Investors also make the investment risky
Recently I was talking to one of my colleagues on current state of capital market of the country. It is now known to everybody that the capital market is not normal. Indexes are degenerating gradually. Securities listed in A category is losing price whereas Z category share is skyrocketing. Market capitalization of the securities is declining as well. At the moment, nobody knows what is waiting for tomorrow. Many experts say ‘a group in the market is tempering prices of securities to pocket money.’
Even though ups and downs of the prices of securities are customary in the stock markets, the current state of the markets has created tremendous fear among general and small investors. Thanks to the uncertainties, most of them have sold out their securities comparatively in lower prices. The sudden pullout from the business had cost many investors of huge amount of money. My colleague whom I abovementioned has some investment in the market and values of his portfolio also decreased significantly. He sought suggestions from me to keep health of his portfolio stable and how to overcome the hurdles in the destabilized capital market.
Neither my colleague nor I have any academic background except some basic ideas over capital markets through reading books and participating seminars over the issues. So, we were just sharing our views and experiences to make a clear understanding over the ongoing market if it can benefit us.
At that time, a client of mine was present not far from us. He was thoroughly listening to our discussion. We did not notice him either. Suddenly he drew our attention and said “are you talking about investment in stock markets? Are you planning to put in your well-deserved savings into the markets?” “My brothers, don’t invest in the stock markets. If you have money and want to invest it, try to invest in any other sector, not there. If you do, surely, you will get something in return. If you fail to make any profit, you at least will get your principal unhurt. But if you go to stock markets, you may lose both of that today or tomorrow. Once I had invested in the stock market Tk 28 Lac, he went on saying, which I had earned in Japan by working very hard, but got back just Tk 6 Lac after a few months. So, I would like to request both of you not to go for stock markets.”
I know the client since last few years. He has made huge amount of money doing poultry and cow farming business. Several times he told me how he had made his fortune. But he never told me his experiences in stock market. Following the discussion, I became a bit curious about him. A few days later I cordially asked him, had you achieved any financial education before investing Tk 28 Lac into the stock market? Or had you taken suggestion from any expert for making decision in this regard? He answered, no.
Then I told him, now you are doing poultry business. Your farm is very large in size and you are very famous in your locality for that. Have you found the business bubbled up over night? He replied, “I have made my business little by little. I was engaged in business actively and gained field level experiences. And when I had been able to make profit then I reinvested. This is the way the business grew up through. Then I cordially asked him, how do you think that you will invest in stock market Tk 28 Lac, such a large amount of money, and you are efficient to do so? And, how do you expect you will subsequently return home with profit?
I cordially asked him once again “have you ever seen any footballer gone to play in the field without any practice?’ Have you ever seen any cricketer get into the game and showed his excellent performance without taking any prior training before getting into the field?’ He kept mum. I went on saying, “Then how do you expect that you will invest a lot of money in stock market without any financial literacy, education, experience and good expertise and you will get it back with profit? Is your thinking logical?’
Verily, investment in the stock market requires financial literacy, educational background and practical experience. It also requires sufficient knowledge in Accounting, Mathematics as well as in Economics. Accounting for reading financial statements of a company; Mathematics for calculating good & bad losses and managing portfolio, and Economics for choosing sector of investment and making decision. I am so sorry to say most of the investors of our capital market have not enough knowledge on these subjects. They just go to market and buy securities indiscriminately without considering fundamentals and other factors which play important role in the market. In this way, they not only throw their investment into risk, but sometimes passively they contribute to make the markets volatile. In fact, these types of investors make the investment risky.
It is true that, there are many other factors which make the market volatile. But those who have financial literacy they keep their eyes closely on financial statements of the companies. They can calculate good loss and bad loss in a moment due to their knowledge in Mathematics. They know the updates of the company and situation of the economy from different sources. When they know any authentic information they calculate and reorganize their portfolio. So, these types of investors can draw tremendous profit. This Return on Investment (ROI) actually is their Return on Information.
Every investment has some risk factors. Financial literacy gives an investor such a skill by using this he can minimize the risks. It also helps him make good amount of profit. If he has no financial literacy or education, he neither makes profit nor gets back his capital. There is a saying on stock market that two types of people go to this market -- one with money and another with experience. Those who go to market at the morning with money, in the noon they returned with experiences. Likewise, those who go to the market with experience at the noon, they come back with money. It is the nature of the stock markets. We should also remember that experience without financial education is incomplete; financial education without practical experience is not sufficient to succeed in stock markets.
The writer is working at a leading private commercial bank. He can be reached at [email protected]