Investing is not for the elite; we all practice investing one way or another.
By Amr Hussein Elalfy, MBA, CFA
5/2/19 12:00 AM
When people realize that my daytime job is in equity research studying the stock market and economy, I always get asked some repeated questions, the likes of “So, what should I invest in right now?”; “How will the US dollar fare and should I dollarize my assets?”; “Is it a good time to buy in the stock market?” And the ultimate six-million-dollar question of all time: “Which stock(s) should I buy to double my money in three months max?!”
On one hand, these questions can be addressed with short answers, either a “Yes” or “No” or a four-letter ticker for one or two stocks will do. On the other hand, referring back to our last article, the answer is not always as short and will often require some context. “Time” is of the essence. Anyone claiming a superior ability to time the market correctly all the time would be lying. No one can time the market successfully for the market includes all types of investors who have different points of view and a diverse set of rules to go by. After all, what makes a market work is two opposite views, one selling and another buying. Otherwise, there would be no market and liquidity will be scarce!
But for investors to gauge their performance, they need to use a benchmark (e.g. a market index) over a certain period of time. How will an investor’s performance measure versus that benchmark foretells how successful or lousy of an investor he or she really is. But calculating performance comes at a later stage in the investment process which consists of three key stages: (1) the planning stage, (2) the execution stage (including asset allocation and security selection then execution), and (3) the feedback stage (performance review).
While the above may sound a bit academic, believe it or not, we have all been investors at a certain point of time in our lives. I can hear people saying they never invested throughout their lives, but let’s think again. For instance, remember when your parents started giving you your monthly allowance? Remember when your friends and family handed you birthday cards with a couple of money bills tucked within? When you spent that stash of money, you actually invested. Even if you saved that money, you made an investment decision which is to stay in cash, thus postponing investing for the future.
Investing is an activity practiced by individuals as well as businesses. Granted, all investment decisions are not fault-proof and they do not need to be. What matters, however, is how risk is managed—one of the most components of investing, in my opinion, which we will address later.