Daily Times

There is a prevalent misconception among Pakistan’s populace that investment in the stock market is a gambling venture, and that it is merely a test of luck. This delusion has discouraged many investors to shy away from the stock market, and has caused distrust for accumulating information pertinent to taking lucrative investment decisions. This is the reason that around 97 percent of small stock investors merely come to the Pakistan Stock Exchange for losing their money, and thus never coming back.

Buying a share of common stock is not a little decision. A stockholder has the right of ownership in the assets and profits of a company. Traders always take informed decisions after carrying out fundamental as well as technical analyses of the business for getting handsome returns. Portfolio diversification is always at the heart of prudent trading as putting all eggs in one basket is never a good choice.

A trader knows much more than a layman investor. Hunting financial information in a timely and an analytical manner makes a trader a winner. Shrewd stock traders are able to analyse the market movement and forecast when recession is going to overtake boom, and when an economic boom is moving ahead for an economic crunch. False economic breakouts are mostly known to traders due to their extensive knowledge. They, thus, timely opt for the best suitable investment strategy, and make a handsome amount of money from stocks.

A trader is a crackerjack financial analyst who places engineered bets for gaining targeted profits. Market volatility, acquisition or merging of business, expansion plans of industry, technological changes, and domestic as well as international dynamics impacting the domestic markets are always known to a successful trader. In sum, financial as well as non-financial information is taken into account.

There is a prevalent misconception among Pakistan’s populace that investment in the stock market is a gambling venture, and that it is merely a test of luck

Being a market strategist, a trader knows that the outlook for business condition is prone to volatility and can affect future earnings. Therefore, decision to invest in the same company is always revised according to current market dynamics for the respective business.

Warren Buffet, the stock market wizard, shared a piece of advice for new investors: “Read 500 pages like this every day.” The stock market is all about getting every little detail of the firm one is going to invest in.

Stock prices move in the form of patterns and trends. Trends might be straight, curved or irregular. There are properly identified signs when a reversal happens, and how a market takes a path from up to down or down to up. These reversals and continuity and irregular movements of trends can be safely predicted. Various indicators such as the average true range, simple moving average, earning per share, and relative strength index are analysed by wise traders to study trends.

Prudent investment practices dictate to seek out quality companies with strong balance sheets, solid earnings and positive cash flows. Such an extensive analysis of financial ratios prevents impulsive and irrational decisions. Based upon the information gathered, a stock trader takes decisions about either to buy the shares of a specific company or not. There are times when a trader needs to be completely away from the market for some emotional and economic reasons. Here uninformed gamblers always lose, but not a learned trader.

The world of stocks has huge potential for economic growth, curbing unemployment and poverty and attracting foreign direct investment. In the US, after being educated about investment strategies in the stock market, many people quit their jobs in the early 2000s, and started earning from home. More than 52 percent of Americans earn a substantial portion of their income through investment in stocks, according to Gallup.

Market capitalisation would increase with the inflow of learned traders. A stock market with good capitalisation not only brings in investment by foreign traders but also the domestic trader would be able to reap significant returns by investing in international exchanges, bringing in capital to Pakistan.

There is huge scarcity of expert stock market traders in Pakistan. There are multiple reasons for that. Very little research has been carried out in this field. Students in universities keep studying the modelled market hypotheses, and not the real domestic market dynamics. There is a dire need to incorporate market-based data.

Every stock market has unique dynamics that need to be explored. In case of Pakistan, little research has been carried out for domestic stock market, so the latent dynamics of our market are still unexplored. Conferences could be organised for encouraging investors to learn about the real dynamics of investing and not to rely on gambling practices. Investors could analyse trading on a larger frame, and thus, taking it less as a trading vehicle and more as a right of ownership in the company.

The writer can be reached sumrarubab@gmail.com