Get your piece of pie, Mr Investor
Wednesday, 11 May 2011
A F M Mainul Ahsan
Hello, Mr. Investor! Yes, I am talking to you. Right now you might be in front of the Dhaka Stock Exchange or the Securities and Exchange Commission protesting against the very recent price decline in the stock market. Does it really make sense? Should the government do anything against short-term price decline? Why are you really wasting your time? Do not spend your time in front of DSE; it would not make much difference in share prices. Spend the same time to do some research about the market. Of course, the manipulators are responsible for the recent market crash. Aren't you also responsible? You did not think for a moment before putting your lifetime savings in a bull market near to crash. You got unreasonably greedy and paid the price for it. Why did you go against your daily habit? What do you do when you go for shopping? You try to pay as less as possible. You spend hours to get the right price in the mall. Why did you do the opposite in the share market? Why do you invest in the market when prices are skyrocketing? Why do you stay out of market when you should proudly show your animal spirit? So, you are also one to blame for the recent crash in the stock market. You forgot the basic rule of investing: Buy undervalued shares and sell overvalued ones. Forget about all the complex formulas or theories regarding investing in the share market. Let me tell you an open secret. To be successful in the share market, you only need answers to three questions: (1) What to buy; (2) When to buy; and (3) When you to sell. Look at the table below. Some sectors, for instance, banks, are ridiculously cheap now compared to their earnings. Looks like most of the stocks are on sale. This is the time to get some great deals in the market; this is the time to buy. Do not bother for short-term price movements. One hardly can predict the short-term movements of the stock market. What is likely is that, in the long run, the market will move higher, perhaps substantially so. So, buy shares of fundamentally sound companies in this cheap market, hold it and make money. Again, to make money, pay less. Now you might ask the million dollar question: when to sell? No one can time the market. So, to solve the mystery, you have to have a reasonable return target. Compare your return target with the return from other asset classes in a particular investment horizon. Having an unreasonably high return target might lead you to considerable losses. Also, be careful of some sectors which are still overpriced, even in this bear market, compared to their earnings. Many investors are complaining that brokerage houses are not providing them margin loan at all. In such a situation, you can make written complaint against that specific brokerage house to the media and SEC. If you wait for the market to come back again, you might miss the train. If you think that the market will go down further, you might miss the party. Warren Buffett reveals his investment principle: "Be fearful when others are greedy, and be greedy when others are fearful". All other investors are fearful now, so it's time for you to get greedy. This is the time to act. Buy now and get your piece of the pie. The writer is of the Department of Economics, Texas Tech University. He can be reached at E-mail : mainul.ahsan@ttu.edu
Hello, Mr. Investor! Yes, I am talking to you. Right now you might be in front of the Dhaka Stock Exchange or the Securities and Exchange Commission protesting against the very recent price decline in the stock market. Does it really make sense? Should the government do anything against short-term price decline? Why are you really wasting your time? Do not spend your time in front of DSE; it would not make much difference in share prices. Spend the same time to do some research about the market. Of course, the manipulators are responsible for the recent market crash. Aren't you also responsible? You did not think for a moment before putting your lifetime savings in a bull market near to crash. You got unreasonably greedy and paid the price for it. Why did you go against your daily habit? What do you do when you go for shopping? You try to pay as less as possible. You spend hours to get the right price in the mall. Why did you do the opposite in the share market? Why do you invest in the market when prices are skyrocketing? Why do you stay out of market when you should proudly show your animal spirit? So, you are also one to blame for the recent crash in the stock market. You forgot the basic rule of investing: Buy undervalued shares and sell overvalued ones. Forget about all the complex formulas or theories regarding investing in the share market. Let me tell you an open secret. To be successful in the share market, you only need answers to three questions: (1) What to buy; (2) When to buy; and (3) When you to sell. Look at the table below. Some sectors, for instance, banks, are ridiculously cheap now compared to their earnings. Looks like most of the stocks are on sale. This is the time to get some great deals in the market; this is the time to buy. Do not bother for short-term price movements. One hardly can predict the short-term movements of the stock market. What is likely is that, in the long run, the market will move higher, perhaps substantially so. So, buy shares of fundamentally sound companies in this cheap market, hold it and make money. Again, to make money, pay less. Now you might ask the million dollar question: when to sell? No one can time the market. So, to solve the mystery, you have to have a reasonable return target. Compare your return target with the return from other asset classes in a particular investment horizon. Having an unreasonably high return target might lead you to considerable losses. Also, be careful of some sectors which are still overpriced, even in this bear market, compared to their earnings. Many investors are complaining that brokerage houses are not providing them margin loan at all. In such a situation, you can make written complaint against that specific brokerage house to the media and SEC. If you wait for the market to come back again, you might miss the train. If you think that the market will go down further, you might miss the party. Warren Buffett reveals his investment principle: "Be fearful when others are greedy, and be greedy when others are fearful". All other investors are fearful now, so it's time for you to get greedy. This is the time to act. Buy now and get your piece of the pie. The writer is of the Department of Economics, Texas Tech University. He can be reached at E-mail : mainul.ahsan@ttu.edu