Dividends are the portion of the company's profit paid out to its shareholders. For example, if Atlas declares an annual dividend of Rs.4 a share, and you own 100 shares, you'll earn Rs.400 a year, or Rs.100 paid each quarter. A company's board of directors decides how large a dividend the company will pay, or whether it will pay one at all. Usually, only large, mature companies pay dividends. Smaller ones need to reinvest their profits to continue growing.

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Cyclical Stocks

All stocks don't act alike. One basic difference is how closely a stock's value, or price, is tied to the condition of the economy. Cyclical stocks are shares of companies that are highly dependent on the state of the economy. When things slow down, their earnings fall rapidly, and so does the stock price. But when the economy recovers, earnings rise rapidly and the stock goes up. Airline and hotel stocks are typically cyclical: people tend to cut back on travel when the economy is slow.

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