Monday, December 11, 2006

Investing 101

Following is my reader response to Mr. Mohammad El Huseini, program Editor for Business News at Al Arabiya . The article in question was published in Jordan Business monthly Magazine. Their link was posted by Oula yesterday. The link to the article itself appears at the bottom of the page.

Your article is both; informative and entertaining, the last paragraph about your mom's shares sums up the investment industry in an eloquent fashion. An average investor should never go wild trading on a daily or even weekly basis, he should learn from the institutional investors by waiting it out and stick to the original premise, buy low and sell high. When the average investor starts going wild with his investments techniques such as taking a loan on his house or mortgaging a piece of land that he owns in order for him to make a fast dollar in the fast moving stock market, he would be doing nothing but risking his nest egg that one day will crack and splash him right in his face, and that is what happened to many of the average investors who were investing in Amman stock exchange over the past year and a half or so. Investing is supposed to be a long term upward wealth building up project not a short term fast buck making. Those who fall victims to the get rich quick schemes have no one to blame but themselves. Buying stocks, bonds, and mutual funds ought to be incremental first and diversified second. No one should put all of his eggs in one basket, shares need to be bought in small parcels from variety of sources and companies including blue chip companies, emerging markets start ups, and even capital ventures' shares. It should never be limited to this company or that company because if this company goes down all of the purchased shares go down with it such as what happened with Enron, world com, and some of the others that went bankrupt over the past couple of years. Buy and hold is the key to investing, a 10% average annual return is a reasonable yield expectation. Any thing above that would put the investor into a higher degree of risk taking. We all heard moderation is the best modus operandi one ought to take, guess what; it applies to investing as well. Invest only the amounts that you can afford and you don't need to convert it into liquid cash on a short notice, set a side different budget for that kind of spending. When one enters the world of investing in the stock market one ought to understand that he is in it for the long haul.
Hatem Abunimeh


Anonymous said...

Exactly. Right on the nail. People in Jordan are in the market ONLY for the quick money. And that is the exact same reason why the market is doing so bad now. There is absolutely no liquidity.

No_Angel said...

things where going fine reading this article until I hit the word "enron", in what little i know about finance and stock exchange theory i believe non of it could apply to amman stock exchange so any comparison is not valid :)
oh well when you hear about 16 year old kids investing in the market you are sure that something is terribly wrong and its more fundemental than investment basics, its the investors mentality that is wrong here and the culture behind it.