Only those who keep a clear head and do their homework will profit from stock investment, Secretary for Financial Services & the Treasury Frederick Ma says, adding this basic rule is often forgotten amid the bullish stock market sentiment.
In an article posted on the bureau's website today, Mr Ma said the daily turnover of Hong Kong's stock market has soared to over $40 billion, a massive rise on the $6 billion recorded in 2002.
"Do your homework and invest within your means. It is the only way to arrive at a full understanding of the operation of the industries and companies in which you plan to invest," Mr Ma said.
"Developing an understanding of your potential investment is like peeling an onion - you work your way down from one layer to the next."
With the recent wave of initial public offerings, he said many new stocks have accumulated a significant increase in prices within a short period of time, providing investors with an incentive to subscribe to shares by means of 'margin lending'.
"However, it should be borne in mind that the profitability of an enterprise should be the prime consideration in new stock investment. If you subscribe to shares beyond your means on the belief that there will be a substantial increase in the prices of new stocks, your investment risk will undoubtedly be much higher."
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