Risk Management Given Short Shrift

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Risk Management Given Short Shrift

"Don't put all your eggs in one basket," is an important maxim for investors. But only a minority of individual punters in the Seoul markets seem to follow that maxim, which calls on prudent investors to assemble a portfolio with a variety of assets such as stocks, bonds and bank accounts.

The Korea Securities Depository said Monday that local retail investors held 5,200 shares per capita in only three to four issues on average at the end of last year.

The number of shares held on average increased 44.2 percent since the end of 1999, but the number of issues held declined 11.8 percent during that one-year period.

The figures indicate that investors have moved to concentrate their investments instead of relying on more diversified portfolios they held last year, when Korea Composite Stock Price Index lost half its value.

According to Hyundai Securities' recent poll of retail investors, only a quarter of the investors had portfolios diversified across seven or more stocks.

More than a third of the investors had their money only in one or two stocks.

In addition, 54 percent of Hyundai's retail investors said they had borrowed money at least once to invest in stocks.

Because retail investors fail to optimize their risks, they tend to get disappointing returns from their investments. According to a poll of 15,000 retail investors conducted in March by PAXNet, an online stock market researcher, only 14.3 percent of the total respondents showed income from investments. About 16.5 percent recorded losses worth 30 percent or less of the investment. A third of the investors had losses worth 30 to 70 percent of their investment.

"Retail investors, who were hit with big losses in bear markets due to their negligence in risk management, sell stocks when the market rallies and leave the market, sapping the market's strength," said An Dong-won, an executive at Kiwoom.com Securities.

According to the Korea Stock Exchange, retail investors net sold 3.94 trillion won ($3.03 billion) of shares this year. They unloaded their holdings mainly in bull markets, selling 1.53 trillion won worth of shares in January and 967 billion won in May.



by Rah Hyun-Cheol

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