Become a Fan
Is it me or is it the market?
By Anita Sie
Sunday, February 17, 2008
Rated "G" by the Author.
I said goodbye to my co-worker Cindy, “see you tomorrow then,” Cindy responded as she got into her car and I headed home trying not to think of the past week and the stressful meetings that we had.
As a Senior Investment Analyst at the AJ Investment firm I was responsible for evaluating short-term debt securities, investment projects and providing reports on investment opportunities thereby recommending potentially profitable investments to the upper management.
This Friday, I was definitely looking forward to a relaxing weekend telling myself that I didn’t want to do anything that related with work. I was expecting some friends over at my house on Saturday afternoon for a tennis game. I am used to working on weekends too but this weekend I was going to take a break, or so I told myself.
Saturday morning at 10:00am sharp I entered the main lobby at Victoria Beauty Salon and Day Spa. Tina, the receptionist confirmed my appointment and motioned me to sit.
“She’ll be right with you,” she said with a smile.
Approximately two minutes later, “hey Salma, how have you been? Come on over.” Jay said cheerfully and guided me back to her station. Jay had been my hair stylist now for about 5 years and she knew exactly what to do with my hair because I did not have much time to try out new styles.
“I’m fine, just busy as usual.”
“Salma, I need your investment advice today, I am loosing money and soon I will loose my mind!” Jay was always a conversationalist. “What could I be doing wrong? Oh, wait, do you want to do anything different to your hair today or is it just touch-up?”
“Just touch-up Jay and if you could trim the ends that would be great, thanks.”
“Consider it done. So tell me what am I doing wrong? You know I don’t have money to pay an investment broker, but you are a friend you can help me right?” Jay said with a twinkle in her eye as she tilted her head sideways so that she could see my face.
“Oh, well so much for a work-free weekend,” I said sadly. But I continued anyway,” Managing your own investments can be a little challenging depending on your background. If you don’t know much about investing you may need to spend more time doing research than someone who has an idea of what they are doing.” I started explaining.
“Well, I can say I don’t know much I am just getting started.”
“You may want to borrow some investment books from the library or do a search online to get some basic understanding of investment terminologies. Since you are just getting started, you may want to stick to the more straightforward investment strategies and leave the complex ones to a time when you have gotten comfortable with the concepts.”
“Okay…” Jay asked curiously as she parted my hair to apply the perm.
“Plan your investment portfolio so that it is a mixture of bonds and stocks for example, this is called diversification.”
“The first thing to know regarding investment is that a diversified portfolio is less risky than a portfolio that is concentrated in one or a few investments.”
“The second thing to know is that a bad year for bonds is usually a good year for stocks. This makes diversification even more important because when bonds are not doing so well you could be making money on stocks since stocks tend to do better then. Diversification can also be done within the bond or stock categories. For example you can also diversify based on industries and invest across different industries rather than the same industry. For example if all your investments are in companies under the cement manufacturing industry if that industry has a bad year your whole portfolio is affected.” I paused to take a sip of water.
“Mhh,” Jay mumbled.”
“There is a lot to learn when you are trying to create a do-it-yourself kit.” I answered and continued,
“Another important thing to remember is that inflation may be the biggest threat to your long-term investments.”
“What?” Jay muttered.
“There is nothing much that can be done about inflation but we can plan for the effects of inflation on our investments. For example financial calculators can help determine how much money will be needed to fund a specific financial goal in let’s say 20 years. This way it is possible to estimate how much purchasing power today’s money will have 20 years from now.”
“Ok, forget about inflation that is too complicated even though I already know what inflation is. I want to know how to pick the right stocks,” Jay said impatiently, and then she motioned me to get up and headed for the rinsing basin. She always did my perm fast because she knew how sensitive my scalp was.
She continued as I sat on the seat and lowered my head towards the basin, “because I bought stocks from several companies and they are all loosing money. I don’t understand, one moment the stock price was going up the next minute it went down and I lost, a lot of money! And this was the same for all of the stocks that I bought, I can’t afford to loose anymore.”
“Sorry to hear that Jay, but this is something that happens most of the time with the stock markets. As you get more experienced you will be able to work with strategies that will reduce your risk significantly.”
“For example, another thing to know about investment is that risky investments usually pay more than safe investments. If you pick the right stock at the right price it may yield higher returns than safer investments such as bonds.”
I went on, “this brings up another important thing to know about investment that is the biggest determiner of stock prices is earnings. Stocks prices may be pushed up or pulled down because of a sudden increase on investor demand or a sudden sale of stocks by a major holder however the real value of the stock is determined by the company’s earnings. Did you evaluate the companies’ earnings before buying their stocks?”
“Well, sort of but I wasn’t sure I understood what to do with that information. I looked at the stock prices and noticed that they were going up and some of my friends said that people are making money off of those stocks so I decided to try.”
I took a sip of water again then continued, “So to answer your question, learn more about company earnings in order to make informed decisions whether to buy and when. Price per earnings, price per sales, and earnings per share are some of the investment terminologies to search for and understand and you can always read analyst reports to compare with your research results.”
“There are a lot of other factors that need to be looked at before making that “buy” decision but there isn’t enough time today to discuss all of that today. Give me a call and I will get you some references – books, websites – that you can check out to get more information, how about that?” I finished off as Jay got one of the driers ready for me.
“Ok, I guess I will bury myself under them books, maybe I will get a thing or two. But before I buy any other stocks I will call to check with you first, is that alright?” Jay asked.
“You are not going to charge me are you?” She asked jokingly.
“No, but you are not going to hold me responsible for free advice either.” I smiled back.
45 minutes later I was headed for the door promising Jay that I will get her information ready for when she calls so that she can get started as soon as she wants to. Just then I remembered that I had 2 hours to myself before my friends arrived at my house so I decided to go get some light lunch and a banana-split 
Site: Tanzania Financials Online
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|Reviewed by Mary Coe
|A well written interesting story. Enjoyable reading. Very nice job on this.|