Maswood Alam Khan
According to a Chinese proverb, there is a golden formula to follow three tactics in both a stock market and a casino room if one must try his luck for quick money: the rules of the game, the stakes, and the quitting time. Investors in Bangladesh Stock Market who vandalised cars and blocked roads out of frustrations on last Monday perhaps ignored any or all of the three tactics.
In the steepest single-day fall in the bourses’ history of Bangladesh General Index of Dhaka Stock Exchange plummeted by 660 points and Selective Categories Index of Chittagong Stock Exchange by 914 points compelling SEC, the regulator, instructing the exchanges to suspend their trading. The crumpled market however prompted the regulators like Securities and Exchange Commission and Bangladesh Bank to take so-called series of measures in an apparent desperation to cheer up the investors to repeat what they had been doing in the stock market on a spree when again the exchanges would resume.
Police fired tear gas and baton-charged the frustrated investors who were throwing brickbats at them. Police even had to beat up the journalists who gathered there to cover the volatile share market. Senior Joint Secretary General of the main opposition party BNP did not miss the political opportunity to express his concern over the massive plunge of the capital market by saying “Share market went into a nosedive in 1996 when Awami League was in power. The market on Monday experienced the worst plunge in its history during the tenure of Awami League, the same political party”.
Many questions should now arise in people’s mind what is actually happening in the capital markets in Bangladesh. There may be some speculations made by some learned analysts and observers that a syndicate of big players was waiting for this killing moment to loot money by trickery from the beguiling small shareholders to be laundered abroad. Borrowers of banks smelling chances of making quick money overnight could also have diverted to stock markets the funds meant for working capital for their industries, by slowing down the wheels of their factories that are being financed by the banks. Small investors perhaps took loans from the banks for SMEs, and perhaps found it safe, riskless and hassle-free to play the games of stock from the comfort of chairs facing a computer screen.
Some may blame Bangladesh Bank and SEC for this fiasco accusing that the central bank and SEC could have taken some regulatory steps beforehand to prevent such a mishap from happening. Financial analysts may present one hundred and one conspiracy theories; theories like that of “Book Building”, a mechanism of cosmetic transactions by some select investors in order to artificially raise the book value of some shares in connivance with the market manipulators.
Yes, such speculations and allegations could be partially, and in some instances wholly, true. But these are all idle talks, some kind of postmortem analyses, kind of a get-together of fire experts sitting comfortably around a round table, sipping tea and coffee and smoking cigars while analysing the apparent causes of a fire after a town is reduced to ashes in an inferno.
Such critics and analysts usually do not bother to dig out the root cause of a mishap; because many analysts live on their expertise on post-accident dissection and analyses, the way a coroner for a living does his or her job of discovering the cause of any sudden, violent or suspicious death by holding an inquest. Killing the root cause may kill the very source of their living.
It is strange that small investors are shouting at the regulators for their plight; but they are not at all blaming themselves for their insatiable greed for making easy and quick money.
If a gambler loses money, no matter there was a trick applied or not, it is the gambler who has to bear the brunt of any loss. If a smoker dies of cancer due to heavy smoking in spite of grave warning duly printed on each cigarette packet it is the smoker who is responsible, not the tobacco industry. Day trading in stock market is like gambling and one who enthuses in constant buying and selling his shares of a company before knowing the profit or loss of the company at the end of a year is in fact not a share-owner in the true sense of the term; he is a mere share-holder who rather looks at the day’s behavior than bothering about the company’s true status.
As I always said and wrote whenever I did discuss about share market, ‘playing with shares for profit in a stock market is just like playing gambling games for money in a casino’. I pay to get a banana: it is a decent transaction that makes both the buyer and the seller of the banana happy. But in share business one is to stash money in his own pocket emptying another pocket making only the recipient of money happy and content.
Any easy income without labor is unethical if the incoming gain for one means outgoing loss for another having no tangible consideration in between. It may sound close to the bone, but ‘playing in a stock exchange’, to my personal opinion, ‘is as bad as stealing or picking someone else’s pocket’. We don’t hear people saying ‘playing with stocks is a felony’ because everybody is intoxicated with earning easy money. We have to remain silent when we are all pickpockets. When we are all smokers nobody is left to say that smoking is injurious to health.
Of course, the stock market functions, in theory at least, as capitalism’s central engine of corporate governance, both disciplining managers and ensuring that the economy’s resources are efficiently allocated.
Buying a share means being part of a business and sharing its profits and also losses. If businesses make profit, the share prices rise; if not, the prices fall. A reputed business company will make money and consequently its share price will rise. Hence, if you invest in a couple of good businesses, majority of them will perhaps make profits and a few of them may also make losses. Hence the probability of your making money from such a basket of shares should be high. A stock market is not a casino from that point of view.
Yes, that is true if the shareholders could wait to see how the companies they have invested their money in are faring at the end of a year. But the shareholders influenced by restless and greedy brokers can’t wait to see the businesses grow; brokers want to see their clients buy and sell shares in a spree and idle away their time while seeing the businesses rise and fall.
The original purpose of the stock market was to generate pure capital, to provide a means for business people—-entrepreneurs, industrialists, developers—-to obtain needed investment capital, to start or to expand their business enterprises. Therefore, stock exchanges were established and individuals, bankers and companies bought stocks. Businesses made use of the money so generated through shares, and once an enterprise was flourishing and making profits, the borrowing entity bought back the outstanding stock, so that the capital could be utilised by other enterprises. But, this original design has largely been forgotten, since brokers quickly realised that they could make lots of easy money in trading shares back and forth. They became middlemen to act like double-edged swords, making money from both the gainers and the losers.
Modern shareholders who take their holdings as tools to defray their daily expenses cannot afford to be patient for one full year; they allure others to buy their holdings at a higher or lower price in exchange of a brighter hope in future, though in most cases the future ultimately proves to be dimmer and as a result a few people gain and many people lose the way Ponzi scheme victims are robbed of on the “rob Peter to pay Paul” principle.
Anywhere where the people are very emotional the capital market there is equally speculative. Bangladesh should be an ideal place for a speculative capital market, and maybe for casinos, as people here are hyperemotional. We, Bangladeshis enjoy hearing hearsays based on rumors more than news and analyses based on facts and figures.
When we act on our emotions, we only increase the probability of taking a wrong decision. Judgment and reasoning are clouded when we are emotionally carried away by fear, greed and rumors. The way a typical gambler not understanding the probabilistic nuances of the wheel or the dice plunks down his money in a casino, we Bangladeshis do not understanding the health of the listed companies or the tricks of the market manipulators are easily swayed by the sweet words of the brokers and by the glossy annual reports (having false statements with concocted numbers in many cases) and dazzling signboards of companies mushrooming in the market.
Writer is a retired General Manager of a state-owned bank in Bangladesh. He currently lives in Maryland, USA.