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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Colombo ASPI at 20,000?

Colombo ASPI at 20,000?

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1Colombo ASPI at 20,000? Empty Colombo ASPI at 20,000? Sun Mar 06, 2011 2:30 am

ruwa925


Manager - Equity Analytics
Manager - Equity Analytics
As ridiculous as this title sounds, optimism remains unbridled in the future performance of the Sri Lankan stock market. During my recent sojourn in Sri Lanka, everyone seemed equally convinced at the perpetual incremental returns from stocks. This thesis is further aided by historically low cash rates pushing long term fixed deposit investors to the highly volatile stock market.

Similar sentiment was expressed back in the late nineties about Internet-related stocks, especially in the United States of America. The pinnacle of optimism came with the publication of "Dow 36,000" on Oct. 1, 1999 (coincidentally near the peak of the tech bubble), co-written with economist Kevin A. Hassett.

The book called for stocks to triple in as little as five years. That said, the book contained some sensible, eat-your-vegetables advice: diversify, trade as seldom as possible and keep your costs low.
But the main argument of "Dow 36,000" was dubious.

Three days before "Dow 36,000" came out, Foundry Networks, a computer-infrastructure firm, went public; its shares shot up 525% on their first day. Over the preceding five years, US stocks had gained an annual average of 25%. Nevertheless, "stocks could immediately double, triple or even quadruple and still not be too expensive," wrote Messrs. Glassman and Hassett.

Their logic? "Stocks and bonds are equally risky over long horizons," because stocks had never lost money over the long term, and the passage of time made their rate of return almost constant. Furthermore, investors had started "learning" that stocks weren't risky.

On reflection, the authors’ argument wasn't radical. In one way they were right: Economists contend that riskier assets must offer higher returns, or no one would invest in them. That is a fallacy, and a dangerous one at that.

Riskier assets don't necessarily offer higher returns; they only appear to do so. If risky investments could be counted on for higher returns, then they wouldn't be risky. And if investments weren't risky, then they probably wouldn't appear to promise higher returns.

By chasing the potential for higher return in riskier assets, investors drive prices up. Under the classic definition of risk—how widely the returns deviate from the average—that alone doesn't make assets more dangerous. But by using a common-sense definition of risk—"the likelihood of losing money"—rising prices are pure investment poison.

The higher and faster prices go up, the farther and harder they have to fall. But that’s not to say that investors should rush out of all risky assets and relocate under a huge rock. Nor should wise investors subscribe to doomsayers who preach about the next disaster that’s going to end civilisation as we know it.

Is the world more dangerous than in 1999, when the "Y2K" glitch threatened computer networks and suicide bombs were a weekly spectacle during “peace” and wars raged in Kosovo, Rwanda and Sierra Leone?

Who knows?
Hedging may provide investor portfolios some security against "known-unknowns", which has always been true. But it’s the “unknown unknowns”, which always gets everyone. And no holding period is long enough to eliminate the risk of holding stocks. Research from Elroy Dimson, Paul Marsh and Mike Staunton of London Business School shows that stocks world-wide have sometimes lost money, after inflation, for many decades, as in France from 1912 through 1977. Such a long slog isn’t quite impossible here, especially given the disappointment circa 1993 through 2002.

The risks of owning stocks are real, and they are rising—not falling—as stock prices keep going up. That doesn't mean you should reduce your exposure to stocks. It does mean the more they go up, the less you should like them. But above all, you should understand how each company makes money, what business lines they are in and their relative strengths.

The biggest movers of late in the domestic market seem to be trust companies, with limited or no liquidity and dubious business models without any explanation of how they make money.
Much is expected of new IPOs during 2011. If proper businesses that engage in activities which generate cash-flows and profits don’t make it into the bourse, stocks will get more risky, not less—and less attractive, not more.

(Kajanga is an Investment Specialist based in Sydney, Australia. He wrote this column during a holiday in Sri Lanka. You can write to him at kajangak@gmail.com.


2Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Sun Mar 06, 2011 9:16 am

mark

mark
Expert
Expert
Shocked Shocked Shocked Shocked Shocked Shocked Surprised Surprised Surprised Surprised Surprised Surprised Surprised Surprised

3Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Sun Mar 06, 2011 10:04 am

sapumal


Vice President - Equity Analytics
Vice President - Equity Analytics
I don't know about 20,000
But we can't expect full advantages and 100% efficiency gained from peace until 4,5 years.

4Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Sun Mar 06, 2011 11:08 am

BenZ

BenZ
Manager - Equity Analytics
Manager - Equity Analytics
@ruwa925 wrote:

The risks of owning stocks are real, and they are rising—not falling—as stock prices keep going up. That doesn't mean you should reduce your exposure to stocks. It does mean the more they go up, the less you should like them. But above all, you should understand how each company makes money, what business lines they are in and their relative strengths.

Yeah .... More they go up, the less you should like them !!!


@ruwa925 wrote:
The biggest movers of late in the domestic market seem to be trust companies, with limited or no liquidity and dubious business models without any explanation of how they make money.
Much is expected of new IPOs during 2011. If proper businesses that engage in activities which generate cash-flows and profits don’t make it into the bourse, stocks will get more risky, not less—and less attractive, not more.


Positive thing is so many IPOs on the way and it will widens the market opportunities rather than tight up with same set of stocks time to time.

Other thing is, averagely decent amount of the sky rocketed companies supporting the current price levels with the latest earnings... Eg. BFL, GRAN, TAFL, CFLB, LCEY, GLAS, KOTA, KGAL, DIMO, ASHO, SAMP, COMB, NTB, LFIN and so on ... there are many more as well ..

5Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Sun Mar 06, 2011 3:41 pm

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
Good write-up... It is sensible to manage your risk. One approach is to diversify your portfolio.

Another approach, which I follow, is to apply the '100 minus your age' thumb rule, i.e. Invest no more than (100 minus your age)% of your capital in equity.

The rationale is that a younger person's investment horizon is typically longer than an older person's. Here's a link to an article that explains the logic:
http://www.boerse-frankfurt.de/EN/index.aspx?pageID=44&NewsID=298

6Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Sun Mar 06, 2011 4:32 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
@ruwa925 wrote:As ridiculous as this title sounds, optimism remains unbridled in the future performance of the Sri Lankan stock market. Similar sentiment was expressed back in the late nineties about Internet-related stocks, especially in the United States of America. The pinnacle of optimism came with the publication of "Dow 36,000" on Oct. 1, 1999 (coincidentally near the peak of the tech bubble), co-written with economist Kevin A. Hassett.

The biggest movers of late in the domestic market seem to be trust companies, with limited or no liquidity and dubious business models without any explanation of how they make money.
Much is expected of new IPOs during 2011. If proper businesses that engage in activities which generate cash-flows and profits don’t make it into the bourse, stocks will get more risky, not less—and less attractive, not more
.

(Kajanga is an Investment Specialist based in Sydney, Australia. He wrote this column during a holiday in Sri Lanka. You can write to him at kajangak@gmail.com.



The crux of his write up is reproduced here. (see in italic)

7Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Sun Mar 06, 2011 6:21 pm

ruwa925


Manager - Equity Analytics
Manager - Equity Analytics
@salt wrote:
@ruwa925 wrote:As ridiculous as this title sounds, optimism remains unbridled in the future performance of the Sri Lankan stock market. Similar sentiment was expressed back in the late nineties about Internet-related stocks, especially in the United States of America. The pinnacle of optimism came with the publication of "Dow 36,000" on Oct. 1, 1999 (coincidentally near the peak of the tech bubble), co-written with economist Kevin A. Hassett.

The biggest movers of late in the domestic market seem to be trust companies, with limited or no liquidity and dubious business models without any explanation of how they make money.
Much is expected of new IPOs during 2011. If proper businesses that engage in activities which generate cash-flows and profits don’t make it into the bourse, stocks will get more risky, not less—and less attractive, not more
.

(Kajanga is an Investment Specialist based in Sydney, Australia. He wrote this column during a holiday in Sri Lanka. You can write to him at kajangak@gmail.com.



The crux of his write up is reproduced here. (see in italic)

dear salt
meke lunu madida

8Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Mon Mar 07, 2011 10:58 pm

mark

mark
Expert
Expert
@ruwa925 wrote:
@salt wrote:
@ruwa925 wrote:As ridiculous as this title sounds, optimism remains unbridled in the future performance of the Sri Lankan stock market. Similar sentiment was expressed back in the late nineties about Internet-related stocks, especially in the United States of America. The pinnacle of optimism came with the publication of "Dow 36,000" on Oct. 1, 1999 (coincidentally near the peak of the tech bubble), co-written with economist Kevin A. Hassett.

The biggest movers of late in the domestic market seem to be trust companies, with limited or no liquidity and dubious business models without any explanation of how they make money.
Much is expected of new IPOs during 2011. If proper businesses that engage in activities which generate cash-flows and profits don’t make it into the bourse, stocks will get more risky, not less—and less attractive, not more
.

(Kajanga is an Investment Specialist based in Sydney, Australia. He wrote this column during a holiday in Sri Lanka. You can write to him at kajangak@gmail.com.



The crux of his write up is reproduced here. (see in italic)

dear salt
meke lunu madida

what about RAIGAM lunu? lol! lol! lol! lol! lol!

9Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Mon Mar 07, 2011 11:09 pm

Aamiable


Vice President - Equity Analytics
Vice President - Equity Analytics
CSE can achieve many milestones if the market grows on corporate earnings and according to fundamentals.

10Colombo ASPI at 20,000? Empty Re: Colombo ASPI at 20,000? Mon Mar 07, 2011 11:25 pm

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
Again and again i saying this, before you buy or sell a stock ask the question from yourself why you want do that transaction, don't follow the market some times you can gain a lot, at the same time in the event loss also normally high, hope most of you agree with me

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