Small investors suffer losses due to lack of knowledge
Posted on 02.07.07 by StockPK Team @ 11:59 am
There must be thousands of women with beautiful faces that have thought of going to Lahore and become an actress some end up as extras some in the notorious bazaar. The same is the case in Karachi, any person with a few thousand rupees to spare thinks of going to the stock market and become a big stock trader over night. Most end up broke.
There are more tales of ‘from riches to rags’ than of ‘from rags to riches’. Small investors coming to the bourse to stake their life earning in the equity bazaar must know that they might lose the whole amount in a wink of eye.
The reason is simple small investors do not acquaint themselves with the knowledge required for stock trading and instead follow the flock or blindly believe in tips given by other traders.
There are multiple ways for small investors to enter the capital markets, but usually the only way out is to lose their life savings they had invested for a better future.
This is a general perception, the small investors said that they have usually experienced in near past.
March 2005 and February-March 2006 are some of the most popular crisis that took place at Karachi bourse in near past, where the victims of crisis remained the small investors only.
Securities and Exchange Commission of Pakistan (SECP) conducted two different investigations to unveil culprits behind March 2005 KSE scam. Task Force and Forensic Investors, in their separate investigations named some 88 brokers found involved in violating the corporate regulations at local bourses and causing colossal losses to the small investors.
No one can guarantee that the alleged brokerage houses could be forced to compensate the small investors, a broker on the condition of anonymity said.
He reminded that SECP on the directives of Economic Coordination Committee of Finance and Investment has been sending notifications to the alleged brokerage houses demanding a respond to the findings of Task Force and Forensic Investigators and so far has not received any respond from them.
Even if the securities watchdog succeeds in getting a serious response from the alleged brokerage it is not likely that they would be made to mitigate the losses of small investors, he said.
Moreover, there are no laws to protect the interests of small investors in Pakistan or any where in the world, he said.
The small investors have to fend for themselves by acquiring knowledge of how to play in the market otherwise.
Small investors are themselves blamed for poor management of their portfolios and having little knowledge of doing business in the capital markets, he added.
M. A. Lodhi, MD-KSE, however, believes that ‘buyer should beware’ and investors must know their financial limits before doing deals with borrowed money (i.e. Continuous Funding System).
Small investors must acquire complete knowledge of deals they are making, he said and added that following others or ‘tips’ is not at all the long-term solution for them.
Small Investors should first measure their financial courage and question themselves that whether they want to take long-term position or short term, MD-KSE suggested.
“In a country like Pakistan where we learn from our own mistakes and not from institutions nor from elders in a knowledge based growing economy, small investors can often experience to lose the money and seldom to gain it”, an individual investors responded.
“Keeping us (individuals small investors) up to the date to the level of a financial institution or brokerage houses is almost impossible. The bitter reality is that institutions and brokers have professional and skilled teams that design the crisis and succeed in cheating small investors”, he added.
“Most of the times, institutions acquire knowledge much before it reaches to common man or public that they use for creating speculation in the market. We have no other options, but to follow the market sentiments,” he said.
Faisal Shaji, Head of Research at Capital One Equity, recommended to the small investors to sell off their holdings at present, especially in banking sectors, as most of the banking scrips have reached their fair values where MCB has crossed overheating share price in recent times, he added.
He observed that timings of small investors to enter and exit the market are usually wrong. They should exit at peak level (e.g. at present) and enter at lower level whereas they do the reverse of this order.
They enter at peak and exit with losses after the bazaar has entered the technical correction phase, he added.
He supported the idea that small investors should avoid trading in shares markets and should invest in mutual funds and national saving schemes.
Although mutual fund industry is in its developing phase in Pakistan, some funds are offering more profits than the conventional banks. Therefore, it is still a good opportunity for small investors to get rid of losses and buy mutual funds or saving schemes’ certificates, he said giving his personal opinion.
Suggesting small investors to avoid share trading at bourses is not a long-term solution, however, it is a vital option to protect their money.
Source: The News
Tags: Banks, KSE, Mutual-Funds, News, SECP
I cant understand about KSE100 index please give me a brief explanation
Comment by Manal Ajaz — April 7, 2008 @ 12:06 pm
INDEX, is a way to find out if the stock market is growing or not. The 100 biggest companies are selected , and then their price is checked everyday.. to see if people have put more money into them, or removed money from their stocks.
this gives a good idea, as to the performance of stock exchange. KSE100, has 100 top companies, the list can be seen on internet. It includes companies like PTCL, OGDC etc.
Comment by Suhail — July 19, 2008 @ 7:17 am
i think we should invest half amount in one or two scripts,if mkt goes down then buy back same.when mkt gaves u profit from lower buying then sale halfand wait for more good,,,,
Comment by kaleemakbar — June 17, 2009 @ 12:05 pm