The Colombo Stock Market will recover and it is an attractive market place for both local and foreign investors at present where market performance is improving.
Sri Lankan investors have to learn from their mistakes and seek professional help to invest in the stock market. The investment criteria should be based on factors such as economic conditions, industry, company performance and earnings, Heraymila Securities Limited Chief Executive Officer Ravi Abeysuriya told Daily News Business.
Investing in stock market requires better understanding of fundamentals and needs a clear idea of the company’s price in relation to earnings which is commonly called the PE multiplier, he said. If PE is relatively low of a good company, that is a good indicator to consider investing. It means that there is greater upside of the price appreciating as the company grows. If one picks stocks which were valued less than the market price and invest with a clear understanding that the stock price could fluctuate,it will help long term investment.
Stock market investments can bring in returns much higher than fixed income investments. Fundamentally strong companies will attract more and more investments and the price will move up when the companies start performing better.
A prudent investor can exit the market after making reasonable returns. They can re-enter when the company reach a certain pre-decided PE multiplier. For this the investors need to be disciplined, he said.
Regardless of the Sri Lankan stock market been over priced compared to other markets, there are several extremely attractive stocks that can be picked by prudent investors. What is required is to obtain the advice of an investment advisor who could enlighten investors on projected company earnings and research provided by the advisor, the investor could select the stocks that meet his return requirements and risk tolerance, Abeysuriya said.
A market could move up as well as down based on the economic and perceived sentiments of investors. Investor psychology plays a major role in market movements. Investors should have longer time horizons where it could ride the ups and downs of the market and need to pick stocks at a time when the market is under valued and sell when it is over valued.