In the first part of the article, I wrote about how you are losing money every month by keeping it in a current account. You're losing even more money by keeping it idle. This happens due to inflation. To combat that, and to make more money in the process, invest in stocks. On speaking to Mr. Saad Niamatullah, an Assistant Manager at LankaBangla Asset Management Company, I have devised the following guideline for investing in stocks:
First thing first: Write down all your financial goals, along with how important each goal is.
Before anything else, ask yourself what financial goals you are trying to achieve, and how important it is to reach each goal. The more important a goal is, the less risk you can take with your investment to reach that particular goal. This is important to know, because riskier investments generally have higher returns.
Sit down with your loved ones and try to approximate how much money you will need to meet your financial goals, say 25 years from now. For example, a nice house may cost BDT 1 crore and be of medium importance and traveling may cost BDT 15 lakh and be of low importance. Similarly, include medical emergency, higher education and other expenses, and sort them based on importance. The approximations and goals will wildly vary between individuals.
An element of risk is always there
Accept the fact that an element of risk is always there; it could be because of a lack of corporate governance (very few companies in the past have been rumored to have run away with investors' money without consequences) or just due to a bad year for the capital market. That is exactly why the returns are so high. However, in almost all cases, good long-term investors who waited out bad periods, made more than they invested, unlike those who sold their stocks in panic. If you feel that you can't take that, then stock investment might not be for you. But even if you are willing to take the risk, remember to always invest the money that is left after necessary expenses and fixed deposit savings.
Gain some foundational knowledge
If you want to experience the excitement of trading your own stocks, you need to arm yourself with some financial knowledge. If you jump into it without any basic knowledge, you are essentially gambling. The odds of you winning in this stock market casino is pretty low and no one wants to play Russian Roulette when their lifetime savings are at stake.
Most top investors suggest specific books to get started. And according to them, that's really all you need.
So, start off by reading the book, “One Up on Wall Street” by John Rothchild and Peter Lynch. It is the best book on the market which can give you a solid introduction. Other good books are “The Intelligent Investor” by Benjamin Graham and “The Little Book of Common Sense Investing” by John Bogle.
The secret formula
If you read these books, you will realize the best strategy as endorsed by top investors is called 'value investing'. Simply speaking, the strategy is to identify a great company through personal research, wait for the price to go down due to reasons irrelevant to the company's operations, buy the stocks at that low price, sit back and see the price soar high and then finally sell the stock at a high price when you feel like selling it will give you the money you need.
This is where the famous quote “Buy low and sell high” by Warren Buffett comes from.
Invest without the personal research work – Mutual Funds
Through open-end mutual funds, you can easily invest in stocks without having to do your own research. You buy fund units from an asset management company at a certain price called the net asset value (NAV). The fund manager then manages the day-to-day business of researching and trading stocks, and if they are successful, the NAV of the fund increases. Then you may redeem your fund units at the new NAV or wait till the end of the year when they send you a dividend based on the profits made throughout the year. Open-end mutual funds are available from large financial institutions like IDLC and LankaBangla. There are smaller fund managers too, like VIPB, Impress Capital, EDGE and AT Capital. You can easily compare the performance of different mutual funds online.
The long run
You can easily monitor your stock portfolio performances through your DSEX app.
You can learn about the listed companies by checking their financial metrics from Dhaka Stock Exchange website. You can find price charts at AmarStock's website.
At times, you will see the stock prices of good companies collapse. Don't panic and go on to selling them. Wait like any good long-term value investor would. If it's a good company, the stock prices will go up again. Remember the secret is to buy low, wait, wait, wait and sell high.
Finally, keep reading more scholarly books on relevant topics, follow economic trend journals from top Bangladeshi financial institutions like LankaBangla, IDLC or just read the business section of your newspaper regularly.