With most traditional avenues of investment looking south due to the ongoing economic crisis, investors are hard put to decide what to do with their money for better returns on investments (RoIs).
Emirates Business went to the Online Trading Academy, Dubai, to get answers to some questions about investment strategies from the gurus themselves
El Hassan Baker, Financial Advisor & Instructor, Online Trading Academy, said: "Before settling on an investment plan the investors have to decide what their investment objectives are and what kind of returns on these investments will match their needs.
"Then they will have to consider the risks they are willing to take and the time frame for the return on their investment to begin.
"Investment avenues never close but the risks linked with these investment vary from time to time. At this time, the risk levels are very high and any investment plan right now has to consider this.
"Also the plan has to consider that low-risk investments will never give a higher return. So setting realistic goals for the investment plan is an important factor in order for it to succeed.
At the moment, for medium risk and medium term investors, the plan should contain different instruments with different risk levels and less short-term profits. So it has to be highly diversified."
According to Baker, investors who are willing to take more risk should look for a rebound in economically sensitive industries like oil and real estates in the Gulf, small-cap stocks, commodities and foreign exchange markets. This might generate higher short-term profits but it will have a higher risk at the same time.
Medium-term investors must diversify their portfolio. They must go for lower percentage of risky investment in their portfolio and balance this risk with less risky assets but with acceptable return in the long term.
This can be found in the utilities and telecom stocks, infrastructure and defensive sectors such as healthcare and education sectors.
The long-term investors who will have a lower risk will have to look for more stable investment like governments bond and high rate companies bond and of course the main asset in a low-risk portfolio namely gold and cash in US dollars.
Talking about personal discipline especially required for the market situation we are facing today, Baker said: "In the online trading academy, we teach our student an important rule, which is, plan your trade and trade your plan. So the first thing the investor should start with is to make his plan considering the risk levels and the expected outcome using all the necessary analytical tools and risk management. Then this plan has to be followed through.
"With the right plan you don't have to worry about the external effects and the investor can be isolated this way from the negative effect of the conflicts in view by different advisors."
Talking about the strategies investors who have money stuck in stocks at the moment should adopt to cut their losses, Baker said: "They have to reorganise their portfolio and manage it and add more instruments to it so that they can balance it. Apart from that they will have to wait for the stock to return to the value at which they bought it.
"Investment portfolio is not only about pursuit of returns; it is also about risk management. So using the proper risk management strategy will help the investors to achieve their goals.
"The strategy has to consider the following risks, market risk i.e. volatility, liquidity and valuation; credit risk which includes quality, duration and interest rates; inflation risk; currency risk; geopolitical risk; issue selection risk.
"In a downturn, a conservative risk management strategy has to be applied in order to survive. Investors have to consider diversification. Investors holding concentrated single-stock positions face unique risks as well as unique opportunities. However, diversification strategies can protect net worth, allow participation in the future growth of the market and generate liquidity.
Trading assets across classes also has its benefits because then the investors have more ways to manage risk. If they can offset a fixed income trade against an equity trade their exposure is potentially less."
Giving advice to first timers who plan to enter the stock market now, Baker said: "They have to know what they are investing in and which is the most preferable investment that will meet their goals and objectives.
"Also, because of the financial crisis we are in, I would advice first timers to invest in themselves before starting the real investment by acquiring an education so they won't make the same mistakes that others have made in the last few years."
Talking about the UAE stock market's recovery potential, Baker said: "The recent move of the UAE market suggests that we are on the way for a recovery soon taking both technical and fundamental view of the markets here. We can see the technical signals awaiting confirmation for a new wave of upmoves. At the same time the undervalued shares prices that were affected by the pessimistic sentiment in the market and not by the fundamental factors and the financial statements of the companies indicate a recovery soon."
According to Baker, while there are concerns about the health of the global economy still affecting the global markets, if one looks at the PE ratios in the global companies they can become very attractive for long-term investors. However with risk aversion being the dominant factor at the moment, the global stock markets need a while to recover totally.
The recovery will start with any signs of improvement in the global economic outlook. However that might not be seen before the first quarter of 2010. Till that time investors might see some bounces in the global markets but this will be considered short-term bounces (dead-cat bounce) which will not hold for a long time.
About the academy
The Online Trading Academy opened its doors in March 2005 to traders wishing to acquire more knowledge and skills. Instructions by professional traders and state-of-the-art facilities allow students to learn and trade live on the Nasdaq.
Tareq Abu Hantash, Centre Manager, Online Trading Academy, Dubai, told Emirates Business about what the academy is all about and what they have achieved in the last four years.
"We opened our doors in 2005. Since then we have developed courses that are suitable both for the trader interested in trading on the Dubai Financial Market and the Abu Dhabi Securities Exchange as well as the global markets. In addition we have included courses in Forex, Commodities and Options as well as Free Power Trading Workshops for Stocks and Forex. Our product includes CDs, books, class courses and lifetime assistance programmes. If it is a financial product – ask us, we probably already teach it!
"Our students are taught how to take a decision using the tools and techniques professionally. Some look for it as a complete career change, many look for financial and employment independence. They can become a broker if they possess licence.
"The tuition fee differs on various financial instruments. Our different products and services range from $50 (Dh183.66) to $20,000. And one of the benefits our school gives is, once the students are graduated, they can take the class as many times they like for free at any centres around the world. The other advantage is we have relationship with prestigious financial firms who will rebate fee of the students in the form of discounted commissions. We offer a spectrum of trading styles and instruments, from Day Trading, Swing Trading, Position Trading, and Investment Theory for Stocks, Forex, Options & Commodities."
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