Investing for profit
What to do in a crisis situation
by Dr. Darin C. Gunasekera

I was giving a talk the other day from reactions realised that there is a widespread misapprehension about what to do in a sliding market.

Firstly, an investor must always be alert. You are alert when crossing the road, when writing a cheque, when paying cash, so why not when you have savings in shares? Especially in a developing country, these activities need personal attention. And your attention should be to one end only. Is the market going up or down? That is all. Forget all the other comments. Ignore people who say things you do not understand or refer to any action other than prices going up or down.

If prices are going down, you must sell. There is no other consideration to it. A small investor is not a tycoon. For us, in a sliding market. SELL. It does not matter at what point of the slide, sell, even if it seems the abolute rockbottom. Then you will time the buy property.

When prices are going up, and only then, BUY. Never buy because someone says it is a bargain. Only buy when it seems you have missed a lower price.

A simple example will help the understanding. Suppose that A, B, C and D are persons who have all bought 100 shares at 50. This is of value 50 times 100 equalling 5000, five thousand rupees.

Now the shares slide in price to 40, then 30, then 20 and down to the par of 10.

A may be like most of our experienced investors, and says that prices have to come back to 50 some day and holds on.

B sells at 40 and gets four thousand rupees. The others smile at him sadly for his loss. So when it is 30 he buys back. He now has 4000 divided by 30 or 133 shares. worth four thousand.

C notes that B has now got MORE shares and so he also sells but now at 30. He gets three thousand rupees

D hearing that B and C have sold, panics and sells at 20. and feels poor at two thousand Rupees.

A looks smugly at the others and says he can wait for his shares to get back to where they belong.

Tomorrow dawns. The shares bump around ten and from about 8 start to rise to 10. The papers and people in the know talk of the rosy economy and the confidence in business sentiment. The sun seems to be shining. The market slide is over and the rise is on.

D, a share man who likes to be able to chat with wealthy A and say he has shares, now buys shares at 10 with his two thousand. So he has 200 shares.

C. who has been his friend in making losses joins and buys with his three thousand and so has 300 shares.

The market moves on up to 30. The economists who said that the recovery was great are getting quiet. The world is not what it was. For these times, thirty is as much as the market will rise. Then the rising market is over. The slide is starting again.

C and D, having now become wiser, at once sell at 30. D gets six thousand for his 200 shares. He is now one thousand in over all profit. C gets nine thousand for his 300 shares and so has made four thousand in profit. And where are B and mighty and all knowing A?

B may also sell out of the market and nurse a one thousand loss.

A is still at two thousand loss and will see losses mount again as the market slides.

The moral is clear. As an investor you are always in the market whether holding shares or not. It is just that when the market is sliding down you sell, at any level. And when it is rising you buy at any level. It is just that you must know that basic fact of up or down. To also know how much is fine, but willdistract you, even fatally.

Just try the arithmetic I have just shown in other ways and please convince yourself.

Then why do people do all sorts of complicated things and invest in high sounding things like Unit Trusts and so on?

In business one must know what business one is in. If you are in paper, that is your trade. A cement businessman is in cement. He uses money. We all do. But a cement man measures his business by the bags of cement. Not the paper equivalent or the money market position or the yen rate. So he always works to have more and more bags of cement. It is the same in shares. Think of the number of shares. You just have to make that mount up.

British culture is useful in this regard. Students learn to play rugby, for instance. As all the players on the field are friends, may even be of the same school, in the heat of the game when a person is knocked down in a scramble, he may get up and join the other side. When say the Red team is playing the Yellows, and players are all friends and companions and even members of both clubs, mid-game a Red person may be inclined to just join the closer team to run to which may be Yellow. But if this sort of thing occurs, the game will become completely unwiedly and ridiculous. So a simple device is used.

Each player wears the colour red or yellow and has to keep wearing that throughout. However confused his mind might become, on being knocked down, the colour of his jersey will keep him on the right side.

Similarly, if you are a share investor, wear a Shares Jersey. Stick to shares and keep counting money in terms of the number of shares at the CURRENT PRICE. Don't suddenly talk of Yen or gems or Unit Trusts. Stay in shares but sell and buy on the simple rule. This is the basic lesson one.

Incidentally please remember that there is only one price Today's Price. There are no holy prices. The only price that matters is today's. In our rugby analogy, in today's game, the score that either side scored last year or on average or yesterday does not matter. The side getting more points today wins the game. Tomorrow is another day. Yesterday is history. Your shares have ONLY today's price value. It has no holy value.

Further a rugby match does not end when points are earned by either side. What ever may be scored,. there is always another minute, until the final end. Similarly there is always a tomorrow in investment. The end is only when you retire, and that you should set well in advance of starting.

Fair demand for better teas

There was Fair demand once again, particularly for the better teas.

High Grown Teas: BOP - Best available Westerns were barely steady. In the below best category, a selection of improved teas gained Rs. 2/- to 5/- per kg whilst the others declined by a similar margin and more. Plain Clean leaf sorts declined by Rs. 2/- to 4/- per kg whilst the poor leaf invoices eased further. Nuwara Eliyas gained Rs. 4/- to 8/- per kg and more following special inquiry. A few select best Udapussellawas were firm; others declined Rs. 2/- to 4/- and more following quality. A few select Uvas declined Rs. 2/- to 4/- per kg whilst the others declined by upto Rs. 10/- per kg.

BOPF Best available Westerns were Rs. 3/- to 6/- per kg dearer. In the below best category a selection of improved teas were Rs. 4/- to 6/- dearer whilst others were mostly firm. Nuwara Eliyas gained Rs. 5/- to 15/- per kg and more following special inquiry. Uva/Udapussellawas declined Rs. 3/- to 8/- and more for last weeks high priced teas.

Medium Grown Teas
BOP - Declined by Rs. 5/- per kg and more for the poorer types.

BOPF - Better sorts were firm. Others declined Rs. 2/- to 4/-.

CTC Teas
BP I - Declined Rs. 2/- to 4/- per kg.

PF I - The best on offer declined Rs. 3/- to 5/- per kg whilst the selection of clean leaf teas in the below best category sold around last levels. The poor leaf teas too were lower by Rs. 3/- to 6/- per kg. - (Forbes & Walker)

The Central Bank's Spot Rates for transactions with Commercial Banks announced on the morning of October 08, 1998 were as follows:

The approximate middle exchange rates of following currencies calculated on the basis of cross rates quoted by Gulf International Bank, Bahrain as it appeared in Reuters Financial Information System on October 08, 1998 were as follows:

Average rates at which the following currencies were quoted by Commercial Banks in Colombo for Telegraphic Transfers at mid-day on October 08, 1998 were as follows:

Average Weighted Prime Lending Rate (AWRP) and Lowest Prime Rate (LPR)
The Average Weighted Prime Lending Rate (AWPR) during the week ended October 2nd,1998 was 15.9 per cent for all banks. The Lowest Prime Rate among banks during this week was 11.9 per cent.

Average Weighted Deposit Rate of Commercial Banks (AWDR)
The Average Weighted Deposit Rate (AWDR) of Commercial Banks for the month ended September 30th, 1998 was 9.6 percent.