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Investing in the Colombo Stock Exchange | Basics

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Ever wanted to get into the stock market, but could not go that extra step? Then you’re in luck because I will break it down into manageable bits in this article! 😊

Kindly note that this is set in a Sri Lankan context and this article will focus on investing in the Colombo Stock Exchange (CSE).

Becoming an Investor

First of all, you need to get in touch with a stockbroker company such as Asha Phillip Securities Ltd (which has been my stockbroker for ages now) or any other reputed stockbroker in the country. 
Once you’ve done that, they will create a CDS (Central Depository System) account for you. So basically, you need to deposit money into this account if you want to make any purchases of stocks. Once the money is in, all you have to do is call up your agent (a stockbroker assigned to you) and tell him or her which company’s stocks you want to buy at what price and how much.

 You will then get a statement of your stock portfolio every month and you can also download the CSE Mobile App to check your respective stock performance in real-time!

 Carrying out buying and selling activities of stocks online (on your own) is possible too, but I have no experience on that for now so I will not be touching on that area :) If you are interested in this let me know in the comments!

For more on Internet Trading, click this! :)

Selecting a Company

There are some company-related ratios you should be looking at to make a sound decision objectively. However, I will not be going into all that jargon in this first article because it may act as a deterrent for you (it happened to me too). Hence, to keep things simple, you need to identify a company with a good business proposition backed by competent leadership and is financially strong.
I will do a separate article on the company related ratios and other technical info you may want to consider. However, for now, you can ask your stockbroker for a few suggestions of companies you should ideally invest in. Also, don’t forget to ask him or her why they suggested those companies and do some quick research about those companies for your knowledge too.
Company Annual Reports can give you a wealth of knowledge on the company’s performance over time as well.

Determining how much to invest

If you want to get into the Stock Market just for the fun of it or to add value to yourself, as a beginner my advice is to not invest more than Rs. 10,000. Keep your initial investment between five and ten thousand. Having a bit of money invested in stocks will make you intrigued about its performance and therefore, it’s a good practice to visit the CSE app on a daily basis to see how your stock is performing.

The Colombo Stock Exchange seems to be bouncing back really strong. You may want to read more on this too; Stock Market up for the fifth consecutive day

Making Money

The obvious way you make money when you invest is if you are able to sell your stocks at a higher price than you bought them. However, you need to understand we cannot expect every stock to always gain value. There are times stocks lose value and you lose money. That is part and parcel of investing. With that in mind, once you get a flavor of how stock markets operate and the major drivers of positive and negative change, you will be in a better position to invest a little more on your own while being reasonably certain that you are making a wise decision.

As a return on your investment, companies will pay you something called, “Dividends” which is a portion of company profits paid out to its shareholders. Different companies declare different rates of dividends per share. So do remember to ask your stockbroker about the dividends policy too.
Unless you opt for “preference” shares, in the event a company makes a loss, it is not obligated to pay its shareholders dividends. However, just like any investment, your return will be based on the risk you take, so there’s a relatively higher yield on non-preference shares.

By all means, please do search the net for any areas that you still might want answers for (Which I may have not covered here).

To Sell or Not to Sell?

Big investors like Warren Buffet who’s valued at more than $70Bn (net worth) tend to hold on for stocks for years or even decades, constantly buying more of the stocks they deem to be of greater potential value in the future. Also, unless you’re at it full-time, it is advised to look at a longer-term approach. Right now though, focus on gathering more and more knowledge about how the stock market works and how prices change.

Experience and Exposure Matter

Don’t ever select a company by looking at the “Top Gainers” index. This is what one of my former lecturers (who’s a renowned investment banker and CEO in Sri Lanka) told me and there are many more insights he shared with us. Basically, the importance of your knowledge of key indicators will help you make more profitable and informed decisions.

If you are ready to learn more about Stock Market investment let me know in the comments!

By the way, I have been an avid investor in the Sri Lankan Stock market since 2011 and have tracked my stocks on a daily basis ever since. I may not be an expert, but experience and exposure give you an added advantage in the game!

Call To Action

The country needs your help. If you are able to do something in your own capacity, that would be a great thing towards stabilizing the Stock Market and helping it bounce back. Don’t forget that you are also adding value to yourself by getting to know a thing or two about the stock market and how to make money off it. So it’s a win-win!
Do share this article if you enjoyed it & do follow my blog  😊

Mahen Brendon Makalande
Sri Lanka



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