Investing is guided by several golden rules. One of them states: “Never invest in something you do not understand.” Therefore, before investing, you should carefully study the company and its shares.

Another well-known principle is: “Diversify your portfolio,” or simply, “Don’t put all your eggs in one basket.” In today’s environment, where patience and financial discipline are often lacking and many people are chasing extraordinary returns, beginner investors tend to focus primarily on potential profits and percentage gains.

A financially literate investor evaluates an investment according to the following criteria, in order of priority:

First, determine how you will be able to monitor and control your investment. Where exactly are you being asked to invest? What agreement governs your investment, and what are its terms? Or are you simply being asked to transfer money into an account that appears in a mobile application without signing any agreement? This is a common characteristic of fraudulent schemes. A reputable broker always works under a formal agreement, whether in written form or through a mobile application where you complete identity verification and accept the terms of a public offer agreement. You should also understand whether you are purchasing ordinary registered shares or preferred registered shares, as these securities differ in both financial and corporate rights.

Second, assess the potential risk of loss. Study the company itself, the industry in which it operates, and its management team. Determine whether members of the Board of Directors and executive management own shares in the company, how many they own, and whether their ownership is increasing or decreasing, as reflected in the company’s reports. Review the company’s short-term and long-term liabilities, their structure and nature, its assets, principal sources of income, ongoing legal proceedings, and the independent auditor responsible for reviewing its financial statements, including how long the auditor has served the company. These are only some of the many questions an investor should answer before making an investment decision.

Third, evaluate the possibility of not earning a return. Investing in shares always involves risk. If you are uncomfortable with that level of risk, consider first gaining experience by investing in government treasury bills, government bonds, and/or corporate bonds. In addition to the usual investment risks, you should also determine whether the issuing company is excessively leveraged. In practice, there are cases where companies issue bonds because commercial banks are no longer willing to provide them with loans.

Fourth, consider liquidity, meaning how quickly you will be able to sell your shares. The faster an investment can be sold, the more liquid it is.

Fifth, evaluate the required investment amount. Shares may cost less than one Kyrgyz som or more than one hundred thousand soms per share, and they may be offered in different quantities. It is important not to invest borrowed money. At the beginning of your investment journey, invest only funds that you can afford to lose without jeopardizing your financial well-being.

Finally— and only sixth, not first— an experienced investor considers the potential return on investment. It is important to remember that, under the legislation of the Kyrgyz Republic, guaranteeing returns on shares is prohibited. Fixed returns may only be offered on bonds or preferred shares.

Follow these principles, continue building your investment knowledge, and steadily grow your investment portfolio

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