How to start investing in Pakistan Stock Market(PSX)?

I'm a Software Engineer who happens to be an investment enthusiast. One of my earlier posts was about how to save tax by investing in Mutual funds. If you are paying full tax from your salary or business then you might want to take a look at that post.

In this post I'll guide you on how to start an account with a broker, use available tools to analyse stocks and avoid the common pitfalls people face in the start.

The first thing you are going to need to start is an account with a broker.

How to get an account with a broker?

A broker account is required by any individual to start investing in stock market.

Step-1:

Check out list at SECP for verified and registered brokers. Choose an old and established broker only because if the broker files bankruptcy, your investment will be lost.

Step-2:

Once you have chosen a broker, call their agent and he will explain you the process of starting the account. Usually they get a form filled similar to a bank account opening form and get a cross cheque from you. The minimum amount will be subjective to the broker but you can negotiate if you want. I started off with 50,000 Rs.

Step-3:

Once you have the account you can start trading stocks. You can either call your broker on the phone and direct him to trade or your broker will provide you credentials for KITs software. Which is a trading software and you can view real time stock prices and trade in real time. More details on this in resources section at the end.

How to start investing the right and safe way?

I have come across a lot of misguided information in my start. Usually from day-traders who want to make quick money.

Beware of Day Trading:

Day traders will invest a large sum of money in a single cheap stock. Slight change in the stock price can give you quick profit but has very high risks. This strategy use inexpensive stocks. Such stocks are usually of companies with low revenue and reputation. You never know when is the last time you will make your last profit before the stock crashes to a low and never rise up.

So how to go about spending your hard earned money then?

Think Long Term

The most important aspect in Stock investing is the correct mindset.

“Someone’s sitting in the shade today because someone planted a tree a long time ago.”- Warren Buffet

Do it as the experts say and who better can be to learn from other than Warren Buffet? The recommended strategy is to go long term. A rough benchmark is to invest your money for at least 5 years.

Portfolio Building

“Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.” - Warren Buffet

Divide your money in a diversified portfolio and let the stock market nurture your money. The portfolio should be divided into different industries so slump in one industry doesn't affect your investment much.

Dividing the portfolio in the start seems counter productive because your returns and loss will be divided and not much evident in the start. Your broker may also advise you to go all in with an inexpensive stock(their commission depends on the number of shares traded, not on the profit you make). So make educated decisions.

Take a look at 5 year returns from PSX. If you had invested and distributed evenly 1 lac Rs in the below portfolio you will have 4,452,000 Rs after 5 years. Dividend yield is separate from this. These are extra ordinary returns but certainly possible with the right portfolio and with the rising economy of Pakistan in the next 5 year

Resources

Kits:

It is the default software your broker will provide you once you are registered with them. You can download the software from this link KITs software.

Pudgy Logic

Search This Blog