Q&A with CMMB Securities

Q. I have a couple of mutual fund accounts, but want to get more aggressive with my investing. How should I go about building a portfolio?  

Aaron, Tobago  

A: A portfolio is defined as a group of assets or investments. The process of building or managing a portfolio involves four main steps: Create a Policy Statement determine Asset allocation strategy for the portfolio given current economic conditions, Implement the Plan and monitor and update as necessary. The policy statement specifies the types of risks an investor is willing to take and identifies all investment goals and constraints. This statement acts as a road map for the portfolio manager and guides the decisions he/she makes about where to invest your funds.

The Asset Allocation strategy involves studying current financial and economic trends and determining where and in which proportions funds should be invested. The third step involves the actual construction of the portfolio, which requires implementation of the strategy discussed in step two. Finally, economies are dynamic and the portfolio will require constant monitoring and updating to reflect changes in the financial markets. Once you have created a portfolio, which directly reflects the type of risk-return characteristics, it is up to you to work with your portfolio manager to decide on appropriate strategies to ensure you earn, at the minimum, your required rate of return.    

Q. I read recently that shares costing under TT$2 are not good buys as they hardly ever grow into anything substantial. Is this true? 

Sunil, San Fernando  

A: The statement that shares below $2 hardly ever grow into anything substantial is misleading. Capital appreciation, or the increase in the value of your investments, would be related to a number of factors. These include the level of interest rates, the growth rate of the company, the level of profitability and the cost of capital in the economy. For example, when interest rates are low, the level of return on fixed income instruments and on banking accounts will be low as well.

Therefore, many investors look to the equity market as alternative investment, which can offer higher returns. This increase in demand may cause increases in the prices of certain shares irrespective of the current price. Similarly, the profitability and current growth rate of a company will also affect how much its share price will appreciate. Companies, which have higher growth rates and higher profits, generally experience higher levels of capital appreciation than a company with relatively lower profitability and growth rates. Therefore, as an investor, you should examine the fundamentals of the particular company and the economy in which it operates so as to more accurately gauge the level of growth you can expect in the share’s price.

Disclaimer for Articles: “All information contained in this article has been obtained from sources that CMMB believes to be accurate and reliable. All opinions and estimates constitute the Author’s judgement as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by CMMB in any form whatsoever.“CMMB and/or its employees or directors may, where applicable, make markets and effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer or a solicitation to buy or sell.”