Investors must be aware of five things before pouring money

Institute of Financial Markets of Pakistan CEO and MD Muhammad Ali Khan has elaborated on top-five things that a stock market investor must know about:

Know your investment capacity

The stock market is an investment avenue instead of a source of earning bread and butter. Therefore, only the spare money should be invested in shares instead of working capital and/or kitchen budget.



Select a right broker

Investors should select only a reliable and reputed brokerage house to become a stock market investor. The select houses must issue regular research reports from time to time on emerging macro and micro-economic indicators impacting stock fundamentals. They should offer online trading platforms and have a trained sales staff.

Select right shares

Investors should ask brokers to advise on the selection of stocks for investment. In addition to this, they themselves must be educated enough about the selected stocks.

They must read the stocks-specific research reports and annual reports to check stock fundamentals like earnings per share, price-to-earnings ratio and dividend yield. They should invest in fundamentally sound stocks and avoid investing all the spare money in a single share.

Select growth, value shares

Growth and value are two different types of shares in general. Value shares are comparatively low-risk shares, which offer regular dividend income, but their prices appreciate at a slow pace. Growth stocks offer low or no dividend income, but their chances of price appreciation/depreciation are high. They are more risky and speculative stocks.

Investment duration

Investors should also know the duration of their investment in select stocks. Long-term investors buy high dividend-paying stocks and short-term investors invest in high-risk shares. It depends on appetite of the investors.



In addition to this, investors should also keep a vigilant eye on the movement of benchmark indices, stocks and sector-specific information. Besides, they should also be updated about domestic and international politics and political economy.

Published in The Express Tribune, June 29^th, 2017.

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