The economic crisis which started in 2008 was devastating experience for many retail investors in the stock market. Many sold their investments at a huge loss, while those who held on to them, it was a long waiting period.
The market is bouncing back now and there will be many first time stock investors. Some old hands are also making a comeback despite having told themselves they would not dabble in shares again. As the markets moves leaps and bounds, it is easy to get caught up in the euphoria. You hear people saying " this stock is going to run in the coming weeks', 'this company is going to announce an internet venture, restructuring or merger' and so forth.
All this will no doubt cloud your judgment . Greed may start talking over your rational mind. I will not try to teach you stock-picking techniques, but will highlight the potential risks and level of exposure to be considered when investing, directly or indirectly in shares.
What are the risks?
There are many types of risks. A simple definition, in the context of investment, is the chance of the investment making losses or earning lower than expected returns. It is important that we going through investment options, we find a match between our risk tolerance and the inherent risk of the securities or investment we are considering.
Risk tolerance is basically the level of 'psychological discomfort' we are willing to endure from the investment. If you have high risk tolerance, you will be fairly comfortable investing in stocks or futures contracts in which values can fluctuate fast. Conversely if your risk tolerance is low, opt for more conservative investments that will not be subjected to wild swings like fixed deposits and money market securities.
When you have direct investments in the stock market, you are expose to both systematic and unsystematic risks. Systematic risk (market risk) is inherent in the market and cannot be diversified. Market risk is macro in nature and can include inflation, change in interest or changes in the country's economic policy.
Unsystematic risk (company risk) is risk that is unique to the specific company. Company risks include a rise in oil prices, special levies on tobacco or alcohol consumption or a drop in palm oil prices. Company risks can be reduced with a portfolio that consists of stocks or other investments that tend to move in the opposite direction in response to changes in the economic environment.
It is not easy to build a portfolio of stocks. You will need to spend time researching companies and come out with a significant amount of money. For retail investors, these will be the main hindrances - time and money. Therefore retail investors are normally subjected to higher company risks due to their restricted diversification, not to mention the market risk which is already inherent. This is an area where professional fund managers will have the upper hand, given the resources available to them.
KHAIRUL IDZWAN IDRIS
Timbalan Pengerusi
Biro Ekonomi Dan Pembangunan Usahawan
Pergerakan Pemuda UMNO Bahagian Setiawangsa
Wilayah Persekutuan
The market is bouncing back now and there will be many first time stock investors. Some old hands are also making a comeback despite having told themselves they would not dabble in shares again. As the markets moves leaps and bounds, it is easy to get caught up in the euphoria. You hear people saying " this stock is going to run in the coming weeks', 'this company is going to announce an internet venture, restructuring or merger' and so forth.
All this will no doubt cloud your judgment . Greed may start talking over your rational mind. I will not try to teach you stock-picking techniques, but will highlight the potential risks and level of exposure to be considered when investing, directly or indirectly in shares.
What are the risks?
There are many types of risks. A simple definition, in the context of investment, is the chance of the investment making losses or earning lower than expected returns. It is important that we going through investment options, we find a match between our risk tolerance and the inherent risk of the securities or investment we are considering.
Risk tolerance is basically the level of 'psychological discomfort' we are willing to endure from the investment. If you have high risk tolerance, you will be fairly comfortable investing in stocks or futures contracts in which values can fluctuate fast. Conversely if your risk tolerance is low, opt for more conservative investments that will not be subjected to wild swings like fixed deposits and money market securities.
When you have direct investments in the stock market, you are expose to both systematic and unsystematic risks. Systematic risk (market risk) is inherent in the market and cannot be diversified. Market risk is macro in nature and can include inflation, change in interest or changes in the country's economic policy.
Unsystematic risk (company risk) is risk that is unique to the specific company. Company risks include a rise in oil prices, special levies on tobacco or alcohol consumption or a drop in palm oil prices. Company risks can be reduced with a portfolio that consists of stocks or other investments that tend to move in the opposite direction in response to changes in the economic environment.
It is not easy to build a portfolio of stocks. You will need to spend time researching companies and come out with a significant amount of money. For retail investors, these will be the main hindrances - time and money. Therefore retail investors are normally subjected to higher company risks due to their restricted diversification, not to mention the market risk which is already inherent. This is an area where professional fund managers will have the upper hand, given the resources available to them.
KHAIRUL IDZWAN IDRIS
Timbalan Pengerusi
Biro Ekonomi Dan Pembangunan Usahawan
Pergerakan Pemuda UMNO Bahagian Setiawangsa
Wilayah Persekutuan
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