The world is in the grips of Covid-19 coronavirus fear and Bangladesh is no exception to this. Our stock market is also a victim of the fear.
I am here to share some of my investment experience to help any of our investors decide in an extremely bad season for the market.
When and why we invest in stocks
If we go through the history of successful investors, we can see some differences between them and average investors.
Warren Buffett, who reached the top of the wealth table through the stock investment ladder, is one of them.
But how? Buffett himself has said that when the market crashes – when everybody sells shares out of frustration and panic – he catches some shares of fundamentally strong companies, at a much lower price, to hold over the long term.
That is the nature of the capital market; if someone manages to buy good stocks, at the right time, and maintain a capacity to hold them over years, he or she gains a lot – usually more than the initial investments – as soon as the market regains normalcy.
My observation is that this takes two to four years after the market has bottomed-out.
Let me share my own positive and negative experiences with investment. In 1996, all shares went wild to go higher and higher. I was holding some shares of then-Chittagong Cement Clinker Grinding Factory Limited at an average cost of Tk1,200.
I borrowed a lot of money from commercial banks – including near Tk3 crore from Southeast Bank – to buy the shares, alongside shares of some other companies.
At its peak, the cement company shares went as high as Tk14,000.
When the price was at Tk11,500, amid low supply, I managed to buy some more shares of the cement company from one of our Dhaka Stock Exchange members.
Our late member, Shah Mohammad Sagir was branded like this, "Whichever shares he buys must see a price gain." I bought those shares, at that price, following him, like with many other shares.
The same me, used to know the importance of optimisation. Another example from 1996 is that another member of the Dhaka Stock Exchange (DSE) asked me what he should do with his Apex Foods shares trading at Tk18,000-20,000. He wanted to know whether he should hold or book profits when the share was going up too fast.
I said he should sell half of his shares so that if the market went down, he could enjoy the realised profit, and if the market continued to go up, the remaining half would be there as a benefit.
During the same season, I sold shares worth Tk12 crore and bought some others worth Tk10 crore. However, I did not sell a single of my Chittagong Cement Clinker Grinding Factory shares.
I was not ready to see the market crash, like many others.
But it happened, whether I liked it or not.
The market began to fall the first week of November 1996. We were puzzled but remained optimistic that the market would be okay again.
However, the optimism was far from reality, the Chittagong Cement shares' price collapsed to just Tk500 – way below my average costing.
At the bottom of the market, the margin loan provider banks were pressuring me to sell my stocks and pay them their money back. The Tk23 crore investment portfolios dropped below Tk6 crore, while I owed Tk6 crore to the bank in the form of margin loans.
There would have been nothing of my own had the banks taken control of the investment accounts.
I was determined not to lose the battle. I knew my stocks were fundamentally sound and likely to stay ahead during the recovery phase.
Managing to deposit some money, I entered into a two-year rescheduling arrangement with the lenders that averted a forced selling of my holdings.
However, the bank rate was too high then and compounding interest was a savior pressure on me.
Thank God, the company, Chittagong Cement Clinker Grinder, which later transformed into Heidelberg Cement Bangladesh Ltd, declared 50 percent bonus shares and 50 percent right shares the very next season.
My 12,000 shares became 24,000 shares. That lowered my cost price.
Dividends and price appreciation helped me recover the unrealised losses in the cement company shares within two to three years.
The other shares in my account – which were from fundamentally sound and promising companies – crossed my costing point by that time and the weaker company's shares were going further down.
I began to sell the profitable shares and pay back the loans. I became debt-free, some shares still remained in my account and some capital gains gave me some cash also.
I have learned that good company shares can be in investment accounts in all seasons over years. These will not end up with losses, today or tomorrow.
I can name today's NCC Bank as a reward of buying and holding good shares. It was mainly an investment bank in the 90s. In 1994, 1995 and 1996 they had bought lots of good shares, the price of which also came down during the crash. Neither in the bull nor bear market did they sell their shares.
However, after recovery, three to four years after the crash, the bank began to realise profits and the hefty proceeds helped them to build a full-fledged commercial bank – NCC Bank Ltd.
Now, let us come to the main point.
The novel coronavirus has appeared as a global crisis that is threatening an economic recession – for some countries, like ours, it is at least causing a slowdown.
Like all others, investors in the stock market are also calculating the economic impact of the pandemic and trying to get an idea of the post-crisis scenario.
I firmly believe that Bangladesh's economy will be one of the top to recover fast.
Million-dollar questions are which should be the stocks to pick from the extremely depressed market? What should be the investment tenure?
I am not sharing my thoughts for those who follow the crowd or who are day traders. It is a discussion for those who have analysed a company's business fundamentals and stock performance for at least the last five years and are ready to think of six months as a short-term period for investments.
Before panicking, we need to check which industries and listed companies are taking the shocks of the pandemic, which are not, which are being affected too hard, and those which are mildly affected.
For example, textile and apparel exporters are suffering because of order cancellations, but what about the listed ones?
Additionally, how are import-dependent companies being affected? That is also a subject of analysis. Again, a company that stopped production due to a lack of imported raw materials and another that stopped production because of a lack of orders have differences of course.
We will find some listed companies from different sectors that are not as hit by the pandemic – despite share prices of those also having suffered during panicked selloffs. I feel pharmaceuticals, electricity and gas transmission sectors should be on the list.
People are using more electricity as the temperature is rising here; people are not buying fewer drugs during the crisis.
During recessions or slowdowns, when the private sector seems weak, the government usually begins large projects – to boost the economy and employment. That helps steel, cement and other construction-related industries boost sales.
So, I want to say, in any scenario, there is a long-term opportunity for an investor.
Government has given all the banks an opportunity to build a Tk200 crore fund to invest into the stock market at such a time when it is too cheap.
As the investment opportunity is for five years, I feel there is a huge scope for the banks' investment research teams to find many profitable shares on the market and opt in to take the benefits. That will help them, with good profits, and the market – with stability.
Many investors, including me, have already put their money in cheap stocks, but the price fall has pushed them into losing territory right now. If we have some saved money, and the stock is fundamentally sound and looks cheaper now, why not buy some more to bring the average cost down?
I find some financial stocks are too cheap now. These usually are capable of returning our money through dividends over years, and the policymakers have made dividends a more common outcome for the coming days.
Share repurchase by listed companies has yet to be a reality here as we did not get the necessary law.
However, entrepreneurs of many listed companies can buy some shares of their own companies from the market which is at the bottom now. At least the sponsors and directors who once sold shares at a higher price can buy now – that will offer capital gains for them and market stability.
It is our collective responsibility to restore investors' confidence.
Request to policymakers
My request to the honorable finance minister includes taking steps to formulate the much-awaited buyback rules, arranging low cost loans for the listed companies who are victims of the ongoing Covid-19 crisis, and taking large public sector projects to offset the slowdown in the private sector driven economy.
I would also request corporate tax be reduced for listed companies so that they can pay good dividends. The unpleasant reality is that listed companies contribute way more than their non-listed peers because listed companies have to operate more transparently.
On the verge of a global economic recession, I would request our securities regulator to be strict in enforcing mandatory rules and practices.
The Bangladesh Securities and Exchange Commission must be rude to the sponsors and directors of listed companies who have yet to hold two percent shares of their own companies, individually, and 30 percent shares collectively.
Approval for initial public offerings must be after a stricter cross checking, like the preparation of statements and disclosures.
Any non-compliance – in disclosures, statement preparation, auditing, and of course secondary market trading – should be strictly addressed and punished.
For economic development, a strong capital market has no alternative in the long run. We should bring all the large family businesses to the stock market – discouraging bank financing can be a good way to achieve that.
The finance minister is acting to implement the honorable prime minister's direction to bring the profitable state-owned enterprises to the stock market. I hope this will be a rapid process.
Writer: a director and past president of the Dhaka Stock Exchange