Mistakes Made by Investors – Part 3 (Continued)

August 7, 2025 By: Alfred0 comments

Losses suffered by investors could often be prevented or minimized if they acquire the right knowledge and skills. This enables them to adapt portfolios and strategies to changing regulations, economic cycles, and evolving technological innovations—ultimately building resilient, recession-proof portfolios.

Below are some common mistakes investors should be aware of:

1. Analysis of Debt Restructuring

A company may fail to service its debt obligations due to internal inefficiencies or external pressures. When this happens, it may renegotiate the original terms—modifying loan agreements, covenants, or collateral to better manage its debt. This is a red flag for investors, as an inability to service outstanding debt typically indicates underlying business stress.

Internal Restructuring

This is often more cost-effective, as the business uses its balance sheet strength to reorganize itself. The goal is to improve cost efficiency by eliminating redundant capacity and duplicative roles. This may involve changes to the business model, processes, or company structure.

External Restructuring

This includes mergers, acquisitions, or divestitures designed to maintain the company’s competitiveness, support liquidity, and align with long-term strategy. By forming synergistic alliances, a company can expand its capabilities or streamline operations.

Non-core or loss-making subsidiaries may be spun off or divested, with proceeds used to settle mounting debt and alleviate liquidity pressures.

Investor Tip:

• Ensure the company’s debt structure is manageable and sustainable.
• Monitor restructuring plans to ensure they address, rather than worsen, cash flow issues.
• Poorly managed debt reorganizations may lead to bankruptcy and losses, depending on the type of shares held.

Also, investors should confirm that debt maturity is strategically laddered and not overly concentrated in one time period to avoid liquidity crunches.

2. Debt-Raising Methods

Investors should be familiar with capital and debt markets. A company’s chosen method of raising funds can either add value or destroy shareholder trust, depending on its cost-efficiency and market reputation.

Raising capital at the lowest possible cost strengthens shareholder value and builds confidence. Expensive debt—especially when avoidable—can erode value and should be viewed with caution.

Investor Tip:
The strategy should focus on selecting the most cost-effective debt-raising option based on the company’s performance and prevailing market conditions.

3. Warrants

Convertible debt—i.e., debt that can be turned into equity—can positively impact company liquidity. A well-planned capital structure should account for such instruments strategically.

4. Credit Ratings

Debt migration and issuer ratings are essential components of sound debt management. A downgrade to sub-investment grade makes borrowing more expensive and strains the company’s bottom line.

Investor Tip:
Stay informed about credit ratings and the potential costs of rating migrations to better manage risk exposure.

5. Demographic Matrix

Population demographics can influence investment strategy.

An aging population means a larger segment of society will depend on pensions and draw down savings. Conversely, a youthful population may present opportunities for business growth and expansion.

Investor Tip:
Use demographic data to guide long-term portfolio reallocation, while governments use the same data to inform pension and social planning.

6. Share Free Float

This refers to the number of shares available for public trading on a stock exchange.

Generally, the higher the float, the lower the bid-ask spread, which enhances liquidity.

Investor Tip:
Analyze the ratio of outstanding shares to free float to determine how easily you can enter or exit a position and grow your portfolio accordingly.

7. Understanding Dividend Terms and Conditions

A company declares dividends through a board resolution, and only eligible shareholders will receive payment based on the number of shares held. Understanding key dividend dates is essential:

• Payment Date:
  The day shareholders’ accounts are credited with dividend payments.
• Ex-Dividend Date:
  Investors must own shares before this date to receive the dividend.
  Example: If the ex-dividend date is 27 June 2025, only those who bought shares before 26 June will qualify.
• Record Date:
  The company’s cut-off date for identifying eligible shareholders.
• Cash Dividends:
  Dividends are paid in cash to qualifying shareholders.
• Stock Dividends:
  Shareholders are issued additional company shares instead of cash.

Investor Tip:
Choose the dividend type that aligns best with your investment goals.

8. Source of Dividend Payments

Dividends should be paid from retained earnings. If a company uses borrowings to fund dividends, this raises a serious red flag, as it can threaten solvency.

Final Thought

Investment success hinges on continuous learning. Equipping yourself with the right knowledge and skills is essential to navigate evolving markets and make informed, confident decisions.

References

• PwC Viewpoint (30 June 2024)
• Investopedia

The post Mistakes Made by Investors – Part 3 (Continued) first appeared on Welcome to the Official Magazine of the SAIFM.