Majority of the people who are not so conversant with the stock trading seems to wonder why the share market is moving up when the country’s economy is doing badly. A very authentic answer to this question came from two businessmen who have firsthand experience in the market -- Dhammika Perera, Hayleys Co-Chairman and Murtaza Jafferjee, investment professional and Chair, Advocata Institue. Both of them were participating in a discussion on how to resolve the current economic issues facing the country on Derana TV.
Explaining the reason for the current market boom Jafferjee said a bull market comes once in seven or eight years and this time it started in July 1, 2019 with lowering the interest rates which is the most important thing for a stock market. “With COVID 19 foreigners started leaving the market and local investors started buying some of those good shares creating a momentum in the market. Market keeps going up as long as the momentum is there and it comes down when the momentum is over”, he said.
Jafferjee said that our stock market is run by a small number of around 200 people who are mostly the members of the Golf Club and Colombo Swimming Club and they have a large number of accounts and 70 -80% of the market is controlled by them.
When asked whether it will be the small investors who will be the ultimate losers, if the market crashes, Dhammika Perera said he did not wish to comment on the matter but instead emphasized on one fact that he said was vital.
He said whoever gets into a business should have a thorough knowledge about it. “If you are buying a share you should know its net asset value and whether the current price represents its true value.”
Such knowledge, according to Perera, is much wanting among the small investors. “If someone gets into a business he is not familiar with, he will burn his fingers. When buying a share one must see whether it’s worth to hold that share for the next ten years, whether the dividends paid will be enough for him to live and whether the net asset value will increase in the next ten years.”
Jafferjee however differed on this and said more than lack of knowledge the main reason why some small investors destroy themselves is the extreme greed for profit. When they are driven by greed it is difficult to explain matters to such people, he said. He believes that the market has gone too high and that was why some correction has been taking place in the last few days.
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