Praise be to Allaah, the Lord of the worlds. May the peace and blessings of Allaah be upon Muhammad, His last Messenger, his household, his companions and all those who follow him till the Last Day.
Investment to preserve and grow your wealth is not as simple as it looks. Here are ten (10) everyday guidelines for the investing world designed to help keep investors - and their money - safe:
1. Set clear goals: If you don't have a purpose or a set of goals to guide your investment strategy, don't invest. This sounds harsh, but there are so many types, styles and flavors of investing that, without a particular destination, you will be lost at sea.
2. Put your financial house in order: To become a successful investor, you have to make sure that your personal finances are in order first. Investing without a purpose is bad, but investing when you have debt and outstanding religious and social obligations is much worse.
3. Question authority: Investing is more about the art of asking and answering the right questions than it is about deciding when to buy and when to sell. CEOs, CFOs, CPAs, CFAs and all the other acronyms that we use to classify the financial professional caste can't hide the fact that they are human, and that humans sometimes lie. Analysts get kickbacks, CEOs get stock options and recent accounting scandals, such as Enron and Cadbury PLC, show that impartial accounting is not guaranteed. To question authority, you will need to educate yourself, especially on the subject of financials. Although financials can be tampered with, there is always a trail left behind.
4. Do not follow sheep: Herd mentality has led to destructive ram pages down Broad Street. Investing passively by sticking to funds such as LOTUS CAPITAL HALAAL FUND is a perfectly acceptable practice. The danger comes when people move from passive investing to an active portfolio, but stick with the behaviour of a passive investor. Investors get lots of information - much of which is true, but accepting it with an uncritical eye and neglecting to check it yourself is what leads to herding.
5. Be humble: Do not be overconfident in your investing abilities. Overconfidence often leads to overtrading, taking unnecessary risk and eventual losses when the bull turns bear.
6. Be patient: Patience is a virtue for a good reason: It pays for itself. When the market dips, or even when a particular stock dips, there are always investors who panic and sell. Selling should be treated just as seriously as buying. If it is just a bump, ride it out. If it is truly a problem with the stock, take your time as well - you may find a good way to use it.
7. Show moderation: Investing too much is not a problem many people have, but it can happen. It is said that the pain of a loss has twice the emotional strength of the pleasure of a gain. For some people, this results in them pulling out of the market prematurely, as mentioned above. For others, losing propels them into successively riskier ventures in an all or- nothing attempt to win those losses back. Losses are hard to take, but look on the bright side: You can sell a loss to offset a gain in another sector!
Concentrating your money too much in one area, either by sector, risk level, or even keeping it all in the stock market, is a sure way to see more nothing than all in an all-or-nothing game.
8. Do not ogle your investment: As with fidelity, the axiom, "look, don't touch" is insufficient because the more you look, the more you want to mess around with your investments. Do not over-monitor your investments.
9. Neither court nor spurn risk: There is an appropriate level of risk for investors of every age and creed. Try and figure out your risk level and tailor your investments according to it.
10. Do not make heroes of mere men: There are no perfect investors. Notable investors and investment professionals have all slipped up from time to time. That doesn't stop them from being great investors who are worth studying and learning from. That said, you should never mimic an investing strategy that you do not fully understand. There is too much guruism going on among investors! As with the early caution against trusting authority, you have to question everything. Even if a strategy works for a certain period of time, once it becomes widespread, it skews the system. Skeptics are much better investors than 'believers'!
Conclusion: Investing requires constant practice. To be a good Muslim, you have to eschew doubt from your creed; but to be a good investor, you have to make doubt a part of your creed and make a ritual of double-checking. These guidelines should help you on your way.
This article was culled from the publications of Deen Communication Limited