The Farmers’ Social Insurance Institution Mela is responsible for the statutory pension (MYEL) and occupational accident insurance (MATA) of the persons who have a grant or a scholarship and who have to be insured inFinlandas of the beginning of 2009. This insurance is mandatory.

The insurance secure, for the work on grant or scholarship, offered by Mela is available also for the foreign recipients of grants or scholarships if they are covered by the Finnish social security. This insurance cover is mandatory and all recipients of this insurance must be active in the application process.

For further information on the insurance for grant and scholarship recipients, please refer towww.mela.fi, telephone + 358 20 630 0500, e-mail address: vakuutus@mela.fi

More information on the scholarships can be obtained from Nina Tallberg, the Finnish Foundation for Share Promotion, tel. +358 10820 7502.

Henri Elo, Chief Analyst for Balance Consulting and a blog writer for Kauppalehti went through the five-year-old Shareholder’s to do list of the Finnish Foundation for Share Promotion. Elo has worked as a sales and analysis specialist in finance since 2000. He has helped to develop several analysis and value definition products for both listed and unlisted companies.

The previous to-do list was published in 2007, when there were no signs of the banking and currency crises to come, or of the structural changes in the Finnish technology industry. Even though the basic truths of the list remain unchanged, Elo wanted to slightly shift the emphasis of the list.

“The stock market is a place where companies seek to gain money and market quotations for their shares. It can be a much more complex surrounding for investors,” says Elo.

“The legendary investor Warren Buffett once said that investors should only buy something they’d be perfectly happy to hold if the market shut down for ten years. That is what my investment philosophy is about.”

Elo says that investors need to understand the businesses they invest in so as to be able to understand the source of stock profits. It makes you feel calmer, especially in the dark hours when everybody recommends that you sell.

“The important thing to remember is that the latest big stock market upswing began in March 2009, when the news was murky all over the world, including Europe and Finland. Of course, the upswing was followed by a steep plunge in the autumn of 2008.”

Growth in spite of turbulence

In 2004–2011, the Helsinki Stock Exchange weighted index profit, including dividends, was 70.1 percent, which means an annual percentage of 6.9. The OMX Helsinki Cap weighted price index has been an average of 18.5 percent, i.e. an annual percentage of 2.1.

“These eight years accommodate the upswing in 2004–2007, the financial crisis, and the euro-zone crisis that strongly affected the stock market starting in 2011. Regardless of all the turbulence and strong annual shifts, this period has provided a decent profit for shares, considering dividends and the relatively moderate inflation.”

Elo stresses that the profit sources are mostly domestic, and usually large, listed companies with good, profitable businesses.

“The best shareholder profit was produced by Wärtsilä, Kone, Olvi, Panostaja, Nokian Renkaat, Metso, Nordic Aluminium and Ramirent, with an annual profit of no less than 20 percent. Nearly all companies adding good value to their shareholders have one thing in common: better than average profitability and growth for listed companies. The least profitable stock companies can be found in the electronics and forestry industries, both facing problems in the 21^st century.”

Text: Jussi-Pekka Aukia

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Updated Shareholder’s to-do lis

In the long term, stock profits are based on company profitability and growth, reflected as dividends and increased stock value. Nearly all of the companies producing the best value for their shareholders have one thing in common: better than average stock profitability and growth. Understanding businesses prevents you from making the mistake of selling the shares of healthy companies with a strong foundation on a bad day.

2. Make long-term investments

If you want to sleep peacefully during rumours of scandal and plummeting stocks, comply with the principle of “buy and hold”. Short-term investment profits depend on luck and skill. Quick profits require serious work. In the long run – even in this stormy 21^st century market situation – stock investments have provided moderately good profits.

3. Know your financial situation as a whole

Stock investments are only a part of your assets. Your income, debts and assets all affect the risks you should take on the stock market. Make sure that you do not hurt all your finances if you lose money on an investment. In this way, you will not need to sell any stocks at cut prices at a bad time, but can wait until the share values are up. In addition to stock investments, tie some of your assets elsewhere: deposits, bonds, bond funds or real estate investments, for example. In this way, you will be prepared for any market risks.

4. Do not take unnecessary risks

Consider whether you are the sort of person who likes to take risks. Do not invest any money that you cannot afford to lose on the stock market in the next few years. Then again, if you want higher profits than government stocks can provide, you have to be willing to take chances. Taking controlled risks can increase stock profits. However, it is not wise to invest more money than you can afford to lose on high-risk targets. Investing borrowed funds further increases risks.

5. Remember liquidity

Consider how quickly you can convert your investments into cash. Liquidating assets invested into apartments and real estate can take months. Shares can provide cash relatively quickly, but you will probably have to take reduced prices if you are in a hurry. If you know you might need your savings for other use quickly, keep them in a bank account.

6. Consider stock sensitivity to forecasts

The affect of financial forecasts on stocks varies according to industry. That is why converting shares into cash is relatively safe at any time. Industries particularly sensitive to forecasts include forestry, as well as metal and mining industries, all familiar to Finns. Industries that are less sensitive to forecasts include convenience goods trade, environmental services and the medical industry.

Then again, stock oscillation provides investment opportunities. Oscillation in the Helsinki Stock Exchange prices is caused by the forecast-sensitive Finnish basic industry and the country’s location on the border of Europe. That is why you can sometimes by high-quality stock here for very low prices.

7. Decentralise your acquisitions time-wise

Traditionally, it has been considered good to buy when the times are bad and to sell when things are looking brighter. However, the correct timing of sales and acquisitions – i.e. anticipating the turning points of rises and falls – is extremely difficult. Regular, monthly purchases help you to avoid the risk of investing in highly-priced stocks only. In this way, you can reduce the significance of timing for your actions.

When selling and buying, remember to consider the impact of trade costs and taxes on the profitability of your actions.

8. Decentralise your portfolio

Invest in no less than ten companies in different industries. This will help you reduce any risks related to individual companies or specific industries, since good investments balance weaker ones. Investing in a single share is a much like a raffle. However, be sure to monitor your expenses: if you have little capital, you will do wisely to invest in funds.

9. Avoid crisis industries and companies

Pull back from crisis industries in good time. You should not hold more than possibly a few “seasoning” shares of crisis-stricken companies waiting for a turning point, such as Nokia.

However, it is alright to even pay slightly over-market price for high-quality company stock – if the market is not overheated, stock profits from high-quality companies may pay back the additional costs as soon as in 2–3 years.

10. Remember stock funds

Stock funds are suitable investment targets for people who lack the time or skill to monitor their investments and the market personally. They are also suitable for relatively small investments.

The main strong point of stock funds is that they are already decentralised. However, remember to consider fund expenses: passive index funds incur fewer expenses than active funds maintained by a portfolio manager. Always bear in mind that not all portfolio managers can outwit the market, because they form the market.

Text: Jussi-Pekka Aukia

Shareholder’s to-do list updated by Henri Elo, Chief Analyst for Balance Consulting and a blog writer for Kauppalehti.

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We updated our to-do list: What has changed in five years?

What is the Investment Evening about?

Investment Evenings are organised for private persons so that they can learn about Finnish economy and listed companies.

During each event, three or four listed companies present their operations and other areas of interest to prospective investors. Each speaker is either the CEO or a senior manager of the company.

In addition, an economist or other expert usually speaks about current economic situation and market prospects.

Who are Investment Evenings for?

The events are open to everyone. You can attend free of charge, but advance registration is required for each Investment Evening.

When do Investment Evenings take place?

The Finnish Foundation for Share Promotion organises Investment Evenings with local partners twice a year: in March-April and October-November.

What is the duration of an Investment Evening?

The event will take from two to three hours, including a coffee break.

What do I need to do to attend an Investment Evening?

Advance registration is required. Seats are reserved in the order of registration, and in many cities, Investment Evenings are fully booked before the registration deadline.

You can register by phone or email. Event-specific information will be available on the Foundation website about one month in advance.

How do you select the companies to speak at Investment Evenings?

The Foundation invites companies that are listed on the Helsinki Stock Exchange to make presentations at Investment Evenings.

If you work for a listed company that has interesting news to share, please contact the Finnish Foundation for Share Promotion.

Where are Investment Evenings organised?

Investment Evenings take place in the spring and in the autumn in the following cities:Helsinki,Espoo,Tampere,Turku, andOulu.

Why does the Foundation organise Investment Evenings?

The Finnish Foundation for Share Promotion promotes share ownership and supports the securities market.  Investment Evenings are organised to share current information on investing with private persons, and to provide listed companies an opportunity to meet private investors.

Investment bank Oddo & Cien’s Chairman of the Board Jean-Pierre Pinatton believes that the only people benefiting from HFT are HFT traders. They are true professionals that have found a way to make money without risk, at the expense of investors, without investing any of their own money.

– HFT is a modern way of carrying out illegal and forbidden front running trading, where the broker buys shares in accordance with a customer’s transaction and sells them immediately to the customer for profit, Pinatton summarises.

– HFT is exactly the same – carried out, however, in a fraction of a second using algorithms.

When your business idea is to be faster than your customer, trades are carried out at the expense of true investors and no one knows what the real price level is, as fake bids flood the system.

– Arbitrage trading that utilises the price difference between different trading venues also breaks the rule, according to which customers’ transactions are to be carried out at the best possible price.

According to Pinatton, HFT does not actually increase liquidity, as the duration of the holding can be just a few milliseconds and all positions are closed at the end of the day.

– These people are not investing, they are playing a game. A market maker should put its money on the table and take a risk.

A race for mathematicians

– No parallel can be drawn between the tool and its user, Pinatton reminds us. Oddo also uses algorithmic tools that help make the implementation of customers’ transactions more efficient through the use of machines. These should not, however, be confused with HFT.

– Our algorithms are intended to benefit the customer, Pinatton states.

Ultimately it comes down to the objective of the team that created the software.

– The creation of algorithmic tools used in HFT is like playing computer games and a speed race between teams consisting of top mathematicians – it makes no financial sense.

This is also true of the competition over computer and connection speeds. Absurd amounts of money are invested in them without any actual economic benefit – just so that HFT traders can play their games.

– While investment objects are thoroughly considered and assessed in normal trading, HFT players are not even aware of what shares they have just bought and sold within a couple of milliseconds.

The dark side of the coin

In addition to HFT traders trying to benefit from trends, some also try to create their own trends with illegal fake bids. Pinatton says that this is easily detected. The problem with controlling the phenomenon is that there is no uniform supervision system in Europe and each country controls its own market.

– Some of the manipulation is carried out in Paris, some in London, which means that the local authorities do not see the entire pattern. It is extremely frustrating for them.

A joint supervision authority, which would collect all trading and bids made in Europe into one data system, would naturally catch the abusers. According to Pinatton, however, the creation of such a system would be extremely expensive and therefore no one has suggested it.

– In many countries, the authorities only supervise actual trades and do not pay attention to bids that have not been realised. In these countries, fake bids disappear from the screens within a few milliseconds.

Efficient brakes

HFT trades were created as a by-product of the liberation of stock exchange transactions when stock exchanges started competing over speed.

– As new, fast players have appeared, traditional trading venues have been forced to enter the technology race, whether they want to or not. Many feel that the major investments made in technology and speed have only benefitted HFT traders.

Pinatton proposes a few ways of controlling HFT trades: these would include increasing the smallest possible tick size, changing milliseconds to seconds, and a transaction tax, which would probably be the most effective method.

– For instance, a one euro fee for a single trade would not be a problem for normal stock exchange transactions, but it would affect a trader that carries out 300 transactions a minute with low margins, Pinatton suggests.

– And now it is finally starting to look as though politicians are beginning to understand how absurd the current situation is and are starting to do something about it.

Text: Jussi-Pekka Aukia

There has always been competition over who reacts fastest and whose voice carries furthest on the floor of the stock exchange.

– The speed of carrier pigeons was important in its day. Computerisation of simple trades is just one stage in a long evolution. The practice has spread rapidly because it makes sense both financially and technically.

Rosendahl points out that algorithmic trading has benefitted all parties, apart from traders that operate traditionally.

– With machines shaping the market and maintaining prices, for instance on the Helsinki Stock Exchange, the spread, i.e. the difference between sell and buy prices, has decreased over the last three years to less than half of what it was. For retail investors, this represents the largest single cost of trading, says Rosendahl, explaining this development.

– Market liquidity has also improved, both on the sell and buy sides, so that you can trade in OMXH25 company shares immediately, for 20,000–50,000 euros based on tight spreads, without the markets reacting. The Helsinki Stock Exchange has never been so effective. It is now almost a retail investor’s paradise.

One basic application of algorithmic trading is arbitrage trading, where price differences between the same shares are monitored in different trading venues: buy where the prices are lowest and sell where you can get slightly more for the shares.

– In a world of open stock exchange competition, with many trading venues, machine arbitrage is like the oil in a motor that ensures that prices are almost nearly the same everywhere.

Trading is becoming more equal

A general, considerable efficiency increase in the market has lowered the earnings of both stock exchanges and brokers. This makes investors the biggest winners. Traditional arrangements have also changed in other ways.

– Today, all brokers can be equally fast because, at a reasonable price, we rent out server space in our data centre to anyone interested, based on exactly the same standardised connection speed to the stock exchange’s trading systems. Private investors can also become part of this. Some traders already offer them smart algorithmic strategies.

Rosendahl believes that this development is, to some extent, already culminating, because trading is extremely fast and efficient and costs are low.

– Of course, systems may become even faster, but there will be no further huge leap and, in any case, everyone can already enjoy the same speed advantage. However, algorithms are still certain to become more intelligent.

Villains are caught

Rosendahl affirms that attempts at manipulation are monitored in the same way as before, but now over fractions of a second, with red warning lights flashing when necessary. Last year, 17 suspected market manipulations were reported to the Financial Supervisory Authority by the Helsinki Stock Exchange, six of these being related to fast HFT trading.

– Our job is to maintain equal and well organised trading. Effective supervision is an essential part of this. All transactions are stored in the trading system for a long time – including bids that do not result in trades – and this historical data is available to market supervisors.

At the beginning of May, new directives issued by the EU’s joint supervisory body, ESMA, will take effect. These will apply to all parties on the market In particular, they specify and standardise the procedures and supervision of algorithmic trading. Should supervision and legislation be developed even further to control algorithmic trading?

– Because trading venues monitor and supervise activities within their bounds, it is left to the supervisory authority to gain a general overview of all trading. Most European authorities have, however, publicly admitted that a more extensive and precise centralised pan-European overview is needed. This already exists in the US. In the EU, this would not necessarily be expensive, since many private players already collect and maintain an extensive historic database for developing their algorithms. Such a task should not be impossible for supervisory authorities either.

Text: Jussi-Pekka Aukia