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Why invest in Pakistan Stock Exchange and the mindset needed?

There are several reasons why it is important to invest in Pakistan Stock Exchange. 

Possible

Stock investing was not possible for many people even as early as a decade back.  However, changes in the general environment and capital market regulations have made it possible for almost anyone and everyone to participate in stock investing.

Easily accessible

Stock investing is more easily accessible than ever before, thanks to modern communication and computing technologies like personal computers, smartphones, laptops, and tablets. This wasn’t the case even a decade or two ago when the entire process seemed quite complex for a layperson.

High returns potential

Equities are said to produce the highest returns among all types of investments in the long term. Anyone investing in equity shares or stocks as they are popularly known can increase their potential to earn high returns.

New opportunities

There are many new opportunities that are available in the equity capital market today.  For example, smartphones were unheard of two decades back. Apple Inc introduced the idea of smartphones and became a multi-billion dollar company.  The stockholders of Apple Inc have significantly benefitted by investing in the company shares. There are many such companies that are yet to be discovered and the investors yet to be rewarded.

Global business landscape

The global business landscape has been changing rapidly and would continue to do so in the future too.  The market is open to everyone and even local businesses can rise and shine on a global scale if they can perform at a world-class level.  For instance, Foxconn, a Taiwanese company has become the biggest manufacturer of Apple smartphones due to its global competitiveness. 

Rewarding of talent 

Entrepreneurs and other talented people have the potential to be greatly rewarded regardless of their country of origin or their language or ethnicity.  Talent is more easily recognizable than ever before and gets adequately rewarded for its excellence.  The business environment is conducive to selecting the best from the global pool of available talent.

Put your money where your mouth is

You as an investor can put your money or invest in the company or business leader you believe has the potential to spot opportunities and capitalize on them.  You can actually invest and thereby back your belief in the said company or business leader.

Supporting worthy causes like the environment

The environment is under constant threat of overexploitation by unscrupulous businesses that couldn’t care less for others.  You can invest in businesses that support environmentally friendly business practices and thereby have a say in protecting the environment. You can also invest in businesses that you find follow business practices and ethical principles that you care about.

So, by participating in stock investing you not only utilize the opportunities to maximize your potential returns in the present but also care for the future by investing for a better world for generations to come.

The mindset needed to invest in stocks

Most people are introduced to stock investing on Pakistan Stock Exchange as some get rich soon scheme sold to them by some acquaintance who promises them the moon.  However, stock investing is a long term process involving patience and discipline. People who view stock investing as get rich quick scheme often end up getting disappointed sooner than later. 

So, what is the mindset needed for stock investing?

The answer depends on what stage of the investment life-cycle you are at and what expectations you have from stock investing? 

First things first

If you are a novice or a beginner you may have different expectations from stock investing than someone who has already built up a stock investment portfolio. You also need to understand the type of investor you are and your willingness to take risks.

Did I say “risk”?

That word itself sounds somewhat scary and conjures an image of uncertainty in one’s mind.  However, “risk” in itself is not something bad or despicable, it is the way people perceive and understand “risk” that can make it look undesirable.

Understanding risk

If we keenly notice our life itself is full of risks.  For instance, there is a risk in walking on the road, driving a vehicle, sitting in a car, or even traveling by Airplane. Likewise, there is a risk in undertaking several activities in our daily life which exposes us to some degree of risk. But does this mean that we stop living our lives or cease undertaking the activities that we like or need to undertake? No, we don’t stop living the lives we want to live because there may be some risk involved.

So, why should investing through Pakistan Stock Exchange be any different and why should we fear it rather than look at it as an opportunity that can help us thrive?

Hopefully, you should be able to answer the above question after you see and understand the benefits of stock investing more clearly.

Also Read:  Why Must A Stock Investor Know About Technology?

Seeing it as running a business

One of the sound ways of perceiving stock investing is to look at it as a business. You need initial capital to set up a business, and you use the money saved by you over a period of time, to start your own business. Now, the business may have ups and downs but if you run your business sincerely your efforts would pay off in the end and you would make a profit. You repeat your success formula and you would be an owner of a profitable business in some years.  

Knowing about the chances of a business failing

There are inherent risks in running a business that may lead you to great losses. But when you start your business, you know that there is a probability of making losses as much as there is a possibility of making profits. So, you are mentally prepared for either. However, you do everything in your capacity to ensure that you make a profit in the end. 

Willingness to have a share in both profits and losses

If you have taken money from someone to start and run your business, and you have agreed to share the profits, you may have to pay that person a part of your profit. You take some share for yourself and the rest you reinvest to grow your business further.  Conversely, if you end up making a loss, you are not able to share anything with the person who invested money in your business. The person knows that he can’t demand money from you as he agreed to share either profit or loss whichever happens and accept the reality.

Food delivery business example

Stock investing is similar to the above example, here you invest in someone’s business and agree to share either their profit or loss whichever happens. Let’s say, for instance, a group of young entrepreneurs see an opportunity to start a food delivery business. They may not be able to access money from you directly for investment but instead they approach investors who can assume greater risks than ordinary individuals can, these investors are called venture capitalists.

Wanting more returns means a willingness to take more risk

These venture capitalists usually make the biggest profits of all if the business becomes successful.  However, they also bear the greatest risk of losses if the business fails. So, it works both ways. Bigger the opportunity, the bigger the risk, and the greater the chances of making profits or losses. You cannot make profits without assuming any risk. 

Gaining customer's trust leading to success on the stock market

Once this fledgling food business gets a foothold in the market and the people start trusting their products and services, they go for further expansion. Now, this time they want to approach the common investors to ask them to invest in their business. For achieving this they approach PSX and list their shares on the exchange. Once they are listed on the exchange you and I can start buying their stocks at the listed price.

Using stock market to invest in trustworthy businesses

Now, that we know and trust their products we are more inclined to invest our money in the business and become investors. Our expectation is now that the stock price of the company will grow and so will our investment holding in that company.

Researching and seeking professional advice

Each company or business has its own life cycle, and the fortunes of the companies may change for the better or worse over a period of time. For instance, during the COVID times, healthcare companies and businesses made great profits, however, the travel and tourism businesses suffered great losses. So, it is always helpful to do your research before investing. Alternatively, you can use the expertise of our investment advisors who will guide you using their vast experience in the field to select the right businesses to invest in.

Investing in the right business

As you have seen from the above example, stock investing is just like any other activity that we engage in our day to day lives. We can benefit from it if we gain awareness from experts in the field and understand the way it works. We need to bear in mind that there are risks attached to investing in stocks. However, if we select the right businesses to invest in, we significantly increase our chances of capital growth.

Investing for capital growth over long term

We also need to realize that it takes time for a business to grow, so how can I expect immediate results? Even if you plant a seed it takes time for it to become a tree and bear fruits. Meanwhile, the tree has to be nurtured and watered well throughout its growth. Likewise, a business has to be run well throughout its journey for it to become profitable over a period of time. 

Knowing risk and being patient

If you have the mindset that business takes time to grow and it is important to stay invested over the journey of the business, then you are starting to develop the right mindset for stock investing. If you realize that a business can, make profits but can also go into losses, meaning there is some risk in investing, then you have the correct mindset for stock investing.

Finally, it’s important to realize that investing is not a destination, it is a journey, meaning it is a long-term engagement.

A disciple once asked a Teacher, what is more important, the journey or the destination, the Teacher replied, that the most important is the company.

Also Read: why invest in Pakistan stock exchange and the mindset needed?