Al-Ahram Weekly Online   30 March - 5 April 2006
Issue No. 788
Published in Cairo by AL-AHRAM established in 1875

Bulls and bears

By Doha Abdelhamid

During Black Tuesday many small investors lost their seed money amid an orgy of speculation and uncalculated risk transactions. The herd instinct so often witnessed in developing countries' stock exchanges was not unusual despite the fact that finance and investment textbook principles dictate that it is advisable to hold and/or buy when the market is bearish. Investment bankers and brokers will, on the other hand, advise selling when markets are heading for a high.

Such U-turns represent revenue-generating opportunities for the smart investor. Speculators normally look for hit-and-run opportunities, whereas investors keep their eyes focussed on medium- to long-term prospects.

Sadly, in Egypt we seem not to have learned anything from the experiences of other countries that have suffered similar speculative losses. We turned the basic paradigms of finance upside down, deciding to sell when the market was bearish and buy when it was bullish. In other words, we bought when prices where at their highest, only to sell when prices were low.

It is more than a decade since the promulgation of Law 95/1992 and its amendments, time enough, surely, to have learned the ABC's of investment decision-making.

Having rejuvenated our exchange floors and filled them with state-of-the-art technology allowing for the execution of deals in almost real time it seems we still need to grasp basic principles. We have introduced an award-winning clearing and settlements system. We have an investor protection fund in place to protect against non-investment risks. But without the financial savvy that allows us to manage our personal investments and book-keeping rationally, such progress counts for little.

This week's Soapbox speaker is an economic and financial expert.

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