KSE’s big plunges and some advice to small investors
Stock Markets all over the world are too volatile and this is an unpredictable business. People who make millions overnight also lose millions in few sessions if market crashes or loses substantially. Company bad news, falling economic numbers, rumors and most importantly political chaos are the enemies of stock business. Unfortunately, Pakistan easily falls under those vicious omens. I don’t want to go into detail of other factors what I have stated above and would invite readers to flash back your memory in the same month of March 2005 when Karachi Stock Exchange lost 1700 points in 5 days. I wrote over a dozen articles and columns in Pakistani newspapers before and after that crash. In fact, it is on record that I warned the investors 10 days ahead of crash that the KSE could plunge anytime and it is ‘sitting on the dynamite’. Our broad-based newspaper media is so complacent and arrogant that they didn’t publish my warnings and thus happened to be transgressors in the eyes of God. But it is on record that I posted those alerts on various Discussion Forums in Pakistan, India, Hong Kong and the USA.
Stock investment is a ‘rich man’s’ business. The lower and medium investor should either take a side walk or should be in charge not to be covetous to become rich overnight. The KSE is different from other world markets because it conducts daily business without any principle, business ethics and moral values. The giant investors manipulate the market every single day through buying and selling at will and betting (satta baazi) to make millions in one shot. Their rule is simple….climb the market and than slide it down. The difference is their profit. The KSE has nothing to do with the balance sheet of a company, profitability, liquidity position, credit report, asset and liabilities as happens all over the world in the stock business.
Few weeks back when KSE touched 11000 points, it was an alarm for small and medium investors to back off. But those who still kept their investment in the heat of the moment in a hope to make more money must be regretting today as the market shredded 356 points last week and 467 on Monday. Companies like National Bank, Adamjee Insurance, Refineries, oil and gas, Callmate and fertilizer are already down by Rs.35 to Rs.75 in last few days. If you do a simple math and calculate on 1000 shares of any of these companies, it means, the investor has already lost Rs.35000 to Rs.75000 in a few days.
Some analysts, Stock Market Management, giant investors and government officials outright blame small investors that why don’t they exercise common sense to sell off their stocks when the heat was high. I do agree up to some extent to this logic but it is also the job of the controlling agencies and the stock market management to regulate law, justice and principle in the stock business. People always make mistakes but this doesn’t give a free hand to the culprits to commit crimes. Secondly, it takes months and years to build 500 or 1000 points but when it comes to losing, the market tears up 1500 points in 5 days. Once a substantial decline emerges in the market, the poor investor continues to watch for another day and one more day………..that if the market could stabilize or demonstrate a rally so he could make up his loss but if it doesn’t happen and market continues to trade in to the negative territory, the small investor loses hundreds and thousands of his hard-earned money in a blink of an eye.
Karachi Stock Market has been consistently rising since March 2002. It did have few serious plunges intermittently during the course of the year but overall its record has been on the rising trend. One thing is different though about KSE that its 70% growth is synthetic and bubbly. That’s why, a sword of a deep-dive and ocean-plunge always hangs over the market.
In March 2002, the KSE was at 2400 points of its 100 index. In March 2005, it touched 10500 points but with in 7 days it lost 1700 points drowning hundreds and thousands of small and medium investors. Some got bankrupt. Some had heart attacks and some passed away in shocks.
In last 12 months, the KSE not only recovered lost 1700 points but added another 1000 points touching its history’s highest index of 11500 points. Firstly, the small investors should have sold their high priced stocks when it touched 11000 but if they didn’t, they must have done so when the market touched 11500 because, those additional 500 points were purely a drag. I think the investment giants wanted to touch 12000 points for show off. Today, stock market’s position is like a ‘dying horse’ which could be dragged to the well for a bucket of water but you can’t make him drink or infuse a new life into the horse.
I would suggest to the small and medium investors to sell off their high-priced stocks of Rs.100 and above immediately like, National Bank, Muslim Commercial Bank, Adamjee Insurance, ICI, Callmate, some refineries, cement companies, oil and gas, oil exploration, fertilizer, automobile, pharmaceuticals etcetera and don’t keep all of your eggs in one basket. If an investor has Rs. Two Lacs stocks, instead of buying one company, buy 5/6 companies. Don’t buy more than 1000 shares of one company and prefer stocks ranging from 25 to Rs.50/60. God forbid, even if stock market loses few hundred points or couple of thousands in a row, your impact per share would be sustainable as oppose to PSO, National Bank or Adamjee insurance. This is called ‘diversification of investment’. No matter how potential and profit generating National Bank would be, it has already touched Rs. 335.00/share and today duped down to Rs. 295.00. It has no further room to grow. No matter how you slice, NBP can’t go to Rs.400-500/share. Remember, patience, perseverance and consistency is the key factor in stock business.