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Money matters

Is there a winning formula for investing? Not really, but here are a few examples that may help you devise one for your needs
Mayank Singh

Wealth belongs to the person who enjoys it and not to the one who keeps it
– Afghan Proverb

The road to riches is usually fraught with many dangers and uncertainties. One is reminded of Dale Carnegie (millionaire and author of the bestseller How to Win Friends and Influence People): "The person who goes the farthest is generally the one who is willing to do and dare." The truism applies not just to millionaires but to everyone who wants his money to grow.

The ranks of such investors seem to be gro-wing in the sultanate by the day. Robust macro economic fundamentals and the attendant spurt in investment avenues like stock markets and real estate are attracting a host of investors, a lot of them people with no prior experience. Whether their tentative steps lead them to the proverbial pot of gold or disappointment, their efforts need to be applauded for the simple reason that what they are gaining in the process may prove to be invaluable in a lifetime – the knowledge and first hand experience about managing their finances.

Every individual in this wealth creation derby has his own story of triumphs and missed opportunities. We present case studies of four investors who are different in age, income levels and goals. The common thread that binds them all is that each one of them is taking his first tentative steps on the road to wealth creation.

The braveheart

Majed al Balushi, 26, a third year marketing student at Sultan Qaboos University and store manager, Aquariums, has always had an eye for money. Even as a five year old in Saudi Arabia he used to go with a pair of scissors and sit outside mosques waiting to cut the hair of devotees who had finished their prayer during Umrah. He also learned to read the Quran as every recitation fetched him RO5. With age, the desire to earn just got stronger. His rites of passage into the world of investment happened two and a half years ago when he entered the stock market at the behest of his elder brother Adil al Balushi. His first investment: RO500 in AES Barka. How he generated the principal amount is a story in itself.

"I had a 1996 model Ford Mercury which used to give me a lot of trouble. It was a terrible car and I prayed that someone would buy it from me. When someone offered me RO500 for it I was thrilled," says Balushi. The choice was between getting a new car or investing in stocks. He chose the latter.

In June 2005 when Omantel floated its IPO, Balushi sold his AES stocks and applied for 15,000 shares. He also availed of a scheme by National Bank of Oman (NBO) wherein the bank offered to purchase an equal number of shares as that were allocated to the investor. The investor could pay back the amount the bank invested in installments. Balushi was allocated shares worth RO800 (667 shares at RO1.200 each) while NBO purchased an equal amount in his name. In three months, when the scrip hit RO2.100 he sold 667 shares for RO1,400 and paid back the RO800 he owed the bank, making a RO600 in three months. He held on to the remaining shares expecting the price to rise further, but to his dismay the share price continued to fall. Eventually he sold them at RO1.600 each, at a profit of RO267 (667xRO1.600) taking his earnings from Omantel to RO867 – a 100 per cent profit in three months. Emboldened by his initial foray, Balushi waited for the next opportunity.

In September 2005 when the Dana Gas IPO was floated on the Dubai International Finan-cial Exchange, Balushi flew to Dubai along with his brother. Luckily he got the forms for the IPO from relatives working in Dubai-based banks. "The IPO forms were being sold for RO50," recalls Balushi. He applied for shares worth RO1,000 and waited. He was allocated 1,182 shares at 110bz per share. When the shares listed at 400bz per share he sold those. His profit? RO343.

His next stop was the Al Rayan Bank IPO in Qatar in January 2006. Applying for the shares was an ordeal in itself. Biting cold and serpentine queues ensured that it took him four days before he could reach the counter to submit his application. Having learned from the Dana Gas experience, he hoarded Al Rayan IPO forms and sold them to eager investors, making a quick buck. "Even staplers were being sold." The market was rife with all sorts of rumours. "Some said the 500bz share would list at RO5, I was offered RO4 in the black market before the listing but I refused to sell out." The IPO finally listed at RO1.800 and he sold his 1,000 shares bought for RO500 for RO1,800.
Starting with RO500, Balushi managed to grow his money to over RO3,400 in two and a half years – a seven-fold increase and a 300 per cent return per annum. Balushi used this money to acquire his shop at Markaz al Bahja. Strategy: Invest in IPOs in the region as they carry a lower risk. Once they list, book your profits and move on. "I invest in IPOs which are exclusively for GCC nationals. There was a nuclear power company IPO in Iran but I did not invest in it as it was open to everyone."
Learnings: Don’t be greedy.

Once bitten, twice shy

Kamil al Shalwani, 39, director, Abu Zaki Trading, is no greenhorn in the stock market. A heavy investor in the mid 90s, Shalwani saw 70 per cent of his investments being wiped out during the stock market crash of 1996-97. Shaken by the bloodbath, Shalwani developed an aversion to the market. It took him almost eight years to regain confidence to invest in the stock market and that was more by chance than design. "I had some leftover shares from 1997 which started doing well. That rekindled my interest."

The Omantel IPO saw him making his first foray into the markets after a gap of eight years. “Everybody was into Omantel", says Shalwani. With over 160,000 investors applying for the IPO, it was seen as a safe bet. Shalwani's inv-estment of a couple of thousand rials fetched him a return of 15-20 per cent whetting his appetite for further investments. Since then he has started investing in blue chip shares. Not a day trader, he prefers to invest in a share for the medium to long term. By medium to long term he means six months and above. As for the future, he says, "People have more disposable income now and with the MSM being a better regulated market it will attract investors."

Strategy: Always look at the fundamentals of a company and zero in on good companies. Hold on to a stock for the medium to long term and then book profits.

Learnings: Do not expect to make money from day one and invest according to your risk appetite and diversify.

The prudent investors

A firm believer in starting early, Faisal al-Bakri, 30, corporate planning manager, Nawras, started investing two years ago. That was around the time that he got a job in Oman, prior to which he was working with Accenture in India. He zeroed in on real estate as his first option. "It is a stable market and world over real estate prices appreciate over time."

His first investment was a 600sqmtr plot in Amerat for RO4,000, the capital for which was generated from his own savings. Within ten months, the price increased to RO5,000. Bakri sold the plot pocketing a profit of RO1,000. Having made a good return he trained his sights higher, looking for a piece of land in Muscat. His search ended when he found a 600sqmtr plot in Seeb. Though he liked the plot, the price at RO15,000 was a daunting task. He had only RO5,000 and needed to find the additional RO10,000. Undeterred, he went about scouting for a home loan to fulfil his dream. He finally managed a home loan from BankMuscat and sealed the deal. "I invested in Seeb as the area is developing very fast."

Having made this investment, Bakri is not looking at selling the plot in the medium term. "I am looking at building a house and renting it out to get a long term stable cash flow." He plans to build two semi-detached houses this year and rent them out.

A semi-detached house in Seeb fetches a rent anywhere between RO500 and RO700. But financing the construction of the house remains a concern. A back of the envelope calculation shows that a 800 sqft house at RO120 per sqft will cost around RO9,600. Though everything is still at the drawing board stage, Bakri is on the lookout for a loan to finance his construction cost.

There was a time when most youngsters would have invested in a fancy car or a mobile phone, a time when owning a house was something that one thought of only as one hits the mid 40s. But things seem to have changed. "These days, young people have better jobs and are earning more. They are also more informed about their personal finances from an early age and are looking at stabilising their future," says Bakri. The proliferation of new age tools like the Internet makes sourcing information easier.

Having made good investments in real estate, Bakri has now trained his sights on the stock market. He started investing in IPOs across the region. He invested RO2,500 in the Dana Gas IPO and a similar amount in Al Rayan. While he has liquidated some of these shares, he continues to hold on to most of them, as he is bullish about their future prospects. "Overall these have been giving me a return of 15-20 per cent."

In Oman he is testing the waters with Bank Sohar's recent IPO. He applied to the bank for RO1,000 worth of shares but was allocated shares for RO100. "In my experience anyone can come and invest in the stock market here as investment barriers are low."
Mohammed Abdullah al Balushi, 31, premium brand senior sales consultant, OTE Group, has a similar story to tell. He has invested RO400 in Bank Sohar's IPO and says this investment of his is going to be a litmus test. If he does well with the shares he will plot his next move, but for now it is wait and watch.

"I was never interested in investments, but things changed about seven months ago as I started setting financial goals for myself," says Balushi. This was largely the result of the pressure that his friends exerted on him to check out the opportunities that are available in the market. The fact that he is now a married man with a son has also made him adopt a more responsible attitude towards his finances.

Strategy: Bakri has worked out a two-pronged strategy. His long term investments are going to be in real estate while in the short term he has decided to concentrate on the stock market. In terms of earnings, he says he will be happy with a 7-11 per cent return on investment. For Balushi, gaining experience in the field of investments is his primary motive; if he makes some money in the bargain, he will consider it to be a bonus.

Learnings: Build a diversified portfolio, which is a mix of different asset classes like real estate, stocks and mutual funds. Even within stocks, diversify your portfolio among various sectors. Never borrow from others to make investments. "Losing my own money will hit me once but if I lose borrowed money it will hit me twice," says Balushi.