• Are you planning to invest in shares or corporate bonds? Today, as part of the "Calculate and don't miscalculate" campaign, we will be giving hints on what to look out for.
• Check the financial standing of the company whose securities you intend to buy.
• Don't take a salesperson's or advisor's word for it – demand to see documents proving their statements and analyse their content.

The "Calculate and don't miscalculate" campaign organised by the Office of Competition and Consumer Protection (UOKiK) is ongoing, with the Office giving advice on how to invest one's savings to minimise the possibility of losses in the future. Today, we will be talking about the most popular financial instruments – shares and bonds.

"The 'Calculate and don’t miscalculate' campaign encourages people to invest their savings in a wise and prudent manner and to think about these investments in a long-term perspective. Interest rates, company valuations and their standing all change. It is a good idea to take all of this into account and to diversify your finances by not betting everything on a single investment. Before signing a contract and depositing money, always read the related documents carefully, check the issuer and make the decision without emotion, after careful consideration. Remember that the financial consequences of a failed investment will be borne by you, not by your financial advisor," says Tomasz Chróstny, President of the Office of Competition and Consumer Protection.

Shares and bonds – general advice

To start investing in securities, you need, first and foremost, knowledge and experience. The most traditional investment products are shares and bonds. They are issued (released to market) by an entity (the issuer) to raise capital. Before purchasing them, find out what investment goal, such as entering a new market, the entity plans to achieve.

Read and analyse. Before signing a contract – whether for the purchase of shares or bonds – read its terms and conditions carefully. Don't take a salesperson's or advisor's word for it – demand to see documents proving their statements and analyse their content. Once you get documents for signing, read them – make sure that you are buying the product you discussed with your advisor. If you don't understand something, ask the entity offering the securities for details. If you still don't understand the provisions – don't invest in that product!

Take your time. Watch out for "super bargains", where the financial advisor is trying to convince you that you need to make a decision quickly because such an opportunity may never come again or that an offer is limited. Remember that there are a variety of techniques used in trade to influence your decision, and their main purpose is to increase sales. For this reason, you should give yourself time to think and possibly consult your decision with, for example, your family or an economist friend. Haste is not a good advisor, especially for a novice investor.

Shares

Shares are securities that can only be issued (sold) by joint-stock companies and limited joint-stock partnerships. Their purchase entails acquisition of property in such entities. Owning shares gives you the right to participate in profits (dividends), if there are any. Shareholders make the decisions concerning investment of the company's profits. Investing in shares, on one hand, offers a potentially higher yield, which stems from the possibility of frequent fluctuations in their value (especially if the company has a good stock exchange performance and good financial standing), but also, on the other hand, entails the risk of not making any profit or even losing the invested funds, especially when the investments made by the company whose shares were purchased fail.

What to remember before buying shares?

• To purchase shares in listed companies, you will need a trading brokerage account; check the exact fees involved in opening and using such account.
• Check what rights and obligations you will have as a new shareholder of the company whose shares you intend to purchase.
• Analyse the situation of the company whose shares you intend to purchase; above all, check its financial standing as well as development plans and the chances that they will be realised. If the company runs into financial problems, it will not be easy to sell its shares.
• Watch out for situations where companies announce that they plan to go public and get listed on the stock exchange. Not every joint-stock company needs to be listed there, but getting listed on the stock exchange means that the company will have to meet higher requirements and will hold the right to sell its shares publicly. This requires approval of the prospectus by the Polish Financial Supervision Authority as well as approval of the entire process by the Central Securities Depository of Poland. This is why completion of this procedure is so important, as only listing on the stock exchange can mean a positive assessment of a company. Remember, however, that such positive assessment is never a guarantee that your investments will yield profits. Be also wary of companies that are trying to improve their image solely through their efforts to go public.

Bonds (including corporate bonds)

Bonds are securities through which the issuer (the one who "puts" the bonds on the market) becomes indebted to the bondholder, i.e. the purchaser of the securities; after an agreed period of time, the issuer buys them back from the purchaser at an agreed interest rate. Consumers are the most familiar with bonds issued by the State Treasury.

However, there are also riskier bonds, called corporate bonds, in the financial market, which are issued by privately-owned entities. Investing in them may not only fail to yield the expected profit, but also lead to loss of all invested funds, especially if the bond issuer runs into financial problems and becomes insolvent prior to redemption. This is because bondholders are the last to be satisfied from the company's assets.

Window dressing – watch out

Investors should be particularly wary of companies which intend to dramatically improve their market standing by issuing corporate bonds or shares under a public offering; such actions are usually highly publicised, hotly debated on economic websites and sometimes coincide with the company's launch of a new "revolutionary" product or innovation. The so-called "aggressive public offerings" are sometimes accompanied by a campaign known as window dressing, wherein a company, by using appropriate accounting tricks or cranking up investor interest, is able to greatly "inflate" its share price on the stock exchange, giving the impression that its standing is much better than it actually is. Over time, however, once the new block of shares or bonds is successfully sold to investors, this "dressing" falls off and the company, instead of producing extraordinary profits, produces extraordinary – compared to the rest of the market – losses. Studies of companies from the Warsaw Stock Exchange have shown that companies which used window dressing in aggressive public offerings generated annual profits up to 8% lower (which can translate to a loss of several dozen percent of the investment value over several years) compared to companies with a more conservative issue policy^[1].

What to remember before buying corporate bonds?

• Mind the form of the contract – a bond subscription or an acceptance of a bond purchase proposal can be concluded electronically.
• For corporate bonds, read the terms and conditions of issue, i.e. the document which specifies the rights and obligations of issuers and bondholders. If you do not understand their provisions, be sure to clarify any doubts.
• Pay particular attention to risks described in documents related to a given investment.
• Check if the bonds are secured, and if so, what is the security and what are the conditions for exercising it.
• Check if the issue is public or private.
• Analyse the situation of the company whose bonds you intend to purchase; above all, check its financial standing. As a rule, companies which offer lower interest rate to bondholders are more reliable than those which offer a higher interest rate. This is because entities with poor financial standing may encourage purchases with high interest rates, and thus promise of higher returns, which should compensate the purchasers for the higher risk. 
• It is also worth noting the existence of the so-called "higher risk bonds", i.e. bonds issued in less stable sectors, such as debt collection.
• Be wary of companies that are trying to improve their image solely through their efforts to go public. This is what happened, for instance, when GetBack S.A. was offering its bonds. The bankers, wanting to demonstrate its good and stable financial standing, pointed to the fact that the company intended to go public.
• If you decide to make an investment, keep in mind that no financial expert can predict or guarantee that in a few years, when the time comes for bond redemption or the shareholder decides to sell his/her shares, the share or bond issuer will be prosperous and financially able to redeem the bonds or that its shares will have any market value. 

The President of the Office of Competition and Consumer Protection has already commented on this issue in decision no. RBG-13/2019 concerning Idea Bank, warning that "a financial expert would also be aware that the fact that the company's standing as at the day of bond purchase is good does not mean that it will be equally good in a year or two, when the time comes for bond redemption by the issuer". We want to emphasize that the company's past financial performance will not necessarily be repeated. The current and future profits of companies are dynamic and affected by a variety of economic factors, especially the company's achievement of or failure to achieve its planned financial objective. When investing, it is important to keep in mind that there are many variables that affect the financial performance of companies, and, most importantly, that there are often factors beyond the company's control, such as exchange rate fluctuations, changes in global economy or the preferences of customers to whom the company offers a particular product or service. 

Remember that the final decision regarding investment should always be up to you. You are responsible for managing your finances and you will bear all consequences of your decisions, both positive in the form of profits and negative in the form of loss, possibly even of the entire invested capital. So if you don't understand the mechanism of how a particular investment works – don't make the investment! Don't base your decision solely on the recommendation of a financial advisor, who will earn a commission for convincing you to invest. The advisor will not be the one to lose money if the investment fails – you will.

About the campaign organised by the President of UOKiK

The aim of the "Calculate and don’t miscalculate" campaign organised by the President of the Office of Competition and Consumer Protection is to increase consumer awareness and safety. From 6 September, spots related to the campaign have been appearing on TV and radio. They are broadcast free of charge, under Art. 31(c) of the Act on Competition and Consumer Protection.

"I encourage media outlets, institutions and NGOs to join the campaign. Any form of support for the campaign will help us reach a wider audience and improve consumer safety," says Tomasz Chróstny, President of UOKiK.

The spots used for the "Calculate and don’t miscalculate" educational campaign are available on the website of the Office of Competition and Consumer Protection.

Konsument.edu.pl

We encourage people to invest their savings in a wise and prudent manner and to think about these investments in a long-term perspective not only through the "Calculate and don’t miscalculate" campaign. If you want to learn more about how pyramid schemes or alternative investment methods work, go to konsument.edu.pl and learn about the consequences of reckless online behaviour.

Consumer assistance:

Tel: 801 440 220 or 22 290 89 16 – consumer helpline
E-mail: [SCODE]cG9yYWR5QGRsYWtvbnN1bWVudG93LnBs[ECODE]
Consumer right advisers – in your town or district

Additional information for the media:

UOKiK Press Office
Pl. Powstańców Warszawy 1, 00-950 Warszawa, Poland
Phone +48 695 902 088, +48 22 55 60 246
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