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Should I be investing in the stock market in Sri Lanka?

As inflation has risen over the last couple of decades so have the returns available from basic savings accounts. In fact, many Sri Lankan savings accounts no longer keep pace with inflation at all. Leaving your money in any savings account or investment earning less than the rate of inflation actually means it may be falling in value, which means in real terms .

The traditional approach to investment offers a surprisingly dull answer - that one should hold a combination of cash in an interest-bearing account, of course and invest in a fund that follows the movements in one of the main stock market indices - an index tracker fund. This is because, unless you really know something the rest of the market doesn't, you won't, in the long run, be able to beat it. According to this theory, increasing or decreasing the level of risk in your investment strategy is merely a matter of lowering or raising the balance of your cash holdings vis-a-vis your fund investment.

If you are looking for shares to invest in, there are some simple guidelines to stockmarket investment. The most important is to invest in companies whose business model you understand. That is to say, look for companies in which you can recognize the sources of profit and revenue.
Be prepared to be disciplined and ruthless with yourself. Do not be a victim of what the psychologists classify as "cognitive dissonance". This is a fancy phrase, which describes the reluctance we feel about selling shares that we know we should sell but dont want to because they have become part of our identity and we are too embarrassed about the losses we face. Too often private shareholders hold on to shares that are losing them money while selling shares that are making them money - this is entirely the wrong way round!

You may prefer to join an investment club in Sri Lanka first, rather than going it alone. Investment clubs are clubs set up by individuals who have a common interest investing in the stock market.

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