By: Ridwan J Zachrie, Senior Advisor, Seven Stones Indonesia.
When I first started investing, I chose mutual funds and stocks, both for investment and trading. I did this because as a person who works in the financial sector, I feel that I can assess the potential profit that can be achieved by measuring the level of risk involved. This means I can invest safely.
When we invest in capital markets, it’s important to be aware of balancing aggressive investment targets and measurable risk management. We must also understand that losses can, and do, still occur.
There was a time when I experienced an investment loss, almost reaching 55-percent of the investment capital value. This was due to several factors, including unfavourable stock market conditions, but it’s worth noting that my risk analysis skills at the time were also was not that deep. It was a good lesson to learn and worth remembering that every failure can be the most effective teacher. Failures help us mature, giving us an even sharper early warning system in making decisions, such as when to invest aggressively and when to be careful. We have to consider many things before taking action. For example, looking at the fundamental side or the fair value of stocks, as well as looking at technical stock price conditions.
When price trends are rising and the stock price at that time is still lower than the fair value, my tip is to invest and buy. But when the trend is down, even though fair value has not been achieved, investors need to be alert. If the downward price trend is too strong, investors could suffer losses. We also need to understand that rising and falling price trends both provide good opportunities. What is riskier is the sideways price trend, because when price movements tend to be stagnant, they become very vulnerable to negative news, which in turn, can have an impact on falling stock prices.
Portfolio Basket
Another strategy we can use is to put investment funds into several portfolio baskets including mutual funds, stocks, gold trading and deposits.
We choose mutual funds because the benefits can be adjusted to the level of risk. In addition, investment managers who manage mutual funds will diversify risks.
Meanwhile, stocks can be instruments that provide the greatest returns compared to other instruments. Profits in shares can be in the form of capital gains and dividends.
I suggest investors can be more aggressive in utilizing shares, because the potential returns are high. Meanwhile, investors who tend to have a conservative and moderate risk profile can choose to invest in bonds. This instrument is more attractive, because a decrease in interest rates will cause bond yields to fall, so that bond prices will increase.
Even though the world has entered a period of economic recovery, investing in the stock market is still much more attractive than the bond market or money market. We can choose shares in sectors that are the government’s main focus and provide incentives, as well as shares that are still below their fair value due to the decline during the pandemic.
What is safe at this time, in my opinion, is perhaps that we continue to make short-term investments, while managing our portfolio by diversifying.
Ridwan J Zachrie is a Senior Advisor at Seven Stones Indonesia. He holds professional certification including Certified Business Valuer (CBV) issued by the Academy of Finance & Management, Australia and Brooker Dealer Representative (Wakil Perantara Pedagang Efek (WPPE), issued by Otoritas Jasa Keuangan (OJK) Indonesia/ Indonesian Authority for Financial Services. He was also awarded The Best Indonesian CFO in 2019.
Photo by Oren Elbaz on Unsplash
