2 months ago

The woes of investment

Warren Buffet
Warren Buffet

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The concept of wealth or waste is related to time. What is considered a wealth today can be a waste tomorrow and vice versa. Alaska, once termed as Stewart's folly, is an asset today. Germany's much praised autobahn was completed through conscripted labour in time of Hitler. In our younger days Sahbag Hotel was considered a waste. Later it became pride of Dhaka. Somerset Maugham had a story about this dilemma between the two. There were two brothers, one wasteful and the other frugal. As the days of recession came in, the savings of the frugal brother became worthless, while the empty wine bottles of the wasteful brother turned into asset.

These days stocks are a plaything for many having some spare cash. Text books abound with methods for selection. Unfortunately, the prescribed methods may not work. In spite of all the clever methods used by investment managers there are chances of failure causing misery to the investors. There is a story about the professor in Finance who chose stocks from the dartboard. He threw darts blindfolded with all names randomly inscribed on the board.

There is a common saying: 'do not mix good apples with the bad ones'. But unlike apples some bad can turn good in specific situations such as a stock. Here, the rule is to mix the two types in a selective manner. People who specialize in such mixing are the investment managers. Warren Buffet is the legend among them. He is not a manipulator unlike what we see in the local market. His investments are long-term based on fundamentals that may have temporarily fallen out of favour. Being a majority shareholder sometimes he engages in the management of such companies using instruments such as restructuring, disposal or procurement of assets. Nothing is hidden as these are well publicized. That is transparency, a requirement of good governance. Such practices are either absent or kept hidden leading to some secrecy. Investors are denied the benefit of such information even in good companies.

Practices differ between countries. What is good in one can be bad in another such as the abaya. But there are areas where this should not be so such as due diligence. It cannot be wiped under the carpet with the words we are different. The effort must be there to close the gap rather than indifference. We take one example from education at the university. The term 'session jam' has now become a part of student life. Whatever be the reason, this has a long-term effect on a student from getting into a job to enrolling in a new programme. It is these little things that need attention as these are easily tractable. That is being proactive.

This is a difficult period of time being ridden with the woes of inflation among many others such as environmental degradation. The economy is not doing well in most countries but America, where the stock market is at all-time high. Yet the country is at war everywhere. In spite of the threat looming over Ukraine or Gaza, the stock market of the country is at all-time high. The Big Tech companies are in a race to beat one another. In contrast, the European market is stable. But, none is in dire straits.

Against this background, the stock market in the country is reeling. Lacking investor trust the market is in a downward slide. This is in contrast to the neighbouring countries, notably India. The regulator alone cannot save the market unless there is trust between the investors and the owners of business. The effort to stem the tide through floor pricing has not worked. To the contrary this may be the reason for current woes leading to a loss of trust among the investors. Could the owners of businesses help? To the contrary, they are seen on the back track such as cutting down on dividends in spite of high profits. Paying of divided has a cultural norm in the country unlike the western world where payment by companies such as Microsoft is minimal. Is it taking advantage of the situation such as we now see in everyday commodities?

Is there a role for companies to perform? First thing is the regular holding of AGMs that some of the good companies have been avoiding to the detriment of the market. In case of a problem with management, the regulator needs to be firmer. Losing investor confidence could dry up future funding through the IPOs to the detriment of the entrepreneurs. Activities of companies in terms of vertical growth are almost non-existent, limited to market promotion for products or services only. One extreme possibility in this situation, though not desirable, is the buy-back option. The example of Dell going private is well-known. With prices so low it is possible that some companies will want to do so. That would at least show some activity among companies that are currently non-visible. In the past, financial institutions were more active to bolster the market through investment. This is not happening. Doing so could enable them to partner with the companies in their management thus forcing some activity. It would also have alerted the owners of being too complacent in a comfort zone. Some may call it interference, but the goal is to preserve interest of the shareholders. Some such intervention is already happening in the banking sector though questions remain as to their ability lacking the teeth to intervene. But why wait so long for a company to turn red or yellow? Outside expertise can be used, but not on a rotational basis among the chosen few.

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