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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » 2012: The year of missed opportunities for local investors

2012: The year of missed opportunities for local investors

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sriranga

sriranga
Co-Admin
This article was written by Abhishek Kalupathirana of Lanka Securities Ltd., with the auspices of the Research Committee of Colombo Stock Brokers Association

In the recent times, the common investor’s viewpoint of the Colombo Stock Exchange (CSE) has been:

“I lost all my savings!”

“I lost more than half the value of my portfolio”

“We burnt our fingers”

In the meantime, however, foreign institutional investors bought shares with massive discounts in 2012 and amassing a net inflow of roughly Rs. 38 b. This figure is the highest so far in the history of the CSE.

2012: The year of missed opportunities for local investors Bup_df21

The current position of the stock market stands as an excellent opportunity for “stock picking”. Even during the recent down trend, stocks such as Ceylon Tobacco Company and Nestle have rallied during the 2012 calendar year! There is opportunity even during the worst of times. Do not turn a blind eye. “The stock market can provide decent returns to astute investors even during down markets”

Ceylon Tobacco Company and Nestlé
These two companies have a dividend payout ratio in excess of 90%. CTC is a monopoly and Nestlé is a market leader in its products.

The two companies follow good corporate governance principles. There is no doubt about the sustainability of these two even during adverse economic conditions. Investors who had confidence in these two entities reaped benefits last year. The graph illustrates just how much the shares appreciated in 2012.

According to the graph, Nestlé has gained by more than 86.3% and CTC has gained by more than 73.2%. Nestlé has provided an annual dividend of Rs. 47.50 for the 2011 financial year and CTC has given Rs. 37.10 as dividends. Therefore, do not exit the stock market during these difficult times but rather “pick” shares which are have better upside potential.

Stocks have exceptional potential?! Which? When?

As mentioned earlier, the CSE is a “stock pickers” paradise. Our stock market is semi-efficient. This in simple English means that any investor can outperform another investor based on information available him/her.

Most Sri Lankans tend to invest when everybody else is investing in the stock market (herd instinct).

A knowledgeable investor on the other hand will buy when other investors run away from the market and sell when the majority of the investors start buying.

So what are the industries with potential? All industries have potential but few industries such as dairy, tourism and engineering hold the most promise with rapid economic growth required to reach the 100 billion dollar economy by 2016 the Government is envisaging.

The dairy industry for example, the government wants the country to be self-sufficient in dairy production by 2016. We currently produce only around 30% of our requirement. With economic development the per capita demand for dairy will also rise.

If you talk to your investment adviser, you will be able to find out listed companies in the above mentioned industries. However, we should remember that all businesses have risks.
2012 was dreadful year, but did we miss an opportunity?

The All-Share Price Index hit a recent low of 4,851.88 on 9 August 2012. Since then the ASPI has climbed to 5,751.93 points by 8 January 2012.

That’s a gain of more than 18.5%! Premier blue-chip John Keells Holdings hit a low of Rs. 159.20 on 18 January 2012 and now trades at around Rs. 224. This translates to gain of more than 40.7%! Figures speak for themselves. There are opportunities in this market but we Sri Lankans have turned a blind eye.

Opportunities arise when there are adversities. Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying: “The time to buy is when there’s blood in the streets.”

He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon.

2012: The year of missed opportunities for local investors Bup_df22

What can we do to make profits from this situation?
Retail activity was the main driver in terms of activity and sentiment during the bullish period of mid-2009 to early 2011. Rise in interest rates, margin calls and global financial crisis have been a few talking points on the reason for the negative sentiment in the Colombo Stock Exchange (CSE).

In the current situation as discussed earlier stock picking is the most suitable option available for investors.

For the aggressive investor trading on the values of the Relative Strength Index (RSI) can be suggested as a reasonable option.

The RSI has values from 0 to 100. If a stock has a RSI of less than 30, it is regarded as oversold and conversely a RSI of more than 70 is regarded as overbought. The idea is to buy a stock when it is oversold and sell when it is overbought.

The condition of the stock market has improved considerably from mid-2012 and we are looking ahead for better times. To put things in perspective, premier John Keells Holdings is trading at the same price levels (share split-adjusted) as it did when the ASPI was at an all-time high in the 7,800 region.

However, on the other hand the ASPI has lost almost 2,000 points since its peak.

Patience is a virtue
Reaping the benefits of investing in the stock market takes time.

These time periods sometimes run into a few years. But according to data compiled from the Central Bank reports returns from the stock markets have always outdone all other investments.
http://www.ft.lk/2013/01/24/2012-the-year-of-missed-opportunities-for-local-investors/#more-132013

http://sharemarket-srilanka.blogspot.co.uk/

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Thanks for sharing this Sri..

Regarding the article. Well.... It’s extremely easy tell what happened in the past. You can plot graphs, long articles, tell/show where it went wrong, what didn’t we do, who to blame, etc etc

But...........wonder what did they tell in latter part of 2011 or at least early 2012? Did they suggest selling shares? Did they suggest us to buy NEST & CTC in early 2012? Did they suggest us to buy JKH in mid 2012? I cannot remember. Many of them were just hiding from general public.

K.Haputantri

K.Haputantri
Co-Admin
@UKboy wrote:Thanks for sharing this Sri..

Regarding the article. Well.... It’s extremely easy tell what happened in the past. You can plot graphs, long articles, tell/show where it went wrong, what didn’t we do, who to blame, etc etc

But...........wonder what did they tell in latter part of 2011 or at least early 2012? Did they suggest selling shares? Did they suggest us to buy NEST & CTC in early 2012? Did they suggest us to buy JKH in mid 2012? I cannot remember. Many of them were just hiding from general public.


Many members in the forum may share your views but we must not foget the fact that no one has a Cristal Ball capable of predicting the future trends of the share market. If one had it, per se, he would never use it to educate us. Instead, he will use it for his advantage and become rich.

Having said my genuine views on this very important subject I also would like to agree that forward looking research is hardly done by our socalled analysts who very often readily write volumes of reports for money to boost fake IPOs and mislead gullible investors.

However, this article reiterates the facts that (a) most rewarding investment is in the share market, (b) foreigners who have mastered the art of investing have become the winners, (c) generally locals have missed the boat and (d) the importance of inculcating good investor habits if one need to succeed.

Thanks Shri for sharing the article.

econ

econ
Global Moderator
all those massive upward trend reported on end of 2009 to end of 2010.. so people who entered just after the war and exited early 2011 are the winners. anyway can we expect same scenario happens in next few years?

Lassana


Stock Trader
LSL EWUN DANNA DEYAK NEHE,...BAN MODAYO TIKAK INNE...ALL ARE MANIPULATORS LIKE BUNCH OF BUFFALOS

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
@K.Haputantri wrote:
@UKboy wrote:Thanks for sharing this Sri..

Regarding the article. Well.... It’s extremely easy tell what happened in the past. You can plot graphs, long articles, tell/show where it went wrong, what didn’t we do, who to blame, etc etc

But...........wonder what did they tell in latter part of 2011 or at least early 2012? Did they suggest selling shares? Did they suggest us to buy NEST & CTC in early 2012? Did they suggest us to buy JKH in mid 2012? I cannot remember. Many of them were just hiding from general public.


Many members in the forum may share your views but we must not foget the fact that no one has a Cristal Ball capable of predicting the future trends of the share market. If one had it, per se, he would never use it to educate us. Instead, he will use it for his advantage and become rich.

Having said my genuine views on this very important subject I also would like to agree that forward looking research is hardly done by our socalled analysts who very often readily write volumes of reports for money to boost fake IPOs and mislead gullible investors.

However, this article reiterates the facts that (a) most rewarding investment is in the share market, (b) foreigners who have mastered the art of investing have become the winners, (c) generally locals have missed the boat and (d) the importance of inculcating good investor habits if one need to succeed.

Thanks Shri for sharing the article.

Do agree with both of you.
But I think our forum taught and adviced more than these broker huts no?

K.Haputantri

K.Haputantri
Co-Admin
@Lassana wrote:LSL EWUN DANNA DEYAK NEHE,...BAN MODAYO TIKAK INNE...ALL ARE MANIPULATORS LIKE BUNCH OF BUFFALOS

Pl refrain from using all capital letters. This is a forum rule.

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
@K.Haputantri wrote:
@Lassana wrote:LSL EWUN DANNA DEYAK NEHE,...BAN MODAYO TIKAK INNE...ALL ARE MANIPULATORS LIKE BUNCH OF BUFFALOS

Pl refrain from using all capital letters. This is a forum rule.

http://forum.srilankaequity.com/t5700-forum-rules-policies-guidelines

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
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