Sometimes when you look at a stock, it fails the Total Assets sharia compliance test but passes the Market Cap test, or vice versa.
In that scenario, what should one do?
e.g. Is there a way of thinking about it such that in certain situations one test is more appropriate than the other
e.g. If it passes one of them, then that’s fine
e.g. You should pick one (Total Assets or Market Cap) and always use that one
Any advice appreciated jzk!
Wa alaykum salaam,
The use of market cap or total assets are both acceptable methods. Whichever one you use, you should ensure you follow through with the principles of that method in regard to purification etc.
What you shouldn’t do is to begin with market cap for one stock and then switch to total assets half away and switch back to market cap whenever one screening becomes non-compliant. You should invest based on one screening and see through the investment with that particular screening.
So, just to use an example, if stock AAA fails on Market Cap but passes on Total Assets, I can apply Total Assets and buy the stock. I then in future always need to use Total Assets for that stock.
Conversely, if stock BBB passes on Market Cap but fails on Total Assets, I can apply Market Cap and buy the stock. I then in future always need to use Market Cap for that particular stock.
Is that acceptable to do? i.e. use one metric for one stock and one for another.
(I keep a list of the stocks I’m invested in and various notes anyway so making a note of this is pretty simple.)
What you shouldn’t do is to begin with market cap for one stock and then switch to total assets half away
Do you mean only whilst you still have a position in the stock?
Can I switch to the other method if I close my position completely and in the future buy the same stock again.
Wa alaykum salaam,
Yes, if you close your position and reinvest in that stock later, you can adopt a different method and see that method throughout.