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Stock investment a quick insight

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561

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Malaysia's rapid-changing economic landscape is gradually turning the local financial market into a more matured and sophisticated marketplace.

Although short-to-medium term uncertainties still linger on investors' minds, signs still point to long-term prosperity in Malaysia. Despite the recent rocking of both the currency and stocks, individual investors should look ahead and continue to grow their money.

Rather than overreacting, investors should instead focus more to the specific characteristics of certain companies and long-term fundamentals of the economy.

Investors should begin to pick up some stocks selectively for their portfolios with a 3-5 year time frame given the current attractive valuations and sound fundamentals.

For individual investors who wish to manage their own money, care is required if they intend to invest in stocks. In searching for potential companies to invest in, various details need to be considered such as quality of earnings, earnings track records, strength of the management company, dividend growth, position in the specific industry, cashflow, profit margin, just to name a few.

Financial analysts use a wide range of key ratios when valuing companies. In other words, you should be familiar with the fundamental aspects of investments. Issues such as price/earnings ratio or price/book value ratio should be the main consideration.

Your decision to invest should not be overwhelmed by market speculation which is part and parcel of any investment market.

On top of that, reliable and quick information is a necessity. Your work will be likely distorted if you are unable to locate accurate sources of information.

Valuation is often based on economic and industry variables plus an in-depth analysis of the stocks prospects (refer to model 1). In general, analysts use various valuation models in order to identify undervalued stock prices. Different people will have different ways of picking stocks.

For your investment strategy, you may select either bottom-up or top-down approach. Bottom-up approach focuses on stock-specific selection. It concentrates primarily on specific companies rather than markets or specific sectors.

Top down approach primarily emphasizes economic and industrial analysis - factors such as currency conditions, business cycles, competition, government policies, etc can swing stock prices (Refer to model 2).