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Tuesday, September 15, 2009

Many of us look down on stock market investment

Why middle class of our society, so called educated people, are reluctant to be part of Stock Market even with a little bit of investment interest and moreover, look down those who invest? If you are investor and want to discuss with your buddy or dear friends, unexpectedly you will be discouraged by them. Didn't happen to you? You bet, I have faced such a situation many times, even my own family members don't show any interest of investing in the stock market rather they discourage in a way that investing in stock market is not a decent earning source and considered as gambling or "Haram". How do you change their attitude toward stock market role in our society and get them to be part of investment in a stock market?

Selling shares through a stock exchange is way companies get funded because a starter company eventually ends up needing more money to take the business to the next phase. As a company enlists to the stock exchange which requires, actually mandatory, to unfold everything to the public, such as earning statement, purpose of raising money, types of products or services, company's news, company's activities in terms of community help. Basically, one has a full access all these evaluating a company whether their products or services are unethical or not. This is how a company goes public by issuing IPOs certification, once it happens, no individual person owns the company, but only individual and institutional investors collectively by owning shares. Stock Exchange reserves "rights" for investors those who own shares and earn a piece of a company to judge a company with their moral standard and evaluate the worth of a company openly in the fair market place. It is a process of supply and demand of the stock of a company, opposite of fixed price system, which determines the price of a specific company openly by investors. Also, investors are welcome to express opinions of a company in a general meeting or maybe through an electronic media to hold managers accountable for any wrong doing.

Having all these transparence information of a company, an investor can decide which company has a great prospect of growth by analyzing past earnings per share, revenues growth, pioneer of a business, new innovative ideas, performance base management group, new business deal and many others. Other day-traders like to use daily trade volumes of a company, and its chart to speculate a share price which is completely bas
ed on individual preferences. There is no "hard role of fix price practice" in stock market system, all the information is given as transparent to all investors, and any decision is perceived on buying or selling stocks is individual preferences. All the goods and services provided by companies are absolutely essential and productive to our society for advancement. Yours every taka buying a share goes to producing either products or services-they are great part of leading the society advancement.

Stock exchange is a most vital role player for a country's economy and instrumental raising money directly from public which, of course, has a great purpose of assisting a company to expand businesses and grow its potential in a competitive free market system that will not only provide excellent services, innovative, durable products but also most competitive reasonable prices for the interest of the consumers, such a role in the growth of the industry or commerce of a country that eventually affects the economy of a
country to a great extent. Economists consider Stock Market as an economic indicator of how well a country's economy is doing. In many studies show, the rise of value of stocks and value of corporate equities in a stock market enhances growing Country's GDP. However, economy and value of capital market are not purely correlated in a same growth rate but they are much more parallel in same direction. The studies also show based on collected data on 47 countries from 1976 to 1993 that banking and stock market size, volatility and integration with world capital market accelerate the current and future rates of economic growth, productivity growth and they are robustly correlated to GDP.

Recent economic crisis is a good example of how much stock markets around the world affected going downward slide which simply explains that economic expansion affects the stock market to go upward and while economic contraction, so call
ed recession, causes the stock market to shrink. As a market going downward reduces wealth as well as stock market equities that cause further reducing GDP.

It is time to let go old ideas or beliefs and go beyond conventional wisdom for constructive thinking and finding opportunities in every a
spect of investment. Stock market investment is much controllable and easy access in terms of buying or selling shares instantly with a little amount of money and less hassle than investment in real-estate, gold and fixed deposit in the Bank.Here is a chart shows how GDP and the value of corporate equities relationship (Source: Congressional Budget Office. )

Kabir Ahmed


Jeeshan said...

Good article and great thoughts. Epitomizes the work of Robert Kiyosaki. Really explains why the Rich only get richer while the middle class and poor stay where they are.

the_skywalker said...

It seems that as usual, I need to make a long comment 

The article has presented some interesting aspects e.g. relationship of GDP vs. economic growth stock market or why stock market is an alternative medium of funding businesses (this is big in developed market especially in USA). But the article has not focused much about why/ why not BD market could be attractive for investors ( whether institutional, retail investors or foreign investors). There are quite a few structural issues with Bangladesh market:

a) Supply of good companies is very low. So, BD market often runs at ridiculously high PE. This is not a healthy situation.

b) It is a retail investor’s dominated market. Such market generally moves based on news/rumors/euphoria rather than fundamentals. So, quite dangerous for someone who cannot follow the market regularly.

c) Most companies are family oriented and do not want to dilute ownerships. They also do not find incentives to go to stock market as most they can get bank financing very easily and with political influence they can take as much time as they want to repay the loan. So, why to dilute ownership? We may keep in mind that there is good tax incentive for listed companies. But still most companies are not willing to get listed in the market even company such as UniLever.

d) Institutional investments (Pension funds/Insurance funds) are almost non-existent in BD market. Even corporate houses invest their extra cash into fixed deposits (because they get 10-11% return) rather than putting into marketable securities. Hence, we might seek answer to question such as why corporate houses/businesses are not investing their extra cash into stock market rather than trying to ponder why our common people are against stock market investing.

e) BD market does not allow to short or take leveraged positions or trade some other sophisticated items such as CFDs( Contract for Difference). So, one cannot take a Hedged positions by combinations of long/shorts/CFDs/Options etc..

We also need to keep in mind a few other points. Academics say that stock market has evolved to distribute wealth amongst common. In fact this is one of the tenets of the efficient market theory though its validity is seriously questionable. On numerous occasions, it is proven that market is not efficient. One major reason is that information flow is asymmetric. Only a few privileged ones get access to information ahead of others and this is one reason why only few people make big money in market. In addition many types of manipulation such as pumping and dumping in collaboration with regulators, media and corporate are so common even in west. Most people do not have enough time/patience/resources to be vigilant against these kinds of activities going on in the market. These kind of crooked activities can be and in fact are carried out far easily in BD market where information flow is very poor, poor/no availability of good research reports, poor quality accounting/auditing and above all very weak regulators. As long as regulatory body remains weak, accounting/auditing standards are questionable, and incentives ( just giving tax break is not enough) for companies to get listed are imperfect , BD market will struggle to develop on a solid ground. It is stupidity to think about attracting retail investors rather than correcting market’s structural issues.

Robert Kiyosaki is a big fraud. It’s just a fantasy book like Harry Potter . He is not a real investor. No real investor would like to write these kind of stupid books.