Shakil Rizvi's recipe for a 25% annual return from stock investments

Following the 1987 market crash that pushed the major index of the Dhaka Stock Exchange (DSE) to below 200 points in 1989 from the previous peak of above 600 points, Bata Shoe shares were trading at Tk30.

Many people were panic selling fundamentally sound company shares at around the face value, rejecting the upcoming 10% cash dividends. They never imagined that the stocks would shoot so high in the next seven-eight years to take the DSE index above 3,600 in 1996.

Investors who dug deep into the good listed companies' fundamental potential to grow and held the stocks with patience made a fortune over years, recalled Shakil Rizvi, a shareholder director of the DSE, where he represents his brokerage firm Shakil Rizvi Stock Ltd.

In contrast, many weak companies experienced losses from their industries devastating their shareholders ultimately.

While speaking with The Business Standard, he answered the most common question – what the average investors should do to avert financial ruin and profit from the stock market where the majority incur losses speculating on weaker company stocks.

Shakil Rizvi, who started in the late 1980s as a young stock investor and ascended to his today's profile as an investor and stockbroker, has prudent formulae that have the power to generate a decent 25% average annual return from the stock market.

Limit your stock portfolio to companies which you believe to grow in business in the next five years, completely denying the temptation of making quick bucks from sharply rallying weak stocks that you believe someone is pushing to an undeserving height, he said in advice for retail investors.

"Keep an eye on target company's sales, profits, dividend records and corporate governance to invest at a good price that should yield around 5% cash dividends a year," he said.

And the secondary market, almost every year offers some opportunities to add to the long-term returns as even the less volatile sound fundamental stocks tend to fluctuate within an average 60-70% range almost every year.

"Grab your dividends at the end of the financial year and with an understanding of market behaviour try to enjoy the market fluctuations." 

For instance, do cash in on a sudden sharp rally that generated your gains expected after a much longer period, wait for the market to come down to a decent low again and get back your favourite stock of the fundamentally sound company.

"This approach is able to generate a 25% annual return on average, even in weak market situations," Shakil Rizvi said, adding that even if the short-term trades go wrong, it will not disturb your sleep as you are confident about the company's long-term potential.

Chasing short-term profits from rallying, overvalued weak stocks do panic too much as soon as smart players move away and the stocks tend to head down.

Amid too much recent bad news in the global economy, local economy and the stock market he finds a positive development nowadays and that is some confident investors started to buy good stocks from the floor prices.

Bangladesh's stock market is being criticised for excessive speculative or manipulative rallies in weak companies, when the blue-chip stocks, and indices remain depressed. 

The market tends to bounce back from a depressed condition with turnarounds of fundamentally strong shares, he cited from his memory of more than three decades in the DSE.