Investing in halal shares, where to start and where not to
Forty dollars put into a soft-drinks company's shares in 1919, in bad economic conditions after a world war and before a great depression, had become eleven million by 2012. The story is always told to sell the dream, and I tell it for the part that gets left out: whoever held it for ninety years never sold in a single crisis. This lesson is about how an ordinary household buys a stake in a real company and keeps it, for years.
What you'll have at the end
You'll understand what you own when you buy a share, how to check it's permitted, how to open a first account, and buy a first stake with a fixed amount.
Step one: understand you're buying part of a shop
A share is a real ownership stake in a company: in its assets, its equipment and its profits. You earn from it two ways: dividends that reach you periodically if the company makes money, and a rise in the stake's price if the company grows and you sell years later. Buy ten stakes at 350 each, 3,500, and a year later they're 440 each, and you've made 900 on top of whatever the company paid out. They might also fall to 280, and that's what happens when you own part of a shop: it earns and it loses with the market.
Step two: check it's halal before any number
Two questions. First: the company's own business, does it sell something permitted? A food, cement, telecoms, pharmaceuticals or transport company, yes; alcohol, gambling, or a business that lends for a return, no. Second: Sharia boards at most Arab exchanges publish lists of companies that pass their screens, and Islamic indices collect them. Start from those lists instead of working it out alone, and when a company with a small share of non-permitted income pays you a dividend, give that share away as charity, as those boards explain.
Step three: decide you're an investor, not a trader
A trader buys in the morning to sell in the evening, watches the screen every hour, and mostly loses because he's playing against professionals. An investor buys a stake in a company whose work he understands and holds it for years, ignoring the month's rise and fall. The world's richest investor built his fortune on buying and holding, never on clever timing. In this course you're an investor, and that decision is written down before the first purchase.
Step four: learn to read a company with three questions
Before buying, ask: what does the company sell and who buys it, and will they still be buying it in ten years? Does it make money, year after year, or grow on borrowing? And what could change its business? Cement companies' shares multiplied in the nineties with the building boom, then their margins shrank when energy prices rose and a huge competitor entered. Whoever was following understood what happened; whoever bought because "cement is a winner" didn't.
Step five: open an account and buy with what doesn't hurt
A broker licensed by your country's securities regulator, an account in your name, and a fixed first amount: from your third container in the rule of thirds, and one you could lose half of without anything changing at home. Then buy stakes in two or three large stable companies from the Sharia list, and close the app. Add a fixed amount every month or every quarter regardless of price, so your cost averages out and you never regret one particular day. Anyone who doesn't want to pick companies starts with a fund that follows an Islamic index.
Where most people trip
At the first fall. The stake drops 20 percent, they sell at a loss and swear off it. A fall is part of owning a shop, and one month's price is not the company's price. Whoever wrote in step three that they're an investor goes back to what they wrote on that day.
Tonight's exercise
Find the list of Sharia-screened companies on your country's exchange. Write down five whose products you understand and use. Then write the first amount you could lose half of without harm, and the monthly amount you'll add.
Questions I get asked
I'm scared of the stock market, isn't it gambling?
Buying an ownership stake in a real company is a legitimate sale. Gambling is betting on price movement with no ownership, borrowing to buy, and day trading. The first is not the second.
How much do I need to start?
Enough for one stake. On most Arab exchanges that's a few hundred. A small amount added over months teaches you more than a large amount all at once.
I'm fifty and near retirement.
Large stable companies only, at a smaller share than a third, with most of your money in gold and property as in lesson 5.1. Anyone who doesn't have ten years to rebuild doesn't take the risk.
Log every amount you move into the investment account in Fawatery as an expense under its own name, so at year end you see what you put in, which is the figure you compare against what it became
30-day free trial • no card needed
Based on: "How to invest in the stock market and trade shares simply" and "How to turn a thousand pounds into a million with proven methods".
The next lesson is about the asset Arabs love above all others, and misuse above all others: property.