Saturday, December 29, 2012

 Gross and Net returns

Now that we are at the year end there will be many who will do a comparison of returns of various
asset classes that I mean a comparison of  returns from say investing in bonds,time deposits,
properties (rental plus capital gains ) and finally from  trading/investing in shares and futures...we might
even be tempted to compare against returns from gold investment and foreign exchange trading..It would
be difficult to compare all the above side by side as it is like comparing an apple to an orange but regardless
the word from the street is that most are rather disillusioned from their investment returns from the share
market...Seems that finding a winning stock during 2012 is like finding a needle in the haystack and worse than that is that there are so many duds and minefields in the playing field (stock market ) ..and this is against
a backdrop of an all time high in the CI and a net rise of about 9 % for the year...Incidentally this rise pales in
comparison to neighbouring countries...

Interesting and thought provoking comments have been made by the man -on -the -street regarding the other asset classes in 2012 which deserve a brief mention..among which are as follows..

  1. Properties - Astronomical chances of substantial capital gains in 2011 and although less in 2012 the capital gains are commendable ..Rarely hit minefields and rental yields are stable and generally uptrending
  2. Bonds / time deposits - lacklustre against rising inflation but no headache or heartache either...
  3. Gold /other precious commodities...Scam based ones hogged the limelight but genuine schemes gave respectable returns
  4. Forex - exciting playing field for the select few but expert traders love the idea of trading where you rarely see a currency crashing down to oblivion unlike the share market where such phenomena is fairly common...

The share market is a different ballgame altogether...Unlike others there is literally no barriers to entry..
Just about anybody can buy or sell ,with minimal capital or share market knowledge (or so it seems ) and
with online trading you do not need assistance of any kind either ...but herein lies the danger...Many newbies
think they can outsmart the market and hope to leverage on their limited capital by buying on contra...In
2012 alone many got burnt and swear never to return to the share market..! Perhaps it might be timely
for newbies and even seasoned players to remember the following  ...

If you are  a high risk high return trader....
1) watch your stock like a hawk (pun intended )...regardless of your trading technique .stay grounded and trust your instincts.. If you think the trade is going against you, cut your positions and localise your losses...never go against the market...

If you are a mid to long term investor.....
1) as no one can be 100 % accurate it may be wise to use a yield based method for stock selection ie if a stock historically provides a dividend yield of say 6 to 8 % return at entry point then you may want to invest in such a stock as any capital gains thereon is a bonus..( some newly listed REITs did perform superbly in 2012..)

2 ) The often quoted mantra of going for high growth stocks is still relevant...In 2012 O n G counters were star performers and may still be in 2013...yields aside ,catching these on sharp dips or correction mode may just provide the respectable returns next year .Not to be discounted either are quality plantation counters that stayed underperformed in 2012,,after all prices of commodities like palm oil cannot stay low forever...

One other unique feature of the stock market is that its "low" entry requirement is a double edged sword..There were many who made good returns only to have the returns lost due to subsequent bad trades...The ease and hence temptation to enter and exit on many counters over the year can easily mean
solid gross returns on some and losses on others and hence giving rise to a net return less than time deposits...perhaps a more disciplined approach to share trading or investment may just do the trick in 2013

Have a good weekend...

No comments:

Post a Comment