Tips and basic rules that investors should follow

Ahmed Majed Badawi Hamza
Supervisor: Prof. Dr. Abd Ali Kazim Al-Fatlawi

Advice for the investor:
There are several tips that investors should be aware of:
• Investment should start with a small capital; in any case, the investor should not spend more than 10% of the capital allocated to him for investment at the beginning, and the person should not invest all his money.
• It may be better to conduct a trial trade through a fictitious portfolio that can be followed via the Internet to see how the stocks move and their impact on the proposed stocks in the portfolio.
• The investor should diversify the means of investment (Diversification) so that the person does not rely on leaving his capital in a few companies. It is not simple to determine the portfolio’s content, but we can generally say that the person should not rely on one sector (and should not invest in many sectors), and it may be better to invest in five to ten companies at a time.
• The investor may find that the most appropriate way to invest is to benefit from the services of full-service brokers who undertake the investment process on behalf of the investor and receive a commission in return. The person may invest through a local broker, such as banks in most Arab countries.
• The investor may find that investing is done through mutual funds, of which several thousand are available in many fields. This method differs from investing through a full-service broker in the many options available from these funds that invest in various fields, from the aircraft and paper products industry, for example, to low-risk stocks, international stocks, or stocks in the field of magnetic disks, and so on.
• Many investors in recent years have begun to turn to index stocks, a way to buy shares of all companies in an index, such as the famous [Dow Jones] index, in the form of a single share. For example, buying a certain amount of DIA shares is possible and achieving a result identical to what the [Dow Jones] index itself achieves.
(Al-Huwaimani, 2006: 33)

Many investment funds specialize in Islamic investments by selecting companies that do not deal with usury, pork products, alcohol, gambling, and other forbidden things. A person may find these funds more suitable for him from a religious perspective.
• There is a strong attraction to what is known as day trading, which is considered a high-risk trading method, and we do not recommend it for those who do not have the time and ability to control the amount of risk they take. Although the following advice is somewhat accurate, we mention it here because of its importance as part of the general advice.
In general, one should avoid entering purchase orders at the market price and avoid buying shares in the initial offering. In the case of American shares, one should fill out the (BEN-8W) form of the US Internal Revenue Service (IRS), which exempts foreign investors from paying taxes due to trading shares. (Al-Huwaimani, 2006: 34)
• The ability to read the performance of companies through the available financial data and information.
• Realizing that safe investment is made in the long term, as it is beyond doubt that long-term investment in stocks achieves greater financial returns than any other means.

• For those with the time and the ability to bear some risk, many methods and different investment means enable a person to achieve good returns in the short term. (Al-Huwaimani, 2006: 20)