The articles written on this blog are based on my personal analysis. The securities target prices are for information only and is not an offer to buy or sell. The reliance on these recommendations are not guaranteed as they are based on my personal assessment as a Financial Analyst. My analysis is based on Business TV Channels, Business/ Financial websites, and from Finance books. All views that I presented are to the best of my knowledge and I invest in Stock Market with this analysis in mind. While the information contained herein is from sources believed reliable, I do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time.

Thursday, August 19, 2010

Investment Strategy For a Salaried Class Investors

To be precise, if you are young are have a permanent and stable job then believe me investing in Stock Market is not that difficult for you. In fact you would be very unfortunate if you don't invest in stock market. Why? The most obvious reason to invest in Stock Market is Inflation. Inflation has been around 10-12 percent thourghout the history of pakistan and it will remain in the same zone in future. So if you are investing your saving at less than 10 percent for your future then actually you are losing value in real terms. As per the study done by a large brokerage house Pakistani Stock Market has given an average annual return of 31 percent for the last 10 years. (Ref: See Investor Guide on thefinancialdaily.com).

If you are afraid of volatility in Stock Market then this volatility is not a problem for you because you are young and can afford fluctuations since your ultimate purpose is to save for your future.

Consider a simple case:

Suppose you decide to enter in the market at current level which is around 9,800. You start putting saving from your salary in the stock market at the end of every month. You target is 11,000-11,500. That is you will take all your money out of the stock market once you reach this point. Now this point has 26 percent upside potential so any thing that put right now will give you 26 percent in future at some point in time. Now suppose at the end of the next month the market is at 9,200 level and stocks have come down. So what should you do? Actually this shouldn't be a problem for you, infact now you got same stocks more cheaply. Suppose you bought POL for 230 earlier and now you can get it for 220 so your average become 225. And suppose if the market goes up in the second month and again reached at 9,800 level and your PPL again reach 230. You have made a profit now because your average is 225. However your ultimate target is in 11,000 range so your startegy is very simple i.e. you buy more shares when market goes down and you sell shares when market reaches 11,000-11,500 level. But please note that you need to keep some common rules. First you need diversification and second always have some "know-how" of stocks, market and economy or you should take advise from your broker or any other market expert.
Conclusion: Averaging solves the problem of volatility. And since salaried class don't invest all of their money at the same point in time they naturally can average out their investments.
Best of Luck!

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