The economy of today is a “sharing economy”. We have arrived at a world of decentralization where services and capital flow online; the world of amazon, airbnb, and Uber. Investment opportunities have never been so varied; not very long ago, cryptocurrency was not viewed as an investment option, today even grandpas and grandmas own Bitcoin. This begs a most important question for avid investors; what is a worthy investment today?
From first time investors, investing could look like a rather tasking endeavour that requires a lot of research. Let us simplify this a little by comparing two types of popular investments. We will take a look at stock trading and compare it to Ethis investment crowdfunding. This comparison will be made with regards to risk management, monitoring of investments, ethical implications and diversification options.
Let’s talk about risks!
If it’s one thing everyone can agree on, it’s that risks come hand-in-hand with investing; the most diligent and analytical person still cannot confidently say that their investment is completely risk-free. After all, not even the best trained of Olympian swimmers, can battle the unpredictable ocean. Yet, one can still adjust by forecasting the weather and testing the waves.
Stock market investments may make profit-making look like easy. Yet, many have tried to beat or predict the outcome of the stock market, but only a few notable individuals have managed to do so. Warren Buffett managed to take a $6,000 investment and create a networth of 84.5 billion USD and the title of “the oracle of Omaha” through a long record of successful investments by a smart selection of stocks and impeccable timing. So can anyone just pick up the trade and become the next Buffet?
Trading shares is actually much trickier than it seems, as the stock prices of a certain company may not follow logic – the markets tend to be affected by sentiment, even rumors around it. In today’s world, a simple tweet by an influencer can move markets. When a listed company releases its earnings report to the public, the price of the stock will either rise or drop depending on whether the company has met expectations on the street. In some cases, even with a good earnings release, investors will still pull their investments out from a company’s stock if performance is perceived to be lower than expected, the public image of the company and not uncommonly the occurrence of seemingly unrelated events such as political incidents or personal scandals in that industry.
With so much unpredictability, many stock market investors attempt to manage risks by analysing a company’s economic prosperity and intrinsic value; looking into its holdings, profitability, revenue, liabilities and its potential for growth, or patterns in the company’s price movements and trading signals. There is also a sizeable pool of amateur investors who follow personal hunches, random news and hearsay.
Timing adds to the risk in stocks and plays a major role in whether or not the investor will make a profit. You can choose to buy a stock at $5 a share, and chose to offload it after a due period for $10, only to discover that it turned into a $100 a share on a longer run. At the same time, the opposite can also occur.
Finally, we have all heard of the ever so dramatic stock market crash. Market crashes are caused by a trigger that leads to a downward spiral where panicked sellers rush to sell their stocks at ever-decreasing prices, causing prices to decline further and inciting even wider panic. Nobody wants to hang on to a fast-declining stock.
These factors make investing in stocks a quite risky venture; money earned could as easily be lost as gained. There are many non-random aspects to it and experience in this matter could help investors mitigate risks but mastery of the stock market remains elusive for most investors.
Now let’s widen the scope with another perspective on investing and take a look at risks on a different investment platform; ethical investing in Ethis crowdfunding. Ethis focuses on investment crowdfunding to fund property developments through a visible process that progresses online in full transparency. Housing projects in Indonesia are screened and placed on the website. Investors then pool funds together to reach the target funding for the specific project. Once fully-funded, funds are disbursed to developers and utilised for development activities. Upon the successful completion of construction and sale, investors get their profits. Investors globally essentially invest alongside developers in one of the top emerging markets in the world, and make profits like a property developer
Investing in any project will always carry risks, even in property development. There is, however, a layer of protection to manage such risks – Ethis works with local developer associations who help to screen projects form their members. Before reaching the Ethis platform, projects are scrutinised and the developers are evaluated based on previous track records by these associations.
The best thing about property of course, is that there are fixed assets that can be collateralised. While a business or listed company can crash and burn, fixed assets will typically maintain most of its intrinsic value even in a poor economy, and in most cases will actually increase in value over time. Common collateral held is in the form of sale and purchase agreements which ascribe ownership of units or land to investors. In addition, post dated cheques and personal guarantees are also provided by project owners. The main risk that investors always need to consider though, is the risk of delays.
The Ethical Investor
While profit making and growing capital used to be the central objective for investors, today investors are also looking into investments that stand in line with their values and principles, or that bring wider benefits to society.
As per its name, Ethis seeks to implement universal ethics, implemented through the contracts of Islamic finance – a participatory form of finance based on Islamic concepts. Investments in Ethis are thus bound to a moral code. In application, this means that protecting both parties fairly is of high priority, while undesirable sectors are excluded and social objectives are set.
Projects featured on our platform are those that bring about social impact – specifically the development of affordable property projects for low-income families. Most Ethis projects are part of a government-supported subsidised housing scheme meant to uplift those in borderline poverty to progress into the lower-middle class.
When it comes to stock market investments however, it is more difficult to identify and separate its ethics. Although there is a diverse range of stocks available on the market that carry different values and morals, a lot of the time this information is not available to investors.
These investments are remote from the investors and while investors can look through the company’s history of transactions and its public image, they would not necessarily be well-informed of the entirety of activities that the company runs. Fundamentally, stock investors seeking an ethical investment would have to evaluate every stock option before setting forth and investing in it.
Monitoring of Investments
The existing culture in stock market investing necessitates the investor to have an impersonal approach to the stocks that he invests in for them to run successfully. The general thinking is typically that emotions cause investors to make poor decisions.
In practice, investors basically deal with numbers on a board and watching them rise and fall. Only certain investors that meet certain investing portfolios criterias are able to have any role in their individual investments or gain deeper insights.
At Ethis, investors are informed of the processes and progress of the projects they invest in. Information about open projects is available with full transparency on-platform, with monthly updates directly from property developers on the ground.
This process begins with the financing phase of the projects where investors can witness the target amount being crowdfunded on the online platform. Upon successful fundraising, investors are then given updated on construction progress or any new developments.
Additionally, investments are monitored on personal dashboards where investors can keep track of all past and ongoing investments made.
Diversification of Investment
Diversifying investments has always been a very important strategy for savvy investors. When investors invest in a few different stocks, they stand a chance to manage some of the inherent risks of the market. It is less likely that all the stocks invested in will fall. Should one of the invested stocks drop in price, others may maintain or rise in price and potentially offset this loss. The stock market, more than anything, is known for its diverse nature. investors can enhance their portfolios by picking from the range of the available and assorted number of stocks that vary in value and underlying business activities from different countries and sectors.
At Ethis, while projects are currently focused mainly on crowdfunding property developments, there is variety in the location, project owners and projected impact of each project. Investors can invest in multiple projects in order to spread out the risk.
In conclusion, you as an investor, should gather Information about your preferred type of investment and its alignment with your own objectives and circumstances. You are encouraged to do your own due diligence before jumping into the exciting world of investments.