Equity (Stock) Market
There is a popular saying amongst the investor community that, you can’t beat the (Equity)
market, true but when?, if it’s well regulated, all the information (Public) are
taken by the bourse and reflected in the share prices, no insider trading
whatsoever having a say etc, then of course you can’t beat the market. If the
market cannot be beaten by regular investors, then either fundamental or technical
analysis has least use in picking the stocks they say (who are that they? well they are the
Investment gurus).
In these types of market “Passive
Investment” strategy has major role to play, which strategy is buying a set
of well diversified (don’t put all your savings into the same bank) share
portfolio and keep it for a long term, return would be in the form of dividend and capital appreciation in 10 or
15 years down the line, some will ask, is it worth the wait for given so much years
of locking the fund?, I would say yes it is, because historically, world “Equity”
market has seen almost double return than the safe house government bonds
yield. I would like to emphasis a point here that, I’m not talking about the Colombo
Stock Exchange, above said attributes can be found in the markets which are operational within the USA, the UK, Germany
and few other developed countries. Okay then what are the strategies can be deployed by a smart investor at the Colombo stock market?
At the CSE
Golden period of investing in the
Colombo stock bourse have long gone, at least I feel, it’s absurd given that CSE
had seen 100% YOY growth consecutively during year 2010 and 2011. CSE had all
the reasons to be seen at lime light and
all the hype it had, but certainly not the 100% appreciation in that shorter
span, true North & East region opened up, FDI were flowing, private sector
credit was growing, currency was
appreciating and all the economic indicators were dimming green light, but a sustainable growth will
happen in longer period, certainly not in short term, if the immense of growth
seen in the short span then it’s obviously not sustainable, but merely a credit
bubble, it’s not reflecting true picture of economy nor stock market of the country. Exactly this what
had happened in the CSE too, brokers now say market itself correcting its flaws,
and the same mouth said two years back bourse will see further appreciation and
this is the time for investment, how many of greedy investors would have burnt
their liquid cash By following brokers buy reports?. I’m writing this blog post
just after ASPI index had gone below the 6,000 points, which was long time resistant
point and whenever it reaches the verge of 6,000 somehow market had seen sudden
boosts by some institutional investors, but this time it was not the case and me too wonder
why.
Strategies that would work better at the CSE
Passive Investment strategy
Let’s discuss few strategies or
methods that would better work in the CSE, I still believe above mentioned “Passive”
strategy will do wonders in the Sri Lankan market too, pick some growth stocks,
thus normally they don’t pay the dividends year by year, but they do reinvest
the profits in new investment avenues and strengthen their market presence,
hence this will ensure share price appreciation over the years and the investor
could make a reasonable gain by the time he/she exiting from that particular
stock, again be mindful about the industry they operate in and the macroeconomic
or policies which affect that particular industry and of course the actions of its
main competitors, if you wish to earn return you have to be watchful, there are
no free lunch for anyone, so intense scrutiny over capital market is a vital
trait for a smart investor.
Large Cap strategy
Large Cap stocks strategy, thus these
type of stocks have larger market capitalization (Share price * No. of shares outstanding)
amongst the market and this would be suitable for risk - averse investors and
those who plan equity market for retirement plan, because these genre of stocks
have very small share price fluctuations and have larger market liquidity, often
considered as large dividend paying stocks and when exiting this too will
provide an investor with substantial capital growth in the form of share price
appreciation, certainly higher than the real return we get from the bank
deposits.
Active Investment strategy
“Active” investment strategy as
the name implies, an investor needs to be active in the market, thus they should
monitor their particular stocks price movements every day and also have to do
some basic research on the sectors, industry their companies operate in, as any
adverse micro or macro conditions will have an impact on companies performance,
but these will be only reflect in the upcoming quarter reports, if you are a
wise investor and you could gauge those information by doing some basic research,
then you can be better off than your
fellow investors, either it can be action of hold or sell the stocks.
What strategies that won’t work at the CSE?
Often it is a misconception that,
if you actively buy and sell the shares
you will gain a bit at end of the day, yes numbers don’t lie, but did you take
into account of transaction costs?, you are unnecessarily feeding the brokerage
houses in the form of paying transactions levy, this behavioral investing will
not harness you any longer as the bull run at the CSE had long vanished, going
behind the penny stocks (stocks have smaller price, often considered less than Rs 10/=) also one of the form of
this type of buying and selling behavior, if you wish your hard earned money to
be safer then don’t indulge yourself with these outdated strategies, instead
look for above mentioned method, and always ask information/research reports
from your broker house but do not solely depend on their buy/sell report, do your own home
work, monitor the market day in and day out, familiarize yourself with the
prevailing trend at the CSE and once you feel comfortable enough of sailing in
the sea which has some dangerous sharks and other creatures, then jump into the
bourse without reservations.
Conclusion
There are ample of other
strategies/methods can be found by doing few Google searches, but be mindful
not all the formulas will work for a particular problem, so winning art is lying on
selecting the best method out of a lot. Wish all the investors Happy investing ahead
and if you have any queries revert to me I will try my best to answer you, if
not, then there are always cost free professors around us namely Mr.Google and
Mr.Investopedia you can help yourself by
knocking over them.
Photo credits :- Google image search results.
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