For some, gloom never ends. It was chasing them since 2010. For others, gloom came to an end as they behaved professionally. The gloom prolonged for those who purchased the stocks in the too-hot a market of 2010 and then sat on those stocks with a hope that the market would recover one day from the crash it experienced in November 2010. But the market never recovered the way they wanted. In some cases, the market saw further slide. It took long four years for them to come to terms with the reality of the market, and now many say, with deep sighs, that the market will never go back to where it was in 2010.
The folly is that most of the investors, who entered the market in the months running up to November 2010, nurtured a hopeless hope that one day the market will go back to its old position and they will be able to come out of their ordeal by selling the stocks without incurring big losses. But they proved wrong. Actually these new entrants in stock investment did not know the ABC of the stock market, not to speak of how to value stocks. An irrational exuberance swept them. School teachers, housewives and shop-keepers and all from all walks of life entered the stock market in the period between 2009 and 2010 in the hope of making a quick profit. Many of them made profit also, but in paper only. Before they could take out the profits, a disaster struck them.
The market crashed under its own burden of sky-high stock prices. Clever investors sold their stocks. The newcomers could not and waited even till now to see the market recover. But they have proved to be worst losers. Why should the market recover and go up to the level or near about the level, where it was in 2010?
In fact, the whole market was overvalued by a huge margin even in 2009. The banks and some corporate sponsors were responsible for pushing the market sky high. Banks opened up their entire vaults for stock market investors. Money flowed freely to the stock market. Everyone was buying anything called 'stocks'. The result was foreseen and the consequences were also inevitable. It did not take a few months for the market to come to the earth. Only in a few days, the market came down to its knees. But even a knee-level market, to this writer, was overvalued. Slowly the market came down to where it should come. Only investors could not be happy.
In those days of everyday rise in the stock prices, this writer asked a newly entrant investor, who was a housewife, what the net asset value (NAV) of the mutual fund she purchased was. She said, she did not know. When the NAV of the particular mutual fund was seen, it was only Tk 15, but she purchased the fund at Tk 50. She was told to sell the mutual fund now. She fumbled and said that her husband would be angry with her if she incurred so much losses. She was told: "Later you would incur more losses." This scribe did not know whether she did. But it was feared that she also waited and incurred more losses. Actually most of the investors were like this housewife. They did not know the very basics of stock valuation.
Stock valuation is a great science. Even a so-called literate person does not know the stock valuation properly. It needs knowledge, experience, deep insight and many other things. Making profit from stock investment is not like that you just come to the market, buy a few stocks and prices of those stocks will go up as you wish.
However, many investors never learn anything about stock investment. They are there years after years but they did not learn anything. They are like sheep which cannot be made horses by flogging. Those who cannot learn anything in a few years they cannot learn anything forever. Many investors even now are buying the overvalued stocks, stocks that do not hold much future. Who are buying the overvalued IPOs when they start trading in the secondary market? Investors of the broker houses where they purchased the recent IPOs were asked about it. Almost everyone exuded ignorance. Then who did purchase those at high prices in the first one or two weeks after IPOs' debut on the stock exchanges ?
The writer is a Professor of Economics, University of Dhaka, abuahmedecon@yahoo.com
