FIN 358

PROJECT
NAME MUHAMMAD FAIZUDDIN BIN MUHAMMAD TAUFIQ
MATRICS NO. 2021838346
GROUP A4CS1123B

Prepared for:
MUHAMMAD FHADLI SYAKIRIN BIN MOHD JAMALLUDIN

k 3 kali enter)
TABLE OF CONTENT

Content Page
Introduction to financial Securities 3
1.0 What is common stock and its’ characteristics? 4-5
2.0 Who are involved in common stock? 5-6
3.0 Where is common stock traded and issued? 6-7
4.0 Why should you invest in common stock? 7
5.0 When is the time to buy or sell common stock? 8
6.0 How do common stock works? 8-9
Conclusion 9 - 10
References 10

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 Introduction to financial Securities
Living in the modern world, the importance of investment has become crucial to most people
as the benefits could be life changing and so does the risk. People use investment as their passive
income to obtain good amount of money to maintain their financial stability or even increase their
wealth status. Investment is interpreted as the dedication of one’s current resources while expecting
to obtain a larger amount of resources or profit in the future. As an investor, you have numerous
assets that you can buy to be your resources for your investment, but it can be categorized into two
which are real assets and financial assets. These assets will produce a return that is based on the
risk that the assets carry over a period of time, in other words, increase in risk results increase in
return.
In addition, real assets are assets that are involved in the production process of an economy,
it is used to produce goods or services for the nation, and it can be classified as tangible or physical
capital that will provide return. In particular, land, buildings, machines etc. Meanwhile, financial
assets are claims that are made by an organization and sell to the public or investors which will
provide the organization the money to finance their operation. As safety measures, these assets are
usually documented legally to be used as evidence of the investors’ ownership towards their bought
assets to avoid scams. In contrast to real assets, financial assets are classified as intangible where it
claims on real assets or the income that those assets generates. Financial assets are split into few
categories which are, securities, savings, Unit trust funds and derivatives securities.

Onto our topic, financial securities, it is important for us as investors to understand the
branches of financial securities as we can diversify our investment to ensure minimal risk with a
return. Hence, financial securities are investment instruments that are replaceable and negotiable
that holds a certain amount of financial value such as, bonds, common stocks, preferred stocks, and
Treasury bills. This shows that for an instrument to be categorized as financial securities, it must
provide us “investors” the option to buy, sell, and trade on the market. These instruments are
commonly used by investors as it will be an alternative for their capital gain and improving their
financial state instead of applying for a loan and increasing their debts.

As for the branches of financial securities, there are numerous, which are based on the
ownership status and the factor that decides the instruments values. Firstly, bonds, also known as
debt securities, is a promise made by the issuer to pay a certain amount of money by each specific
date to the bondholders as they have invested their money to help the issuer in their operation
system. Bonds are beneficial as they guarantee the bondholders regular payments that will increase
through the growing interest. Other than that, preferred stocks is also one of the instruments in
financial securities, but it can also be called as hybrid securities. This is because preferred stocks
are a combination of both bond and common stock. The most common preferred stocks that are
bought by the investors is convertible bonds as they can convert it from bond to common stocks
when the return from the stock sale is larger compared to the face value of the bond with the total
amount of remaining interest payments. As for the common stock, it will be explained thoroughly
in the next section.

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 1.0 What is common stock and its’ characteristics?
Common stock which also known as equity securities represents a share of ownership owned
by the investors in the company that issued the common stock. Commonly, the owner of these
stocks is also called as shareholders as they are holding a partial amount of the company even if the
shareholders hold a minimal amount of stocks. This type of financial security is appealing to the
investors as they offer not just the capital stability but also a chance to gain profit through an
increase in capital gains and dividend that varies based on the company that issued the stocks.
However, investors should keep in mind that the value of stocks or shares that they hold has the
possibility to rapidly rise and fall which shows that there’s a possibility to gain a great amount of
loss if not monitored thoroughly. These fluctuations of the value of the stocks are commonly
caused by numerous events and uncertainties on the financial market where the stocks are being
traded, sold and bought. For example, 7-ELEVEN MALAYSIA HOLDINGS BERHAD (SEM)
generates a profit for the shareholders with an increase from 1.630 on 1 st December 2022 to 1.690
on 2nd December 2022. Furthermore, the shareholders of 7-ELEVEN MALAYSIA HOLDINGS
BERHAD (SEM) would gain a lot of profit if they had sold their stocks on 31 October as the stock
reach one of its’ peak value of 2.380.
In addition, as common stocks allow the investors to be the company’s shareholders, these
shareholders will have the rights to vote when an important decision need to be made within the
company usually regarding the leadership in that company. For example, these companies that
issued the common stocks to the public are required to have annual meetings to determine their
new directors and discuss the company’s financial state. The shareholders will be invited to these
meetings as they have the rights to ask questions that will help them make decisions in their
investments and cast their votes for the new directors of the company after owning a partial amount
of the company.
In certain cases, before a private company start issuing the stocks to the stock market for the
public to start buy, sell, and trade, they will initiate Initial Public Offering (IPO) to the public in a
new stock issuance for the first time and this action will allow the company to raise equity for their
operations from the public investors. Once the initial public offering is complete, the issuer will
release their stocks on the stock market whether that will be Main market or Ace market. The
biggest IPO ever made in history happened on September 18, 2020, by China’s e-commerce giant
Alibaba Group that issued 320.1 million shares on the New York Stock Exchange. For further
understanding, 7-ELEVEN MALAYSIA HOLDINGS BERHAD (SEM) made a listing for their
initial public offering on 30th May 2014.

1.1 Characteristics of common stocks

Aspects Characteristics

In the event of liquidation, shareholders will bear a great amount of

Liquidation Preference risk towards loss as they have an unsecured interest over the
reporting entity’s residual net assets.

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 Claim on assets and The shareholders of common stock will be the last party to make the
earnings claim for the company’s income and assets.

Dividends are not fixed or guaranteed and usually depends on the

company on whether it should be given or not as it is not
Dividends compulsory. However, the shareholders are entitled to receive
dividend.

Common stock has no maturity period which allows the

Maturity Period shareholders to hold on to their stock for as long as they want to.

Shareholders have the voting rights for the board of directors of the
Voting Rights company of the stocks that they hold.

Limited Liability The risk is only within the scope of the amount invested

Shareholder’s right to maintain their proportionate share of

Pre-emptive Right ownership in the stocks’ company

Shareholder can gain profit in two ways which are capital gain and
Returns dividend.

2.0 Who are involved in common stock?

As stated in the previous section, common stock holds a greater risk compared to bond and
preferred stocks as the stocks that they hold will have its’ value rise and fall rapidly and if not
monitored with proper knowledge, they will be a possibility where a great loss can be experienced
by the shareholders due to poor timing of selling and buying. Therefore, common stocks are not
necessarily suitable for risk-averse investors as the risk is quite high in common stock. However,
for the investors who are willing to take the risk in investing in common stock will be one of the
parties that is involved in common stock.
Firstly, the company will issue their stocks to the public through various markets that exist in
this world such as Bursa Malaysia for the Malaysians. The company is also called as the issuer as
they provide the stocks to the public and gain the capital to help operate their company. On the
other hand, the buyer or the investors are whom we called shareholders. In certain cases, there are
also investment bankers that bought the stocks directly from the issuer and selling it to the investors
but any extra stocks that is not sold by the investment bankers can’t be return and a loss will be
experienced by them. As for the investors, they will still hold the title of shareholders despite the
amount of shares that they hold, but the greater the shares or stocks that they have, the more
benefits they’ll receive such as greater profit, early purchasing opportunity of stocks directly from
the company, etc. The top shareholders will hold more power in voting for the board of directors
and asking questions regarding the company’s financial state and their operation system.

For example, 7-ELEVEN MALAYSIA HOLDINGS BERHAD (SEM) have numerous top
shareholders that determine the board of directors, company’s operation system, and financial
decisions of the company. Some of those top shareholders are Vincent Tan Chee Yioun with
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 476.75 million worth of shares, JPMorgan Chase Bank, National Association with 356.34 million
worth of share, Amanahraya Trustees Berhad who holds 204.71 million worth of shares, and
numerous more as represented in the diagram below. These shareholders are the key people in this
company as they have the power to change the future of 7-ELEVEN MALAYSIA HOLDINGS
BERHAD (SEM) and they can even take over the whole company if they combine all the shares

that they have making them own a greater fraction of the company making the original owner’s
voice redundant. Therefore, common stocks are riskier than other securities for both the issuer and
investors.

3.0 Where is common stock traded and issued?

Common stocks were firstly introduced in 1602 by the Dutch East India Company on
Amsterdam Stock Exchange which we called as “Stock Market” in general. In this evolved century,
the number of stock markets have expended exponentially over the years such as London Stock
Exchange, Tokyo Stock Exchange, and Bursa Malaysia among others. These stock markets have
tens of thousands of companies that are providing or issuing their stocks as an alternative to raise
money for their company’s operation instead of applying for a loan and increasing debt. Company
will use their capital gain through issuing stocks to pay of their debts and invest in the growth of
their company. Furthermore, these companies can avoid paying interest for their debts and instead
pay dividends to their shareholders which are more profitable. However, it comes with a cost which
is them selling a fraction of their company to the shareholders.

In investors point of view, common stocks can be purchased on the stock market as said
above, these markets are made in both public and private. The difference is private markets are less
flexible, accessible, and harder to buy or sell compared to public markets. Public markets on the
other hand, Throughout the day it is easier for the investors to buy or sell stocks on stock
exchanges. There are also cases where investors buy stock through brokers both online and
traditional, investment bankers and sometimes directly from the company. In addition, private
companies typically have reserved stocks for founders, certain investors, and employees to ensure
the loyalty of these partners but once the company decides to become a public company and gain a
higher capital, they can initiate initial public offering (IPO) and their stocks will be available for
trading by the public.
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 In particular, 7-ELEVEN MALAYSIA HOLDINGS BERHAD (SEM) is selling their
common stocks in Bursa Malaysia as the stock market. They started to sell their stocks publicly
after initiating their initial public offering (IPO) on 30th May 2014. Since then, they have become a
public company and gave authorities to the public investors to buy and sell their stocks.
Subsequently, increasing the number of the shareholders to their company but at the same time
gaining capital for their cost of operation despite the fluctuation of the value of their stocks.

4.0 Why should you invest in common stock?

Ever since the existence of common stock in 1602, the values and importance of common
stocks has increased drastically due to the impact that it has on most people despite the risk that it
holds. This is because if the patterns are studied thoroughly and with experience, investing in
common stocks can change from maintaining your financial stability to increase your financial and
wealth state. In addition, almost all millionaires emphasize the importance of investing in common
stock as our passive income because of the effects that it has on our general knowledge regarding
finance and how we can utilise it to change our financial state. Investing in common stocks also has
other benefits in addition to making profit for us as investors.
One of those benefits being voting rights. According to most companies, each investor in
their stock earn one voting right per share which shows the greater the share that you have, the
greater the fraction or power you have in that company, mostly for determining the board of
directors for said company and giving opinion regarding the company’s strategic policy.
Furthermore, Higher profits is obtainable in common stocks compared preferred stocks and bond
because there is no limit for how much profit the investors can gain from their investment in
common stocks. In addition, as passive holders, the investors have limited legal liabilities and
obligations. They don’t have to keep track with events beyond their financial investments and they
are not exposed to the risk of losing more money than the amount they have invested. This helps
the investors to make the most for the growth of their stocks.
Moreover, despite how common stockholders are expected to gain a return, the value of the
return is uncertain due to the fluctuations of the value of the stocks in the stock market. In certain
cases, when a company generate less earnings, a dividend is not ensured for the stockholders as it is
not compulsory for the company to offer it. Although the uncertainties, the return may be soaring in
the long-term compared to other instruments of investment, and with enough knowledge in the
stock market, a higher return can almost be guaranteed. Hence, more investors are attracted to
invest in common stocks. Other than that, the liquidity of the common stocks makes it obvious for
the investors to invest in these stocks. Common stocks can easily be invested in the stocks market
and surrendered if their investments are not profitable enough which helps the investors in
obtaining more shares and increase their shareholding in the company. In addition, having no
maturity period which allow the investors to hold on to their stocks for unlimited time, and being
sold at a fair price make it a reliable asset of investment for the investors. Thus, it is life-changing
to invest in common stocks as it can drastically change our financial state despite experiencing a
few losses, the experience will help the investors in making better decisions in buying and selling
which results in greater return in the long term.

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 5.0 When is the time to buy or sell common stock?
This question may have various answers depending on countless investors opinions, but
these opinions are based on the pattern of the trendline of the stocks that they hold. Stock market
have many possibilities of numerous events happening in the market that will affect the value of
stocks to rise and fall rapidly. In general, it is best to buy stocks when it is expected to be at a lower
price and best to sell the stocks on the days that it is expected to hold one of the highest values
compared to the upcoming days where the stocks’ value may fall. However, it is possible that the
price may increase, and some investors might regret selling it early but that shows the importance
in understanding the pattern of the trendline of the stocks.

First of all, it is important to know the working hours of the stock market. For example,
Bursa Malaysia’s working days is from Monday to Friday and each day is divided into two sessions
where trading is available for the public which are morning session and afternoon session. The
morning session start at 9.00 a.m. to 12.30 p.m. while the afternoon session starts at 2.30 p.m. to
5.00 p.m. During these sessions, the public may start buying and selling their stocks to gain profit
from the stocks that they hold and to gain more shares of a certain company buy buying more
stocks.
Based on professional traders, when the market open is one of the best time to buy and sell
stocks to the point that they created a phrase “dumb money” that describes people that buy and sell
stocks at the worst time possible which is right after an early morning headline. In addition, they
know the news regarding the movement of the price is irrelevant by the time market opens. Thus,
they use these first few minutes to buy and sell stocks knowing that stock prices typically stabilize
during midday. Early market trading is usually between 9.30 a.m. to 10.30 a.m. and based on the
professionals, as late as 11.30 a.m. is the best time to buy and sell stock for investors that capitalize
on price volatility.
Moving to the afternoon session, price movements and trading volume tends to settle down
as the company news are often released during the midday. However, reaching the market closing
hours, large volume of activities is happening because of traders looking for late price rally from
sellers that want close their trading positions. Professionals notice that an hour before market close
tend to attract inexperienced investors, and the professionals tend to take advantage of the traders’
poor timing due relying too much on news trends, to gain the highest profit. Furthermore, based on
Dan Casey, investment advisor and founder of Bridgeriver Advisors in Bloomfield Hills, Mondays
are one of the best days to buy and sell stocks as two days’ worth of news can boost the pre-market
trading before the market opens on Monday. Compared to the other weekdays that only has few
hours of news, the weekend news will affect the stock market drastically and profitable is
strategized wisely.

6.0 How an Initial Public Offering (IPO) Works?

In general, initial public offering happens when a private company starts to convert to a
public company to gain more capital to support their company’s operation. Companies before IPO
are considered private companies, but once the business has grown with a few numbers of early of
shareholders including the founders, family, friends and even professional investors, they are
classified as pre-IPO private company.

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 IPO is one of the biggest decision a company can ever make as it can drastically increase the
amount of money, they can raise which will put the company in a better position to grow and
expand. Companies tend to lean towards IPO when the company believes that they are in the stage
where they are mature enough for the rigors of SEC regulations and they can keep up with the
responsibilities they were given to the public shareholders as an issuer. Commonly, this growth will
transition will occur at a stage where a company reached a private evaluation of 1 billion estimated
(Unicorn status). However, strong fundamental, proven profitability potential of the company can
also be taken into consideration in qualifying for an IPO depending on the competition in the stock
market and the company’s power in ensuring that they can meet the listing requirements. In
addition, the greater transparency and credibility of share listing can assist the company in getting
better terms while seeking for loans.

The companies’ IPO shares are determined by undergoing an underwriting process due
diligence. After the transition of the company from private to public, the early shareholders’ share
become worth the trading price for the public as the pre-transition private share ownership converts
to public ownership. Special provisions are also included in the underwriting for the transition of
private to public share ownership. Subsequently, after IPO is released, the stock market creates a
wide range of opportunities for the countless investors (public) to buy the shares which will assist
the company to gain capital for their shareholders’ equity. Public is referred to the parties that are
interested in investing in the company whether that would be individual or even institutional
investor. In conclusion, IPO helps the shareholders’ equity to increase rapidly through cash by the
primary issuance, while the shares that the company sells and the price on each shares are the
generating factor for the shareholders’ new equity value. This equity represents the shares owned
by the investor both when it is public and private.

Conclusion
In a nutshell, it’s easy to notice how the importance of investment have increased during the
last 400 years and how the way to invest have improved to be easier for anyone to start being an
investor. Though, as investors, we should gather our knowledge in the aspects, industries, and
companies that we are investing into, to avoid losing money effortlessly which is identical to
gambling. Hence, countless researches has been done to investigate the difference in multiple
investment instruments and based on this report, it obvious to see how the term “higher risk, higher
return” is being applied in investment with common stock which has one of the highest risk among
other investment instrument yet it also brings the possibility of getting one of the highest return if
proper experience and knowledge regarding the movement of stock market, predicting new
investors mistakes and so on is put into the investors decisions.
Such professionalism will allow the investors to gain reasonable capital gain with
considerable risk. In certain cases, investing can even gain you more profit than your own income
that some of investors chose to retire early and focus on investing instead. In addition, by being one
of the largest shareholders in a certain company gives you the possibility of being one of the board
of directors. Moreover, being one of the shareholders gives you the voting right when the firm is
making a financial decision or anything regarding the firm’s movement. Common stock which the
investors focus on as long-term investment as the stock provides higher return in the long term is a
huge benefit to the investors as the stocks have no maturity period and this allow the shareholders

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 to sell the stocks when they see it as the most profitable. Though it is hard to identity where will be
the peak of the stock’s price, by buying the stock at the lowest price allow the investors to gain a
reasonable profit from this investment.

The numerous benefits and high return rate that the common stock provides to the investors
makes it appealing to invest in it and make it the greatest passive income in comparison to bond
and preferred stocks. Moving along with the evolution of the world where most things are digital
including money, it is compulsory to exposed ourselves towards investments whether that would be
bonds, preferred stocks or common stocks. This will help us in improving our lifestyle rather than
being a labour until you meet retirement to being able to retire early because of the savings earned
through investments. The current’s requirement makes it as easy as possible for us to start
investing, hence we should expose ourselves to the new alternative for a passive income because
gaining capital or profit is at a touch of our finger with how effortless investing can be in the
current generation.

Reference
E. Napoletano, (2022, July 18). When Is The Best Time To Buy Stocks?
https://www.forbes.com/advisor/investing/best-time-to-buy-stocks/#:~:text=The%20upshot%3A
%20Early%20market%20trading,to%20capitalize%20on%20price%20volatility.
JASON FERNANDO, (2022, November 3). Initial Public Offering (IPO): What it is and how it
works. https://www.investopedia.com/terms/i/ipo.asp
JAMES CHEN, (2022, April 27). Common Stock: What It Is, Different Types, vs. Preferred Stock
https://www.investopedia.com/terms/c/commonstock.asp
iSaham. SEM | 7-ELEVEN MALAYSIA HOLDINGS BERHAD [NS]
https://www.isaham.my/stock/sem
PwC, (2021, December 31). Characteristics of common stock
https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/financing_transactio/
financing_transactio_US/chapter_4_common_sto_US/42_characteristics_o_US.html

True Tamplin, BSc, CEPF, (2022, September 12). What Is Common Stock and How Is It Different
With Preferred Stock? https://learn.financestrategists.com/finance-terms/common-stock/?
gclid=Cj0KCQiA4aacBhCUARIsAI55maHiHFdRj_TrLmEQUlxLA1iQKEAhyTIgIcQypMmD-
LdqjjpMq_IiqQ4aAmyyEALw_wcB

Indeed Editorial Team (2022, April 8). What are financial securities? (Definition and types)
https://uk.indeed.com/career-advice/career-development/what-are-financial-securities

Kimberly Amadeo, (2021, December 31). What Is Common Stock?

https://www.thebalancemoney.com/common-stocks-3305892

Robinhood, (2022, November 2). What is Common Stock?

https://learn.robinhood.com/articles/7fAsDMQdaGLIDcDnfd5Upp/what-is-common-stock/

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