Securing investments in the capital market

Look before you leap

“Money grows” — this is probably the most popular adage when it comes to investments. All of us — every single human being — wants our assets, wealth, and money to grow, which is very natural. But we often forget the fact that if you want your money or investments to grow, you need to think about it thoroughly.

Investment is just like a tree, meaning that it will grow only when you take care of the plant/tree properly by watering it, exposing it to the sun, and cultivating it in the right kind of soil. Just like that, when you are investing your money somewhere, for example, in the capital market, you need to take care of your investments and take all the steps that will make sure that your money grows.

The term “steps” here means that you, as an investor, are making the right decisions when it comes to investing money. This is particularly true for our capital market. Encountering negative news about the capital market is not a new experience for us. In the past, we have seen individual investors taking to the streets in protest of a sudden fall in prices and incurred losses.

Those investors would never have faced this situation if they had thought it thoroughly and made their choices. This is where the role of making the right decisions comes in if you are eager about securing your investments in the capital market.

First of all, investors need to understand Bangladesh’s capital market. The Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) are in operation in Bangladesh. Investors can buy and sell their preferred stocks, bonds, and make investments in mutual funds in either or both of these markets.

Currently, Bangladesh’s market capitalization stands at $41.761 billion (as of Apr 2023), which is almost 14.5% of the nominal GDP. While trading in such a large market, investors need to keep in mind the unique characteristics and challenges of the capital market. For this, an investor needs to do two things — set clear investment goals and conduct in-depth research.

It is essential to set clear investment goals when it’s about making the most of your money in the capital market. Instead of just stock picking, investors need to focus on properly planned investments in the capital market after assessing risk factors and aligning investment goals with risk profiles relevant to our capital market context.

In this regard, it is crucial to find out how much someone is willing to risk since the value of the stocks you are buying can go up and come down as well. So, investment goals clearly depend on an investor’s risk appetite. For example — it’s a better idea to invest in blue-chip stocks instead of “Z” category shares, even if they yield temporary gain. You can take the risk of buying Z category shares, but the fear of losing then gets multiplied.

That’s why any investor should take a long-term investment perspective into account for maximizing the probability of gaining. The decision of making investments for particular stocks should come only after evaluating investment opportunities with a focus on sustainability and future prospects. In this case, educated investors control their emotions and refrain from buying shares depending on short-term market fluctuations. Taking a decision that ensures temporary gains may land you in hot waters in the long term.

To avoid such abrupt loss, investors must conduct in-depth market research and keep tabs on market trends and industry outlook. Different external microeconomic factors such as inflation, global fluctuations in oil prices, the economic outlook of a particular company, as well as internal factors such as the political situation and policy reforms, could have an impact on the capital market.

Staying updated about these things is a must for doing well in the capital market. For example — when someone is buying a particular share, they should know about the PE ratio to make the right choices. The Price to Earnings Ratio (PE) is defined as the ratio of the share price of a stock to its earnings per share (EPS). The PE ratio is a major indicator for selecting safe stocks in the capital market.

In addition, keeping up-to-date with knowledge of the regulatory changes and compliance requirements could prove beneficial since it will help comprehend risk factors and devise plans accordingly to avoid unnecessary risks while calculating your investment moves.

While doing so, it is imperative that investors track their portfolio performance on a regular basis. Simple steps, like tracking the performance of all the investments you have made and calculating returns, help any investor make more informed decisions and take up a diversified strategy for making diversified investments, considering different investment instruments such as stocks, bonds, and mutual funds.

To conclude, investors need to be proactive in their approach and be vigilant. They need to keep their ears to the ground and develop market insights. For developing market insights, you must keep reading and researching the overall economy, global capital market trends, and the financial situation of the stocks (the brands/companies) you are buying. Most importantly, you must keep calm and observe.

The stock market, as Warren Buffett once said, is a device to transfer money from the impatient to the patient. These words hold true for someone involved in the capital market. To put it plainly, if you want to secure your investments and continue a winning streak in this market, you will have to have patience.

Zobayed Al Mamun Hasan is managing director of National Bank Securities Ltd