Very many questions remain unanswered even for the most savvy investor
despite the market having been in existence for over 65 years. FILE
PHOTO | NMG
Why is the industry designed to keep the artist in debt? Why did
they let the ‘Terminator’ win the election? Why do rappers lie so much
of the time? These are but a few questions posed by Jadakiss in
his 2004 protest song “Why.” It’s now 14 years later and many of his questions remain unanswered.
his 2004 protest song “Why.” It’s now 14 years later and many of his questions remain unanswered.
Truth is, from hip-hop to pop
culture to politics to finance, we’ve all got unanswered questions. I’ve
got mine too. And here are a few for Mr Market.
Why is 2008’s 33 per cent market crash so memorable, but 2012’s 33 per cent rally so forgettable?
Why do we have over 60 companies listed yet only 10 account for 85 per cent of the liquidity?
Why are women still scared of the market? For every three investors, only one is a woman.
Why
did Kenya only get a pass at above six per cent (and not lower) in the
Eurobond market? Is it the 53 per cent debt-to-GDP ratio? Is it the 6.1
per cent current account deficit? No.
Another country
(Japan) whose gross national debt is 250 per cent of GDP, by far the
worst in the developed world, and mega deficits year after year, still
boasts of an A+ credit rating and bonds yielding almost negative? Why do
markets behave like this?
Why do equity funds market
themselves as long-term but spot less than 100 per cent turnover rates.
Rates below 100 per cent means average holding periods are less than
twelve months. Is 12-months the new “long-term”?
Why is cost-averaging still so popular? Hasn’t hope gone out of fashion yet?
Why
do we believe “earnings missed estimates” statement means something?
No. Earnings don’t miss estimates, estimates miss earnings.
No
one ever says “the weatherman missed estimates.” We blame the
weatherman for getting it wrong. Finance is the only industry where
people blame their poor forecasting skills on reality. Same goes for
these words: “cautiously optimistic.” They are an oxymoron. They mean
nothing. But why is the opposite the reality?
Why after
65 years of market existence, average equity turnover rates are still
under 10 per cent? Turnover rates are calculated by dividing annual
equity turnover by total market capitalisation.
MSCI turnover rates stand at 15 per cent. Bonds market liquidity on the other hand stands at an average of 26 per cent.
Why was a company (think airline) with a Sh23 billion negative equity not suspended from trading?
Why is sports betting so popular with the youth than the stock market?
Why
are we still selling money-market funds as “risk-free” yet history has
witnessed many examples of money-market funds “breaking the buck”? Are
not all assets risky assets?
Why is volatility the most feared 10-letter word by investors yet it’s the number one source for market returns?
Why
is finance so complicated these days? Is it to just the fees? Why has
it become mathier and excessively model-driven? Is it “physics envy”?
Why
isn’t there more desire for investors to track and score experts’
forecasts? Shouldn’t there be a standard that says no forecast should be
made without the analyst disclosing their track record?
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