And you would likely consider the numerous theories i.e. the efficient market hypothesis founded by esteem professors of prestigious institutions as fallacious or rather misleading.
So now, how do we find these stocks in Malaysia? First, we should understand some basics, i.e. the difference between the US market and the Malaysian market. The most compelling of them would be the number of shares in any given company. Take Parkson for example, having 1,012,000,000 shares as compared to the giant, Apple Inc with 891,990,000 shares (estimates by Bloomberg.com)
This would have great effect upon its price variation for it would logically require more shares to be purchased in a market to reach a higher price. Additionally there are 2 other forces working against price increments:
No. 1 The general idea of cheaper shares are more valuable &
No. 2 Our still young, large local fund dominated market with low foreign participation
Let's investigate No.1
A: 10000 shares of a RM0.50 issue
B: 2500 shares of a RM2.00 issue
(Note that interestingly enough, your initial investment in both companies would be the same for the given examples, which is RM5000.00.)
Is company A a better investment than company B?
If your answer is yes, then you are right, ASSUMING both companies prices rise by RM0.05. But why? Because company A is cheaper?
NO.
This is because an increase of RM0.05 in company A would mean a 10% increase in value whereas only a mediocre 2.5% increase in company B.
Now that we understand the above we could relatively conclude the lower the price of an issue, the greater it appreciates comparing to a more expensive issue assuming the same increment in price (RM0.05) hence a better investment.
The above is only true if the above scenario occurs. More likely than not, the cheaper stocks fluctuate less than the more expensive stocks as the overall market value of the latter are usually higher.
Take Hubline and Aeon as examples. These are two companies of high number of shares. An investment of RM5000 in Hubline Bhd previously when the market price was RM0.05 and a sale at RM0.055 would have given you a 10% return: RM500. An investment in Aeon Bhd during the latter period(RM12) when the market price fell from RM18 to RM12 would have given you a return of RM833.33 assuming you sold when it appreciated to RM14.00 (current price RM15.24).
Do you think it was wiser to have invested in Hubline a still negative earnings registering company or in Aeon a profit making company that suffered a over-price decrease due to overheated fear of slowing of the retail industry?
There are no wrong answers here as long as your investment appreciates. But the reality is that purchasing Aeon would have been better because you would have owned partly of a great business that had better financial ratios, better earnings and consequently better value.
Hence a conclusion to be drawn is that the price of a company should not deter your investment decisions. However, if you are a trader, you may ignore this statement for short positions taken, smaller appreciation in cheaper issues will always do better but do it upon recognizing the higher risk to be undertaken in terms of value purchasing. Remember, price appreciation doesn't make your decision right and a precise depreciation doesn't make you wrong either. It would just mean you somehow made a conclusion to the issue's prospect and took a profit/loss based on that conclusion.
Coming to No. 2.
Malaysian market has still to undergo many more development in its financial products i.e. options, warrants, swaps, mortgage, open end short selling, etc, and especially the opening up to foreign holdings. Currently EPF and other such mega funds dominate the market for prices of companies move in tandem with their holdings. In short, knowing what EPF is buying/selling may likely benefit your investments more often than not.
However, this may be tiresome for some, to keep up with mega funds purchases, business developments, political affairs, US market, speculative sentiments via Theedge newspaper-like news, gossips, etc.
The safest bet in the writers opinion is to find a good company that usually has public appeal but is now approaching the end of a down cycle. Of course this company should have good financials and management amongst others.
As for now, knowing these basics should help you investors and traders alike in understanding the relative nature of the Malaysian market. Feel free to comment for the writer believes in the continual accumulation of knowledge. In Warren Buffett's words, the best investment you can make is an investment in yourself. Until next time, happy investing.
First published on 05/04/2014.
No comments:
Post a Comment