Who’s talking bull?

"I should tell you, by way of a parable, that on December 31, 2005, I was moved to lay a wreath down at the spanking new premises of the Stock Exchange in memory of all the money I lost in the market last year," he told business people at CMMB’s six months review which looked at the trends shaping the capital markets internationally, regionally and at home, at the Trinidad Hilton last week.

The statistics on the Composite Index of the Trinidad and Tobago Stock Exchange make for interesting analysis, he said. The average annual compounded return on the Index over the last 22 years stands at 11.8% which, he added, is better than the long term return of any other investment alternative.

This suggests that investing in the stock market is a "positive sum game," it tends to appreciate over the years, and he wanted to know why an investor should ever be out of the market.

He acknowledged though that there are times when the market experiences sickening depreciations, "but generally those times cannot be predicted with any degree of accuracy."

It is possible to optimise the "market’s nature," taking advantage of its upward long term bias, while avoiding some of the effects of its depreciating periods, he noted.

True value investors have a big edge in just investing as usual, he said.

"By buying shares undervalued by the market, the value investor doesn’t overpay for stocks and has a cushion of safety in times of decline."

"I don’t wish to kick a dead horse, and I mean no disrespect to BWIA, but a value investor would not have bought BWIA shares at $7, at 20 cents or even 90 cents. A value investor would not have bought Lever Brothers shares at $29 two years ago, but he would certainly be looking at it now."

Investors often neglect the effect of magnitude of price advance compared to price decline, he said, noting, "it is more likely for an undervalued $15 stock to advance to $30 than it is for a fully or overvalued $30 stock to advance to $60."

Looking at the last three years, the Index, he said moved from 545.56 to 694.13, a gain of 27.2% in 2003. In 2004, it moved to 1074.64, registering a 54.8% increase.

And if 2005 is broken into two parts, "we see from January 1 to May 17 the Index continued the "bull" run, moving from 1074.64 to 1232.19 or a 14.6% gain in less than five months.

However, the Index closed the year on 1067.38, recording an overall decline for the year 0.67% but a 13.3% drop from May 17 to year-end, he observed.

He sought to explain what it meant. The year 2005, he said, started with the stock market continuing its bull run but after experiencing this for close to three years, "we were to painfully find out how much of it was really bull."

He said what was particularly noteworthy is that when stock prices begin to soften as they did for most of last year, the experts are quick to say that the market is "going through a correction. Why is it that when prices fall it’s called a correction? Does it mean that prices going up is wrong?"