I read a good article about the state of the stock market. In brief, it gives a frank overview cum assessment of where the stock market stands against all the other competing investments (for our money since it’s limited). Here’s that article by Ben Shane Lim in TheEdgeMarkets.com: Cover Story: When the stock market can’t compete If anyone happened to read such concise articles, please share yeah. Many times, articles which are too short may not explain enough and the overly long ones are usually skipped. So, is the stock market in trouble then? Ben compared the stock market versus these three other alternatives: Cryptocurrency, property and small businesses. First of all, he says that based on the latest figures from Bursa Malaysia, retailers accounted for only 14.6% of the value traded last month. The rest are institutional investors. He compares this to the Stock Exchange of Thailand where 40-45 percent of the trading participation is by retailers. he says that perhaps institutionalisation of the Bursa Malaysia has made it more boring.
Cryptocurrency meanwhile has had its ups and downs and the major advantage the cryptocurrency has would be the extremely high volatility which meant that speculators can make (or lose) huge amounts of money in a relatively short period of time. He says that this is something the stock market, at least the local one, is not able to offer. (I personally would not prefer to go into the stock market by trying to speculate on some stocks and either gain big or lose big. When we look at the stock market changes, even for today (23 Feb 2018), the % of rise is still huge, for the top 10 most active stocks. Imagine buying a stock in the morning and gaining 50 percent by the end of the day? NOTE: It may also be a LOSS of 50 percent by the end of the day. So, I think volatility wise, it really depends on the individual stock itself. Perhaps buying some bluechip counter would be less exciting. )
He then compared the stock market to property prices. Since 2009, the House Price Index (HPI) has risen by a compounded annual growth rate (CAGR) of 7.88 percent. (This is definitely very healthy because it’s higher than even EPF’s return over the past 5 or 10 years. ) He says that people looking for stable returns may find a safe haven in property versus stocks. Besides that, banks may finance up to 90% of the value of a property. This made property awesome because of the benefits from leveraging. Besides that, this has been helped by the low interest rates for the past decade. In fact he gave lots of different calculations. Please do refer to the article by Ben Shane Lim in TheEdgeMarkets here. (Personally, I think as long as we did not buy the wrong property, or bought at the wrong price or from a wrong developer, everything should be just fine. So property investment does have its own risks too. Stocks in the BURSA Malaysia meanwhile would have lots of coverage from analysts and this may provide more clarity on the company that we buying into before we actually buy them. By the way, property investment is extremely illiquid too and takes a lot of time too)
Last but not least he says that the wave of young entrepreneurs mean that there are a lot more choices for investors. Whether they are start-ups or new cafés or fund raising through equity crowd-funding platforms to kickstarters, there are more and more ways for people to invest directly in smaller businesses. The more investors invest into these potential new businesses, there would be lesser investments into the stock market. (I personally think that this is more for sophisticated investors because if I am scared with buying a stock which is listed on the Bursa Malaysia, I would be even more worried to invest in some companies that I have never heard of in my life or heard it for the first time through one presentation from the founder cum CEO. Anyway, I have invested into three startups currently. Hopefully at least one of them would give me ‘crazy’ returns. 😛 )
I think Shane Ben Lim has given a very concise and objective assessment of the competitions to the stock market. I personally think that one major reason why participation is lower is also because many people are just worried about having huge losses by investing in the stock market. Thus, they may prefer to buy unit trusts instead. I still remember 2 years ago when I asked 10 friends about unit trust investment, nearly everyone said they have some money invested in them. Some would say not much profits etc but nearly everyone has funds inside unit trust. When it comes to stock market however, only 1 said he is active in the stock market. Another 2 said they used to buy but they lost money so both have stopped. While I did not ask but I think majority of them are also not property investors, yet because the property market had already slowed down by then. As for startups, for these 10 friends, the answer is a definitely ‘not ready’ or ‘do not know enough.’ Perhaps the main reason for not investing into stocks is simply because they have spent it all on new handbags, new handphones and even a new car. Happy investing and yes, I love the stock market, still. If you like to read more about retail investors into BURSA Malaysia, there’s also another article in TheEdgeMarkets by Supriya Surendran and Kathy Fong.
written on 23 Feb 2018
Next suggested article: Buy because of the business, that’s safer