After a pretty upbeat start Monday, so obviously on the back of the State Bank’s quite unexpected cut in interest rate, the market went tumbling down Tuesday, and by about 300 points. This was a steep fall, attributed by those in the know to volatility in the international markets, perhaps owing to the US debt blues, and the extremely unsettling law and order situation in Karachi.
The MQM chief’s statement instructing his followers to hoard up on necessities for a month was a dire warning that murder and mayhem could persist in the megapolis for that long. This further aggravated an already very bad situation for sure. The fall was across the board, and when these lines were written with half an hour to go for the close, the companies quoted in the green were few and far between, only 32 to be precise, with another 73 holding on to their previous day’s value. The ones in decline though were a whopping 205 out of 310 that were active in trading. The volumes too were predictably low. Despite such doom and gloom, the owner of the brokerage house where this scribe trades, MND, is rather optimistic. To him, this downward drift is not likely to sustain and the market would bounce back in short order, in two or three days.
This analysis, he says, is based on a sound premise. For one, the Pakistani equities are under-priced, and two, the profit-taking season is at hand. So, the buoyancy is bound to return – sooner rather than later.
For the sake of investors, especially of the small, average Joe variety, may he turn out to be right, but since more often than not his optimism has not been misplaced, we need to take his view into account. A couple of weeks ago we had in this space debated on what an average Joe should resort to when the value of a company’s stock in which he has invested sees a precipitous plunge?
The discussion – inspired by a friend who by his standards had shifted a sizable chunk of his portfolio to Askari Bank Limited only to see to his utter dismay that the scrip kept losing its value, and by now at two-thirds of its price in February 2009 – at the time had remained unfinished. The merits of holding on to the investment in the hope of recovery or divesting it and parking the money in a more lucrative short term though were talked about briefly.
Most people who have ever traded wouldn’t have escaped being bitten by this phenomenon, but this has indeed been the bugbear of many a small investor, for whom a loss of sizable magnitude means catastrophe. But once the mistake has been made, the only thing you can do about it is backtrack and reclaim whatever portion of losses you can.
To be honest, one had lost a bit of a stash in the same Askari Bank stock that burnt the friend who made the query about what to do with his holding. Frankly I had made the investment in Askari when it was profitable and doing well. But then I didn’t keep myself updated on the company. Another cardinal sin, the mistake that one should never make, I didn’t promptly respond to a call from my brokerage house post the Askari Bank’s board meeting in February 2010. It announced no dividend, and only 20 per cent bonus shares. The consultant on the line advised, Sell. I hesitated because I would have then been making a loss of Rs2 per share. This would have been a boon compared to what was to follow.
But later I chose not to stick by it, only because after due consideration the short-term prospects didn’t look bright. I wanted to resurrect the situation, and also wanted my money to work for me instead of remaining stuck and going nowhere. When I sold, my total holding in Askari Bank was around 15,000 shares, and I was happier later because the switchover to Millat Tractors Limited has made good most of what I lost in a year and a bit.
This is a happy situation, but it could have been far worse if I had remained stuck with Askari, for now trading at under Rs11 apiece, and likely to stay here, my losses would have been doubled. The moral of the story: cut your losses, reinvest and recover.
The writer is Sports and Magazines Editor, Pakistan Today
