MOST COMMON INVESTMENT MISTAKES
MR. KASHIF TAUFEEQ
(Research Analyst) - UBL Fund Managers
Dec 28, 2009 - Jan 03, 2010
When you invest your hard earned cash, it is necessary to remain vigilant and cautious while investing. Once you commit an investment mistake and lose money it will seldom get recovered. Investing in stocks should be backed by sound research and not impulsive decisions. Going for highly risky stocks which are subject to greater volatility is more like betting where your chances of making a killing or loosing a fortune both exist. Even a prudent investor with good market knowledge could often succumb to one of the very common investment mistakes.
Give me "The TIP"
It is very common to see people asking others for "TIPs" in the stock market. Probably what most people don't realize is that this could pave way for rumor mongering .We would often hear that a certain big fish has been accumulating a certain stock and it would be ideal to trade in that specific stock to make a quick buck. Often this leads to nothing but anguish and frustration on the lost fortune. Investors should make it a rule of thumb to do some ground work before investing. The least an investor must do is to go through a company's annual accounts, read its director's review thoroughly and study the company's margins over the years. "TIPs" can sometimes work in your favor, but there is always likelihood that you will end up burning a hole in your pocket.
TRYING TO MIRROR OTHER PEOPLE'S SUCCESS
We often hear people bragging about making a killing at the stock market. It is in a human being's nature to highlight his / her achievements. On the contrary, if one has lost money on a certain stock, he / she will avoid talking about it.
Supposedly if your friend or relative accumulated a sizeable gain in a certain stock, you will want to emulate his win or go one better. Take for instance Mr. A, who bought shares of Netsol in September 2005 at PkR 17.75/share. After some healthy results and continued positive outlook the stock made its historical high of PkR 112.20 in November 2007 and Mr. A was lucky enough to book his gain near these levels - making over 450% gains. Mr. B, his friend heard the story and decided to buy the same stock to make similar gains. Mr. B bought Netsol at PkR92/share in February 2008 feeling like a winner for buying the stock twenty rupees below its high. What he did not realize was that the stock will have to trade above PkR500/share for him to make similar percentage gains as Mr. A. Netsol touched PkR 104/share in March 2008 and Mr. B held on, dreaming of massive gains that never came. Netsol's share price declined along with the equity market crash and it is trading at PkR14/share in June 2009 - a big hole burnt in Mr. B's pocket, or rather putting his whole pants on fire.
GOING AGAINST YOUR RISK PROFILE
Investing in highly volatile avenues could go both ways. Young people with a reliable and constant stream of income can invest in risky avenues because the risk is partially neutralized by the long investment horizon they can afford. Such an investor can tolerate a sudden recession lasting 2-3 years with depressed equity prices. However, an investor near his retirement can not afford such a decline in his investments and will likely have burnt through his retirement fund by the time recession is over. He/she will be left without a job and without his/her retirement fund.
We all know what herd mentality means but most people can still not abstain from becoming a part of it. Being a part of the group and doing what everyone else is doing can be a very comfortable feeling - however it can come at a great cost. An example of this was the bull market in Tulips and Tulip bulbs in Europe in the mid-1600s. Tulip bulbs were recently brought from Turkey and planted in Holland. As the public's fascination with the brightly colored flowers grew, people started buying them with just the hope that someone else will buy it from them for a higher price. At its peak, 40 tulip bulbs were sold for 100,000 dutch guilders (equivalent to over 600 times what a skilled worker made in a year). Eventually the bubble burst and fortunes were lost.
THE ART OF AVERAGING
A common practice among equity investors is the concept of averaging. This is when an investor holds-on to a stock whose price is falling ñ and actually adds to the holding as the price declines, in hopes of having a lower average price. The activity makes sense if the investor has bullet proof understanding of the company's business and understands exactly what it is worth, or if the price decline is within the normal trading range of the particular stock.
However, if the stock price decline sharply out of its trading range and the investor does not have firsthand information of the business, he / she should take it as an indication that his earlier analysis of the company has been invalidated by change in the business dynamics. It is better to accept the possibility of one being wrong than to be stubborn and lose a fortune over it.
WHAT IS SMART INVESTING?
For an individual investor, the best way to invest is through a combination of equity and fixed income funds, letting professional investment managers make the decisions. The combination of funds should be determined by investors' risk profile. Only investors with holding power and the ability to choose the right kind of stock have come out with trumps. Many investors without the required investment skill set and who follow the "Do It Yourself" approach end up making huge losses, as part-time investing adventures often result in full-time income losses. An ideal way to avoid making the "Investment Mistakes" discussed in this feature is to perhaps invest through investment vehicles such as mutual funds where professional fund managers do the necessary due diligence and research on your behalf. It is also advisable to use a Financial Advisor's services to decide which asset classes are suitable for your risk profile and then invest through a "Systematic Investment Plan" in order to minimize the impact of market volatility.
CDC GETS ISO27001 CERTIFICATION
Central Depository Company (CDC) has been recently certified with the prestigious ISO 27001 standard, the highest Information Security Management System (ISMS) certification in the world. After this achievement, CDC is now amongst the top 3 companies in Pakistan to receive this award in the financial sector.
CDC has received this certification for overall depository operations including functional, technical and legal aspects. The process involved identification of areas & controls, gap analysis and development of policies & procedures. Other areas included identifying assets & associated risks and third party controls implementation. A rigorous company-wide awareness and training exercise was under taken to understand and comply with the standard. Later, an internal audit exercise was performed as well to review the implementation and compliance.
Awarded by the United Kingdom Accreditation Service (UKAS), the ISO/IEC 27001:2005 is the only Information Security Management System (ISMS) standard accepted globally and a critical requirement for organizations with clientele comprising of public sector and corporate organizations. It was published in October 2005 by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC).
The ISMS not only specifies pre-emptive measures for information security but also specifies an effective information security incident reporting mechanism. This mechanism ensures that all security threats, whether identified by management, staff or customers are not only reported in a structured manner but also appropriate corrective/pre-emptive action is performed on the same.
This accreditation is a giant stride for CDC towards achieving operational excellence and maximizing customer trust & confidence in the Company's infrastructure and security capabilities. The effort and motivation involved in achieving this standard highlights CDC's best practices approach for the benefit of its stakeholders and capital market investors through stringent security of their information and data.
BIO ENGINEERING ORTHOTIC SEMINAR
Bio Engineering Orthotic and Prosthetic Department (Workshop) at Al - Shifa Trust (Special School and Centre for Rehabilitation) was inaugurated by Mrs. Uzma Aijaz Haroon, Wife of Managing Director PIA hereat the Special School near Stargate, old terminal building Karachi airport.
Al-Shifa Trust is providing Special education to special children. At present, the school has a total of 95 students who are imparted education. The Trust also provides Physio therapy, Speech Therapy and occupational Therapy to special students studying at the school. It also facilitates to outpatients suffering from neuromuscular disorders. Pakistan International Airlines is providing its support in terms of Financial Assistance as well as Managerial and Technical Assistance to the Trust.
Al Shifa Trust with its Bio Engineering Orthotic and Prosthetic Department (Workshop) now provides full fledge rehabilitation facilities under one roof. The Bio Engineering department offers rehabilitation props by using latest and modern technology.
The Al-Shifa trust workshop will provide medial arch supports, foot orthosis, Spinal orthosis, Hand Splints, Cervical Collar, Dynamic Hand Splints, Finger, elbow and Shoulder Splints etc.
It will also provide Prosthetics such as Fore Foot Prosthesis, Syme Prosthesis, Below and Above Knee Prosthesis, Ortho prosthesis, Fore Arm Prosthesis, Elbow Prosthesis and Shoulder disarticulation Prosthesis.
Mrs. Aijaz Haroon, Doctors and other guests present at the occasion visited the entire premises of Al -Shifa Trust. President Al -Shifa Trust and General Manager PIA, Mrs. Ghazal Rashid informed the guests about the facilities available at the Trust and in particular the appliances used in development of Props at the newly inaugurated Bio Engineering Orthotic and Prosthetic Department (Workshop).
The products will be made available to companies/ individuals at no profit no loss basis.
Mr. Ausaf Mehdi, Orthotic & Prosthetic Engineer of Al-Shifa Trust also briefed the guests about the props at the Bio Engineering Orthotic and Prosthetic facility.
Dr. Moeed Qazi, renowned physiatrist, Head of Department in Dr. Ziauddin Hospital also spoke at the occasion.
The ceremony was well attended by Doctors, Clinicians, PIA Medical Staff and senior officials of the airline.