FE Report (February 08, 2011)
On the top of every US dollar note, one sentence is written, "In God We Trust" - the official motto of the United States adopted in 1956. Americans have permanently imprinted their Fundamental Principle of Life on their money. Probably it is because money is the key to life and living. The principle is true not only for Americans but perhaps everyone except atheists.
However, everything has changed with the advancement of time. People have become more knowledgeable and wise in these days. So has changed their thoughts, and even the Fundamental Principle of Life (!). Need a proof? From America to Bangladesh, have a look on the crises faced by the countries historically in the financial markets around the world. If it is difficult to apprehend, at least look at the just experienced crash in the stock market of Bangladesh and its last few years history of inorganic growth. You will find the testimony. All these crises, especially, the latest one of Bangladesh that has made many investors hero to zero reminds me the famous sentence written on the dollar notes. I am afraid, in this new world, our intelligent and more knowledgeable investors have brought a very small change in the principle as they follow today: "In Greed We Trust".
There was an old tea stall owner whom everyone called as "Dada" in front of the Bombay Stock Exchange in India selling tea on footpath for years. One fine morning, while going to the trading house, a well known big investor named Sachin came to the tea stall and said with a smile "Dada, make a cup of tea for me". While making the tea, Dada was asking, "How are you doing in the stock market? I have heard that it is doing great and I see many people are making high profit from it." The investor smiled but kept silent. Dada again asked, "Sachin Bhaia, you are a well known big investor. I have heard that what you think comes true in the stock market. I am planning to invest some of my savings in the stock market. What if I do it?" Sachin deeply thought for a while and said, "Oh sure, why not? Tell me when you are ready." Back from the tea stall, Sachin thought for the whole day. In the very next month, Sachin withdrew almost all of his investments from the market and deposited the money in his bank account. The following month, BSE saw its worst ever crash in the history of India. What did Sachin think really? Did he think about the crash that came true later? In fact, Sachin realized that when everyone is getting into the stock market especially the people like Dada, then it is no doubt that there is no other better time to get out of the market. Because, Sachin believed "too many crowd spoils the market". so has happened with us today breaking the hopes and dreams of millions.
The crash was inevitable since it became too high to sustain. The stock market in Bangladesh became a place for people from all classes ranging from a tea stall owner to an industrialist. And there lies the danger. According to one of my own research in 2006, over 70 percent of the investors are in micro class with an investment of less than BDT 0.1 million. There are more than 40 percent investors who even started their business with only Tk 5000 or 10000 saved from their hard earned money. A significant portion of these micro investors come from very marginal professions such grocery owners, private tutors, students, pension holders, etc. They have always thought the stock market as a Money Making Machine. They find people around them only making profits from the market. They even find many of their neighbours or friends making cars, flats, lands, and other assets doing business in the stock market. Making profit is not bad. Profit is the sole driving force for the market mechanism. Then what wrong in running for profit when everyone else around is making it really?
Yes, there is something wrong. These low income groups and the micro investors have always seen the rosy picture of the investors around them. The success stories or examples of making gains have been presented to them more than the dark side of it. And thus, these people have known or put a very little time to know about the other side of the game. The danger of high volatility of the market, imprudent decision making in managing investments, use of misleading information, lack of proper investment knowledge, and also the danger of a possible crash in the stock market have never been adequately or properly communicated to them. So what does this fact imply? Its lack of education and awareness that is absent in our small investors that has made them suffer so poorly.
Many small investors even did not put adequate attention to the risk of investing in this market and thus had day dreams of becoming rich overnight. They dreamt money, ate money, talked money, and directed themselves blindly to make money. They absolutely forgot or ignored the risk associated and at last, the result is crystal clear to all. I am sure this lesson from the poor suffering from the latest crash is going to be seriously taken by them. If the small investors are smart and are "real investors", they must learn about the danger associated with investment in stocks, and how one single such incident can ruin the life of thousands. So dear investors; please hold on your madness, think before you invest, consider whether you have the ability and willingness to absorb any downturn shocks. You must have to be ready to accept losses since you are ready to enjoy the gains.
One lesson is very important for our small investors. In nowhere in the world, in none of the stock markets, such a large number of small capital investors for investing in the stocks as our investors do. It is because, investing in stocks is very dangerous and hence not for small investors. The market itself is not for small investors like those who bring all of his life time savings, deposits from the pension or retirement fund, proceeds from selling lands, savings from their tiny income. In fact, to fulfill the investment need of this group of small investors the concept of Mutual Fund had born. It is the Mutual Fund which is exactly applicable and perfect opportunity for investment of one's hard earned money since mutual funds are designed to bring the risk down to the minimum level and ensure a fair return on investments. And most importantly, the beauty is, to ensure this minimum risk and fair return to the small investors, there are dedicated, expert and technically sound fund managers or portfolio managers to continuously research and manage the performance of these funds. Therefore, our small investors who today are ruining their luck by dreaming to be rich over time from stocks must rethink whether to continue or not. These investors should divert their funds to the mutual funds and take assistance of the financial experts rather than investing directly into the stocks and taking the risk of handling their investments by their own with no or insignificant knowledge on investment management.
Greed has gripped not only the small ones but also the big boys clubs. The big players in the market especially the institutional ones have played beyond the norms, overlooked human values and ethics, and overridden the professional code of conduct. There have been allegations of severe market manipulation by the big boys in the market. These institutions and individuals with unusually large amount of investment in the stocks have made the market dance up and down as per their requirements to breed big chunk of profit for them. These big boys are out of reach! For many years, they are playing inside, bubbling their deposit accounts and distorting the market but still they are the winners. Losers are our tiny investors. Interestingly, it is said that these big boys have their own clubs. It is also heard that there are a number of clubs. The clubs are for the wellbeing and welfare of the members within the clubs. They meet at places in off-trading hours, share information, make information (that comes out in broad daylight traditionally known as rumors), trade with listed company insiders, and even decide how they will move the market in the following days. How wonderful their community feeling is!
However, the institutional investors have played short of their adequate roles. Many of the institutional investors have so large amount of investment that they can influence the market easily and make huge profit from it. To me, it doesn't mean that they will always, every moment act for profit. I must admit they will do it but for the sake of the long term development of the market, they must not be guided by Greed like the small investors, and thus must not always heavily intervene in the market intentionally or unintentionally that creates undue influence over the market. It is because; heavy amount of trading in terms of volume and price by the unusually large institutional investors, may disproportionately influence the market and provide wrong signals to the mass investors which at time may bring dreadful situations if the intuitional investors take opposite position. Therefore, our institutional investors must act ethically and responsibly with professional codes of market conduct and restrain from being guided by Greedy profit making motive not thinking about what negative affect can take place on others. This will help the whole market to carry on a normal pace, and will help the mass investors not influenced and guided by wrong strategies.
Warren Buffet once said: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." I am afraid; today we are exception from what this top financial guru said. When the investors in our market became greedy no one feared - neither regulators, nor institutional investors, not even most of the small investors. Because, there was probably no one left to be greedy. Everyone seemed to be flying on rosy wings with day dreams of becoming rich over night. Thus, many became greedy and some others perfectly exploited the formers' greedy behaviour, and have once again been able to take full hand of cash. For our innocent small investors, I must dedicate a very famous quote of Mahatma Gandhi - "Earth provides enough to satisfy every man's need, but not every man's greed". So please, please replace the word "God" instead of "Greed" in the sentence I started with, keep faith on yourself for a better future of your investment, and say, "In God we trust".
However, everything has changed with the advancement of time. People have become more knowledgeable and wise in these days. So has changed their thoughts, and even the Fundamental Principle of Life (!). Need a proof? From America to Bangladesh, have a look on the crises faced by the countries historically in the financial markets around the world. If it is difficult to apprehend, at least look at the just experienced crash in the stock market of Bangladesh and its last few years history of inorganic growth. You will find the testimony. All these crises, especially, the latest one of Bangladesh that has made many investors hero to zero reminds me the famous sentence written on the dollar notes. I am afraid, in this new world, our intelligent and more knowledgeable investors have brought a very small change in the principle as they follow today: "In Greed We Trust".
There was an old tea stall owner whom everyone called as "Dada" in front of the Bombay Stock Exchange in India selling tea on footpath for years. One fine morning, while going to the trading house, a well known big investor named Sachin came to the tea stall and said with a smile "Dada, make a cup of tea for me". While making the tea, Dada was asking, "How are you doing in the stock market? I have heard that it is doing great and I see many people are making high profit from it." The investor smiled but kept silent. Dada again asked, "Sachin Bhaia, you are a well known big investor. I have heard that what you think comes true in the stock market. I am planning to invest some of my savings in the stock market. What if I do it?" Sachin deeply thought for a while and said, "Oh sure, why not? Tell me when you are ready." Back from the tea stall, Sachin thought for the whole day. In the very next month, Sachin withdrew almost all of his investments from the market and deposited the money in his bank account. The following month, BSE saw its worst ever crash in the history of India. What did Sachin think really? Did he think about the crash that came true later? In fact, Sachin realized that when everyone is getting into the stock market especially the people like Dada, then it is no doubt that there is no other better time to get out of the market. Because, Sachin believed "too many crowd spoils the market". so has happened with us today breaking the hopes and dreams of millions.
The crash was inevitable since it became too high to sustain. The stock market in Bangladesh became a place for people from all classes ranging from a tea stall owner to an industrialist. And there lies the danger. According to one of my own research in 2006, over 70 percent of the investors are in micro class with an investment of less than BDT 0.1 million. There are more than 40 percent investors who even started their business with only Tk 5000 or 10000 saved from their hard earned money. A significant portion of these micro investors come from very marginal professions such grocery owners, private tutors, students, pension holders, etc. They have always thought the stock market as a Money Making Machine. They find people around them only making profits from the market. They even find many of their neighbours or friends making cars, flats, lands, and other assets doing business in the stock market. Making profit is not bad. Profit is the sole driving force for the market mechanism. Then what wrong in running for profit when everyone else around is making it really?
Yes, there is something wrong. These low income groups and the micro investors have always seen the rosy picture of the investors around them. The success stories or examples of making gains have been presented to them more than the dark side of it. And thus, these people have known or put a very little time to know about the other side of the game. The danger of high volatility of the market, imprudent decision making in managing investments, use of misleading information, lack of proper investment knowledge, and also the danger of a possible crash in the stock market have never been adequately or properly communicated to them. So what does this fact imply? Its lack of education and awareness that is absent in our small investors that has made them suffer so poorly.
Many small investors even did not put adequate attention to the risk of investing in this market and thus had day dreams of becoming rich overnight. They dreamt money, ate money, talked money, and directed themselves blindly to make money. They absolutely forgot or ignored the risk associated and at last, the result is crystal clear to all. I am sure this lesson from the poor suffering from the latest crash is going to be seriously taken by them. If the small investors are smart and are "real investors", they must learn about the danger associated with investment in stocks, and how one single such incident can ruin the life of thousands. So dear investors; please hold on your madness, think before you invest, consider whether you have the ability and willingness to absorb any downturn shocks. You must have to be ready to accept losses since you are ready to enjoy the gains.
One lesson is very important for our small investors. In nowhere in the world, in none of the stock markets, such a large number of small capital investors for investing in the stocks as our investors do. It is because, investing in stocks is very dangerous and hence not for small investors. The market itself is not for small investors like those who bring all of his life time savings, deposits from the pension or retirement fund, proceeds from selling lands, savings from their tiny income. In fact, to fulfill the investment need of this group of small investors the concept of Mutual Fund had born. It is the Mutual Fund which is exactly applicable and perfect opportunity for investment of one's hard earned money since mutual funds are designed to bring the risk down to the minimum level and ensure a fair return on investments. And most importantly, the beauty is, to ensure this minimum risk and fair return to the small investors, there are dedicated, expert and technically sound fund managers or portfolio managers to continuously research and manage the performance of these funds. Therefore, our small investors who today are ruining their luck by dreaming to be rich over time from stocks must rethink whether to continue or not. These investors should divert their funds to the mutual funds and take assistance of the financial experts rather than investing directly into the stocks and taking the risk of handling their investments by their own with no or insignificant knowledge on investment management.
Greed has gripped not only the small ones but also the big boys clubs. The big players in the market especially the institutional ones have played beyond the norms, overlooked human values and ethics, and overridden the professional code of conduct. There have been allegations of severe market manipulation by the big boys in the market. These institutions and individuals with unusually large amount of investment in the stocks have made the market dance up and down as per their requirements to breed big chunk of profit for them. These big boys are out of reach! For many years, they are playing inside, bubbling their deposit accounts and distorting the market but still they are the winners. Losers are our tiny investors. Interestingly, it is said that these big boys have their own clubs. It is also heard that there are a number of clubs. The clubs are for the wellbeing and welfare of the members within the clubs. They meet at places in off-trading hours, share information, make information (that comes out in broad daylight traditionally known as rumors), trade with listed company insiders, and even decide how they will move the market in the following days. How wonderful their community feeling is!
However, the institutional investors have played short of their adequate roles. Many of the institutional investors have so large amount of investment that they can influence the market easily and make huge profit from it. To me, it doesn't mean that they will always, every moment act for profit. I must admit they will do it but for the sake of the long term development of the market, they must not be guided by Greed like the small investors, and thus must not always heavily intervene in the market intentionally or unintentionally that creates undue influence over the market. It is because; heavy amount of trading in terms of volume and price by the unusually large institutional investors, may disproportionately influence the market and provide wrong signals to the mass investors which at time may bring dreadful situations if the intuitional investors take opposite position. Therefore, our institutional investors must act ethically and responsibly with professional codes of market conduct and restrain from being guided by Greedy profit making motive not thinking about what negative affect can take place on others. This will help the whole market to carry on a normal pace, and will help the mass investors not influenced and guided by wrong strategies.
Warren Buffet once said: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." I am afraid; today we are exception from what this top financial guru said. When the investors in our market became greedy no one feared - neither regulators, nor institutional investors, not even most of the small investors. Because, there was probably no one left to be greedy. Everyone seemed to be flying on rosy wings with day dreams of becoming rich over night. Thus, many became greedy and some others perfectly exploited the formers' greedy behaviour, and have once again been able to take full hand of cash. For our innocent small investors, I must dedicate a very famous quote of Mahatma Gandhi - "Earth provides enough to satisfy every man's need, but not every man's greed". So please, please replace the word "God" instead of "Greed" in the sentence I started with, keep faith on yourself for a better future of your investment, and say, "In God we trust".
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