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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Have long term investors realised the benefits of investing

Have long term investors realised the benefits of investing

3 posters

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EquityChamp

EquityChamp
Moderator
Moderator

I would like to initiate a discussion on this subject as always the investment gurus keep on saying that long term investors are the winners in stock markets. For this discussion I am taking the time frame between 2010 to 2015, a five year period.
The facts we can see are as follows.
-Economy grew by 7.4% on average
-ASPI declined from an all time high of 7800 to 6800
-Most of the top companies have doubled their profits (JKH 9bn to 15bn, COMB 6bn to 12bn, NEST 2bn to 4bn, CTC 2bn to 11bn, DIAL 5bn to 5bn)

Though the growth rate were encouraging and accordingly corporate earnings were encouraging too why the index was lagging behind 1000 points is the situation. Further in this year we have seen a further erosion of the index by 800 points so far. So an investor invested in 2010 or 2011 has made any gain by now?. The index suggests still he is in a lost state.

So the next question is why the index has not moved to 8000 or 9000 by now.

Is it because the extraordinary performance of the index in 2009 (over 100% appreciation) and 2010 (over 90% appreciation) has absorbed all the due gains till 2020 in advance which means if normal growth had been experienced the ASPI could have been around 8000 by now not in early as 2011.

Or is it because world economy face many issues during the same period which has impacted our stock market

Or is it because domestic issues have prevented the market to climb above 8000 points

In case of world market the issues were visible since as early as 2008 but yet CSE were the best performing market in 2009 and 2010 so world economic problems seems to be has a lessor impact.

Then domestic issues have any impact? From 2010-2014 the regime was same as in 2009-2010 yet the index failed to touch 2011 figure. Exchange rate was deteriorating but controlled by CB despite continued BoP deficits. Every year we had increasing BoP deficits during the past five years. We experienced huge foreign selling in 2010-2011 period where US interest rates were coming down. Local interest rates were increasing till 2012 but thereafter falling yet index has failed to touch the 2011 level.

So then the other factor remain is the unprecedented growth achieved during the period 2009-2010 period. Normally a stock market can grow between 15-20% annually based on empirical studies. If we applied that rate to our index 7800 should be established now not in 2011. The facts pointing out that investors enjoyed hefty gains in 2009-2010 are getting adjusted now. On the other hand we are facing the consequences of market overreaction happened immediately after the war.

A+


Manager - Equity Analytics
Manager - Equity Analytics

I think we are paying the price for over heating happened just after the war. If we could stay away after the spike in 2009-2010 then most of us can sleep well by today. Unfortunately we didn't realize that. Sad

VALUEPICK

VALUEPICK
Expert
Expert

We had few bull markets in the past and at different times different stocks had become major movers in the market.

For example following stocks reported some of the all time high in previous bull markets.

HAYL

All Time High (Rs.) 560.00

HNB

All Time High (Rs.) 615.00

COMB

All Time High (Rs.) 525.00

SAMP

All Time High (Rs.) 550.00

NDB

All Time High (Rs.) 490.00

DFCC

All Time High (Rs.) 680.00

MASK

All Time High (Rs.) 74.75

TPL

All Time High (Rs.) 55.00

BOPL
All Time High (Rs.) 77.00

JKH

All Time High (Rs.) 430.25

This time we didn’t see broader bull market except for some stocks oriented uptrend during last two years. They are also having correction now. Mr Market will decide when to go up and when to go down. Even in bear markets or weak markets some stocks could have demand. We saw some winning stocks in bear markets in the past. We are having a kind of range bound market now. Some analysts predicted 9000 and 12,000 as well.

We are going to see growth in sectors such as such as infrastructure, travel and, tourism, transportation agriculture and food sectors due to end of war, growth in the population and growth in the economic activities etc.

In addition, Sri-Lanka is belonging to frontier markets category and they are in the initial stage of their development in capital markets, infrastructure and other economic activities.

End of war was a new development to the market. It created great opportunity in some sectors. Similarly end of war in many countries means less demand for arms, ammunitions, less human catastrophic, more peace and more development and less demand for defense stocks.

Which sectors will have more growth in the coming years?  
Which companies will benefit more?
Which companies can survive in good and bad times?
Which companies will create mid and long term share holder value?

In short, Sri-Lanka has following types of stocks which can give some return in the future.

Well managed locally grown companies (some have not listed yet)
Well managed Multi national and foreign own companies (majority)
Emerging companies  
Some large, mid and small companies

In addition, short term investors less than one year, mid term and long term investors have opportunities in this market. However, we will have to do some home work to pick right types of stocks. If we pick five stocks one can give attractive or mega return, three will give some return according to the market situation and one can make losses sometimes more than 50%.

Market cycles will not end as long as present financial system and capital system is there.

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