Only the other day, an acquaintance barged into my cabin when I had the Karachi Stock Exchange web page open. Seeing that I was intently browsing through, checking rates and trade volumes, he, in a tone most disparaging, offered unsolicited advice. “If you knew what was good for you, you should get out of this business, and the sooner the better”, was the refrain.
From the cut-to-the-quick bitterness in tone and the rigid judgmental stance, I could gather that he had been burnt at this stake. Yet I asked, only to reconfirm, and he did blurt out that while day-trading he had some pasting – bankrupting him self in the process.
Quite typically, he had started off when the going was good, and with the proverbial novice gambler’s luck on his side, he had made some gains. The drift changed but he kept getting sucked deeper into it, and, to make up for losses, the more he speculated, the more he lost, until there was nothing more to pitch in. Exhausted, in every sense of the word, he had to trudge out of the market. The resentment thus ran deep.
He is not an exception. Actually he is only one of a legion that were lured into the stock market when with great fanfare the government in early 2000s started disinvesting shares of the state-owned enterprises in the oil and banking sector through public offerings at throwaway prices. Everyone who applied got himself a chunk of the lot. And those under priced offerings meant instant gains. The ones who speculated, cashed in decent yields, rude shocks though were just round the corner.
Speculation is much like Russian roulette. You win some bets, but most you lose. And, not unlike gambling, it is infectious – meaning it gets into your blood. While day traders get sucked in by hype and are done in by hunch, the buy-and-hold types who show prudence while buying and patience if a trough hits the market are the ones who survived the vicissitudes, not just enduring bad times but booking profits through dividend and bonus yields.
Here’s how an ‘Average Joe’ who enters the market can actually make hay – and continue to do so, cashing in his chips (dividend/bonus shares) twice a year while his money is as good as in a bank (within three working days from the moment you sell, you can go laughing to the bank), and at almost three times the interest.
For the uninitiated, there are two ‘closings’ a year – meaning thereby that some companies close their books in June every year, with the payouts coming anywhere between July and September after their respective board meetings, while for others the annual cutoff is in December, their payouts coming between January and April.
Most people with experience who get into the market to supplement their annual income are not keen to switch too often. This investor type buys and sells twice a year, around the payout time – immediately before the announcement for capital gain to invest what by their lights is the next best thing. That is unless they want to hold, and profit through dividend and bonus shares.
Entering the market to trade, you would need to open an account with the Central Depository Company Limited, CDC for short, either directly or through a stock broker. To ensure safety of your capital, make sure that the brokerage house that you select is registered with the exchange (such as Karachi, Lahore or Islamabad Stock Exchanges) and not a fly by night operator.
While you learn the ropes, you would frequently need to consult your broker on four fundamentals: What to buy, when to buy, at what rate to buy and when to sell.
So, make sure that you get yourself a halfway decent broker who knows the market like the back of his hand and is clued in with the developments.
A good broker would not push you to buy or sell, though his main interest lies there, for he makes his dough through the transactions each one of his accounts makes. Instead, he would make you aware of the lay of the land – what the latest quarterly report of a certain company suggests in terms of profitability etc, and also the likely trends – and let you make the call.
Now that you’re there, we shall pick up the thread from here next week and get into specifics. The market has generally been upbeat in recent, but there still are a few good buys out there that could yield between 20 to 30 per cent in the next three to four months.
The writer is Sports and Magazines Editor, Pakistan Today