One of the men deeply involved in the development of Cambodia’s financial system, Dr Ghanty Sam, of the Financial Institute of Cambodia, who is also a board member of the Securities and Exchange Commission of Cambodia, says people should be aware of the downside of investing in any stock exchange, as well as the upside.
When people say they play the stock market, they imply that it’s a game, like gambling at a casino, Ghanty Sam says.
“In gambling, you don’t have the probability you are going to win. The probability is shaky. You are subject to the law of gambling. In investing, you know the probability of winning or losing because you have the information available to make the right decisions,” he says.
“Information is what makes investing different from gambling. Our whole training at the Financial Institute of Cambodia is to teach them how to use the information.”
Ghanty Sam says people can use their money according to the level of risk they are willing to take.
As an exercise with his FIC students, using the Yahoo search engine, he went to Apple Inc last August and saw the share price was $182.
“As of yesterday, Apple’s share price was over $550,” he said. “I told them to invest, but they didn’t listen to me.
I said they would have been millionaires by now.”
On the other side, he showed students that some stocks seemed to disappear.
“Some banking stocks and some European stocks started to fade away because of poor performance. That is why we focus on letting you use your brain and use your heart. If you use your heart, be careful, you may make the wrong decision. Be careful if you are listening to advice of somebody. Try to use your brain and get some information.”
Ghanty Sam explained the basics of what makes a good company.
“Let’s take The Phnom Penh Water Supply Authority (PPWSA). “You will see the prospectus and you can use your common sense. Who is guiding this company? What is this company doing?
“Whether in good or bad situations, people need to drink water every day. PP is almost saturated with the water system. There may be some room for expansion. We look at the possibility, the projection, the forecast, to see whether there’s a prospect of making money or not.”
Ghanty Sam cautions his students not to put all their eggs in one basket.
“I’m looking at the possibil-ity of diversification. Suppose we are looking at Singapore or Malaysia. We can buy companies from different industries, from different regions and we try to diversity. In Cambodia, you cannot diversify right now; you will only have the water company.”
Dr. Ghanty says a good broker will advise you to diversify perhaps into a bond market, to create more stability, because stocks pay dividends when they make money, but the bonds pay regularly.
“Nobody can forbid you from putting $1 million worth of bonds in Singapore and so on. You need to understand regional investment. How about stock from Canada, Australia, the USA? That’s the simple thing we try to explain to our students: international diversification.”
The point people need to know is: you have to define the level of risk and the possibility of losing that money, Ghanty Sam says.
“You are investing in securities. How much are you willing to take when that investment happens to go sour? If I have $100,000 for the education of my son, I would not invest that money in risky investments. I have to protect that investment. If I want to invest, stock is a good investment. You can take the long term in stock.”
Another type of investor is the short-term speculator.
“We are talking about another group that wants quick profits and they don’t care about the long term.
“They use a lot of special strategies. They care about technical analysis. They also look at the strength of that company. This group is called speculators. They take a short term view.
“Speculators have to decide if they can afford to lose their hundred thousand, but if they cannot afford to do that, they should stay away from derivatives and speculation and so on. That is the first thing we try to convey. Investment can be profitable or it can lead to the possible loss of your capital.
“In the long term, it creates an upward profit. Short term is up and down, but the trend is upward.”
Dr. Ghanty says studies have been done that indicate if a person invests in a portfolio of blue-chip stocks, the average return over 50 years is 12 per cent. Stock has a premium, more than a bond, and is a very good investment for the long term.”
In an FIC class called Applied Corporate Finance, Ghanty Sam talks about training students who may be working for securities companies.
“That’s where we need to understand the corporate management side and asset management, to help people to invest. This is the same thing as financial planning for your client.”
Another FIC course teaches about derivatives.
“We teach about derivatives because the broker and the dealers will have the clients for it,” Ghanty Sam says.
“Derivatives have two uses: with speculating, we try to train our students to understand that. They may be future investors in Cambodia or become the staff of an investment company.”
Cambodia’s Stock Investments & Stock Exchange
The financial markets and the stock exchange
Stocks as investment instrument
Process of issuing stock
How markets are made in stocks
Choosing a broker for your stocks
Financial statements and stock valuation
Fundamental analysis for valuing stocks
Investing in foreign stocks
The risks of stock ownership
Cambodia’s Stock Investments & Stock Exchange
The process of issuing the Initial Public Offering (IPO)
A brief review of the financial markets
Overview of the Initial Public Offering – IPO (Part 1)
Initial Public Offering (IPO): the prospectus (Part 2)
Detailed Examination of initial public offerings
Phases of an IPO transformation and analysis
Initial Public Offering Process in Cambodia
Importance of financial reporting for IPO valuation and investment
Importance of financial reporting the securities markets
Understanding the balance sheet
Understanding the income statement
Understanding the statement of cash flows
Financial ratios and financial statement analysis
Financial models for business valuation
Overview of Securities Investments
The Cambodian securities markets: Primary and secondary markets
Participants in the financial markets
Types of Securities: Equity securities
Types of Securities: Debt securities, risk management and derivatives
Stock market administration
Applied Corporate Finance
Overview of the corporate finance industry
Accounting and Financial Statement Analysis (Part 1 and 2)
Principles of corporate finance (Part 1 and 2)
Equity financing (Part 1 and 2)
Mergers and acquisitions (M & A):
Asset Management and Portfolio Investment
Overview of the asset management industry
Client objectives and available products (Part 1)
Client objectives and available products (Part 2)
Portfolio theory: risk, return and diversification
Portfolio theory and management
The investment management process: investment objectives and constraints, and investment strategy
The investment management process: portfolio measurement, evaluation, reviewing and monitoring of portfolio performance.
Overview of derivatives markets
Generic derivative products: futures, forwards, swaps and options
Generic derivative products: option hedging and risk management
Currency and commodity derivatives
Legal and regulatory framework of the Cambodian financial markets
The legal procedure of initial public offerings (IPO)
The securities intermediaries
Securities market operation
Securities regulator and its role in developing securities market in Cambodia