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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » Is our market behaving rationally now?

Is our market behaving rationally now?

Go down  Message [Page 1 of 1]

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics

When ASI hit 7800 with most of the stocks being overvalued, there had to be a market correction if CSE was to sustain. It was needed and healthy. Some people in this forum predicted that too.

But fall is only a fall if it becomes a reality as markets can carry on positive momentum for months. But at some point the reality need to happen. In our case that is exactly what happened and it happened with a vengeance due to many factors with the overvalued market being a prime reason (which badly needed a correction). Other factors such as macroeconomic reasons and more importantly irrational/immoral speculative chasing by retailers (and getting money tied up in junk), immoral behaviors of the big boys to manipulate market , certain experiments conducted by authorities with no clear plan , bad investment practices with lesser basic knowledge by "investors" or should I call them gamblers etc etc .


Now the question is are we over-correcting as market has lost 1700 points from the Top and is trading around PE of 14-15( CSE says 15.66 yesterday, Arrenga broker repott says 14+). MPI is in a more terrible state. If we take out the overvalued junk , market must be even more attractive as we find 5-10 PE counters with attractive pegs. The Forward market PE is probably even more attractive . Some of the then overvalued market giants like JKH,SPEN,CARS group, HNB also have showed relatively better profits while loosing it market share value to narrow down to a better valuation comparatively. Speculative share with no fundamentals which went sky high like GREG group, REEF, EMER, EAST . LHCL had also come down drastically. Now we are loosing day by day due to negative momentum and investor confidence and other facts. Are we still in a natural correction or a overreacted one due to external behaviors and factors.

Ofcourse of there are still shares which have lot of room for downward correction . But why cannot they get corrected on their own? Do we need a whole market correction losing 1.5-2% a day until ASI hit 5500-5000.

In a good correction, over valued shares should get corrected while fundamentals should relatively hold it value. What was happening. Is it natural? More importantly why is it happening still? In any healthy market there should be sufficient green days along with the more red days. Green days are becoming harder to find now while drops are getting too severe. The only green days we saw recently are totally fake.


There is something "fundamentally" Wink wrong in our market behavior now.

In a natural market correction we need to be more worried if we held overvalued junk right? But CSE is not behaving that way. Most times fundamentals loose more value than the junk shares in a down fall. Question is why did this happen?

As far as I see, many hold junk going after the market trends and sell their fundamentals saying " what is the use of holding them". They started to sell non moving fundamentals to invest in more junk. One big reason for the further downfall is due to these irrational/immoral investment behaviors along with credit restrictions in place forcing them act even more drastically in crisis. Sometimes selling good shares at a loss is the only way out to get out of the mess they already in.



Maybe some made money with speculative, overvalued junk and never relied on fundamentals . Good for you and congratulations for outwitting the market.

Some condemned fundamentals saying they are the junk as they loose value and never move. Way to go is speculatives and speculative only. Some even showed the way to pick the "venerable" crap and discard the so called "junk" fundamentals.
Okay you had your time. Have you thought for a moment why fundamentals never moved? Have you thought why the market is behaving in this ruthless way now. I am not saying speculative are bad , as any good investor needs to keep, long,medium,short term shares with some speculatives but if you are keeping all specs you are treading on a volcano which will ruin not only you but your family and friends.

Side track : Why are the fundamentals ( non moving and so called now useless) good for medium to long term. When market goes down , fundamentals will also go down. Now also they are going down. As fundamentals have an intrinsic value attached to each share (based on current earning/valuations etc) even after a heavy down fall they willl always recover to their value at some point. Speculative and junk will dominate for a while they are at the top. But as they do have only a low intrinstic value , once they start going down they can break you much faster than fundamentals. Also their recovery? Your guess is good as mine.



I do not know when we will see a sustainable market again. But it cannot be too far ( in a few months hopefully). Maybe there will be a blood bath before it. The times look grim. Maybe we deserve it. One thing I can tell you now : go slow and steady and you will win the race. If one try to gamble , you will win at times , but when the losses come it will come out with a vengeance killing not only you your friends and CSE family. Do we see a sample?


If you are buying at some point in the future ( I am not asking you to buy), atleast try to concentrate on buying shares with value. If MANY THINK THIS WAY CSE WILL BE SUSTAINABLE FOR THE FUTURE AND OUR KIDS.




Learn the basics, Invest not gamble, know your investment period, have Patience , have lesser Greed , know your entry and exit points and you will be a victor on the longer run at CSE


Let us hope for the best.



Last edited by slstock on Wed Nov 16, 2011 9:00 am; edited 1 time in total

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Slstock

Post Wed Nov 16, 2011 8:38 am by Slstock


Btw, I am hoping for a recovery rally soon. Maybe "they" will give us a carrot to munch to motive us for a temporary recovery rally.
I hope for sake of CSE there will be Green patch. No market can sustain straight going up or straith going down.


Many of us at CSE are extremists. We over joy at the slightest or panic much. Let us be moderate with slow and steady expectation and with mixure of red and green.

Viva CSE and us.

rijayasooriya

Post Wed Nov 16, 2011 9:51 am by rijayasooriya

Very good explanation by one of our best senior members.
Just see what has happened to fundamentalls also.Please note that there are some craps also for comparison.
http://forum.srilankaequity.com/viewimage.forum?u=http%3A%2F%2Fi40.servimg.com%2Fu%2Ff40%2F16%2F80%2F16%2F77%2Fscreen11.jpg



Last edited by rijayasooriya on Wed Nov 16, 2011 10:10 am; edited 1 time in total

avatar

Post Wed Nov 16, 2011 10:01 am by seyon

Thanks slstock for highlighting real scanario that happening in CSE now, as u said Fundamentals are move slow but steady.

In my portfolio 70% are fundamental stong counters, some of speculative counter i exited last month. No my investmet plan to hold my strong counters at least for other five years. I hope this would be best strategy to make substatial gain in current context.

Rapaport

Post Wed Nov 16, 2011 10:20 am by Rapaport

The quality of stocks dominating todays volume so far - HVA, ASCO, BLUE, ECL, PAP.... etc etc

Shows the quality of today's players! When will some people learn! LOL!

Cheers....

Monster

Post Wed Nov 16, 2011 11:00 am by Monster

Excellent post slstock

@Rapaport wrote:The quality of stocks dominating todays volume so far - HVA, ASCO, BLUE, ECL, PAP.... etc etc

Shows the quality of today's players! When will some people learn! LOL!

Cheers....
Rapaport, let me add CLND too your list

Angrybird

Post Wed Nov 16, 2011 5:11 pm by Angrybird

So many good points for thinking before come back to the CSE again...... Crying or Very sad

Thank you for sharing this post...

avatar

Post Wed Nov 16, 2011 7:06 pm by Sudarshen

@slstock wrote:
When ASI hit 7800 with most of the stocks being overvalued, there had to be a market correction if CSE was to sustain. It was needed and healthy. Some people in this forum predicted that too.

But fall is only a fall if it becomes a reality as markets can carry on positive momentum for months. But at some point the reality need to happen. In our case that is exactly what happened and it happened with a vengeance due to many factors with the overvalued market being a prime reason (which badly needed a correction). Other factors such as macroeconomic reasons and more importantly irrational/immoral speculative chasing by retailers (and getting money tied up in junk), immoral behaviors of the big boys to manipulate market , certain experiments conducted by authorities with no clear plan , bad investment practices with lesser basic knowledge by "investors" or should I call them gamblers etc etc .


Now the question is are we over-correcting as market has lost 1700 points from the Top and is trading around PE of 14-15( CSE says 15.66 yesterday, Arrenga broker repott says 14+). MPI is in a more terrible state. If we take out the overvalued junk , market must be even more attractive as we find 5-10 PE counters with attractive pegs. The Forward market PE is probably even more attractive . Some of the then overvalued market giants like JKH,SPEN,CARS group, HNB also have showed relatively better profits while loosing it market share value to narrow down to a better valuation comparatively. Speculative share with no fundamentals which went sky high like GREG group, REEF, EMER, EAST . LHCL had also come down drastically. Now we are loosing day by day due to negative momentum and investor confidence and other facts. Are we still in a natural correction or a overreacted one due to external behaviors and factors.

Ofcourse of there are still shares which have lot of room for downward correction . But why cannot they get corrected on their own? Do we need a whole market correction losing 1.5-2% a day until ASI hit 5500-5000.

In a good correction, over valued shares should get corrected while fundamentals should relatively hold it value. What was happening. Is it natural? More importantly why is it happening still? In any healthy market there should be sufficient green days along with the more red days. Green days are becoming harder to find now while drops are getting too severe. The only green days we saw recently are totally fake.


There is something "fundamentally" Wink wrong in our market behavior now.

In a natural market correction we need to be more worried if we held overvalued junk right? But CSE is not behaving that way. Most times fundamentals loose more value than the junk shares in a down fall. Question is why did this happen?

As far as I see, many hold junk going after the market trends and sell their fundamentals saying " what is the use of holding them". They started to sell non moving fundamentals to invest in more junk. One big reason for the further downfall is due to these irrational/immoral investment behaviors along with credit restrictions in place forcing them act even more drastically in crisis. Sometimes selling good shares at a loss is the only way out to get out of the mess they already in.



Maybe some made money with speculative, overvalued junk and never relied on fundamentals . Good for you and congratulations for outwitting the market.

Some condemned fundamentals saying they are the junk as they loose value and never move. Way to go is speculatives and speculative only. Some even showed the way to pick the "venerable" crap and discard the so called "junk" fundamentals.
Okay you had your time. Have you thought for a moment why fundamentals never moved? Have you thought why the market is behaving in this ruthless way now. I am not saying speculative are bad , as any good investor needs to keep, long,medium,short term shares with some speculatives but if you are keeping all specs you are treading on a volcano which will ruin not only you but your family and friends.

Side track : Why are the fundamentals ( non moving and so called now useless) good for medium to long term. When market goes down , fundamentals will also go down. Now also they are going down. As fundamentals have an intrinsic value attached to each share (based on current earning/valuations etc) even after a heavy down fall they willl always recover to their value at some point. Speculative and junk will dominate for a while they are at the top. But as they do have only a low intrinstic value , once they start going down they can break you much faster than fundamentals. Also their recovery? Your guess is good as mine.



I do not know when we will see a sustainable market again. But it cannot be too far ( in a few months hopefully). Maybe there will be a blood bath before it. The times look grim. Maybe we deserve it. One thing I can tell you now : go slow and steady and you will win the race. If one try to gamble , you will win at times , but when the losses come it will come out with a vengeance killing not only you your friends and CSE family. Do we see a sample?


If you are buying at some point in the future ( I am not asking you to buy), atleast try to concentrate on buying shares with value. If MANY THINK THIS WAY CSE WILL BE SUSTAINABLE FOR THE FUTURE AND OUR KIDS.




Learn the basics, Invest not gamble, know your investment period, have Patience , have lesser Greed , know your entry and exit points and you will be a victor on the longer run at CSE


Let us hope for the best.


Many thanks for the great advises

avatar

Post Wed Nov 16, 2011 7:26 pm by Sudarshen

Shares like RICH, UBC, GLAS, KHL, ASIR Are they fundamentals Or speculative ?

What is the criteria for a fundamental ?

avatar

Post Wed Nov 16, 2011 7:51 pm by ninja

I am breathing again.....This is my first experience in a heavy downfall. This is sickening at times. But I will leave it to the future. It will be do or die for me....Smile Let's hope we find oil/gas as our last option to be the next Singapore.

Roboticfx

Post Wed Nov 16, 2011 8:48 pm by Roboticfx

Great article slstock! Thank you very much for it.

Our professor who interviews investment advisers( I have forgotten his name) said market should have a little change everyday and shouldn't have a big downward or sudden upward. But now it was totally changed. I know in the market there should be downwards as well as upwards.(otherwise share prices will reach to multiples of lakhs) But now it is falling down and down alone. When will be the deadline of this? Anyone can't say it. Why cse don't do anything to stop this sudden fall? Why they are staying like phantoms? all are silent.

avatar

Post Wed Nov 16, 2011 9:21 pm by Aamiable

investors also do not have more funds to average...... and margin calls..

avatar

Post Mon Nov 21, 2011 9:18 am by webhoundx

Quality post. Keep it up slstock cheers

Redbulls

Post Thu Mar 01, 2012 3:27 am by Redbulls

Good one to read.
Thanks slstock.

K.Haputantri

Post Thu Mar 01, 2012 8:23 am by K.Haputantri

Slstock your analysis is very good. Thanks.

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