Written by Dele Sobowale
Saturday, 04 April 2009
The two acclaimed richest Nigerians are now at war. And if you think that the rift between Alhaji Aliko Dangote and Mr Femi Otedola is no concern of yours; then you must be living in that blissful state of ignorance which the rest of the nation can ill-afford. And, if you are happy about it; then rest assured that your joy shall be short-lived as the consequences of this supposedly private disagreement becoming a national issue.
It is in the national interest to bring this war to an end before it escalates and consumes all of us - including the
Mr Femi Otedolacombatants. Already the seeds of Mutually Assured Destruction, MAD, had been sown by the adverts in the newspapers by AP Plc controlled by Otedola. It is perhaps too late to recap the can of worms that the publication had opened. I pray that will be the last revelation because the consequences are extremely grave for Nigeria at any time but more disastrous at this time.
Like most media practitioners, I have heard rumours of a rift between Otedola and the man he addressed as “My Oga” - Dangote —at the launching of Dangote Sugar Plc, IPO. He went on to demonstrate the depth of their friendship by committing his group of companies to the purchase of three billion naira worth of the Dangote Sugar shares. That disclosure almost brought down the roof as some people with poor listening or semantic habits thought he said three billion shares.
Dangote had to step in to reassure the audience that his friend will not alone mop up the entire offer, especially when it came with a one naira dividend paid up front. While others around me grumbled, I inwardly applauded. Envy has never been part of my make up and I have long accepted that we can’t all be billionaires. What thrilled me was the fact that a northerner and a Lagos state indigene could be so close as to invest so much in each others enterprises. I prayed for more of those; not only between Dangote and Otedola but between other Nigerians.
Thus for me it was a painful experience to learn that this great friendship was crumbling for reasons not yet sufficiently disclosed. I prayed that some mutual friends of the two would step in and mediate the conflict and restore the relationship to what it was before.
Alhaji Aliko Dangote (left)I have never met Otedola -one on one - despite the fact that we are both from Epe Local Government of Lagos State, but I was always happy that a Lagos boy is showing to the world that Eko is not just “for show”; that in fact, the “good men she (Lagos) breeds are the best of their kind” - to borrow a sentence from Plutarch, AD 46-120, one of the greatest historians the world has produced. Dangote, I had met once and I was deeply touched by his humility and knowledge of media personalities despite his busy schedule.
Since, it is generally assumed that birds of the same feathers fly together, I have no reason to doubt that Otedola would be just as nice in private. Anyone who is fortunate to have a good friend will readily agree with me that that is the most precious possession anybody can have; it is the “all-purpose medicine” which makes it possible at times to maintain one’s sanity in a world which seeks to separate us from our senses. Conversely, the loss of a good friend, irrespective of how it came about, is often very devastating because the impact is immeasurable.
I was still thinking of ways to get in touch with both of them when I saw the advert by AP Plc, alleging grievous infractions of the Nigerian Stock Exchange, NSE, regulations, and impliedly, that of the Securities and Exchange Commission, SEC, by Alhaji Dangote and Nova Finance and Securities Plc, resulting in steep decline of the price of AP Plc shares.
I was alarmed for two reasons. First, this step, by AP Plc, which could not have been taken without the approval of Otedola, was capable of escalating this conflict beyond any peaceful settlements -if it has not done so already. Second, it will, unquestionably, damage the capital market further by undermining the confidence of investors at a time when doubts regarding the integrity of the market can be ill-afforded.
As it turned out, I started writing this article on Thursday, March 26, 2009 at nine o’clock at night; but I did not finish it. The next morning, virtually all the newspapers had reports about the suspension of Nova Finance and the fine imposed. One of the papers also reported about shareholders of AP Plc asking what the NSE and SEC would do to Dangote -who incidentally seats on the Board of the NSE.
No one needs to be a prophet or jujuman to predict what would happen next. Those who were old enough to remember the “If you Tarka me, I’ll Daboh you” incident of the 1970s must expect not only a retaliatory response from Dangote and Nova but an expansion of the revelations that will involve other shares on the capital market demonstrating, or seeking to do so, that Otedola and some stockbroker have also been involved in share price manipulation.
When that happens, Nigerians will witness the destruction of two reputations that the two men have laboured over the years to build. I have mentioned reputation because I consider integrity as the most valuable possession any human being can have. And, despite the rumours that always swirl around the names of wealthy people about the sources of their wealth, nobody has been able to establish any criminal activity on their part -until now.
The fine and suspension of Nova has changed all that; it has also opened several avenues of inquiry which have the potential of doing further damage. From information available to me, the knives are already being brought out from several quarters which will bring to the lime light many things that the two combatants will eventually wish had not been uncovered.
“Crossing” which was the vehicle allegedly used to bring down the price of AP Plc shares has now come under the searchlight. And the issues involved are too numerous to discuss in this short piece. But, let me draw the attention of our readers to a few.
First, if “crossing” can be used to artificially devalue the shares of a firm, why can’t it be used to artificially inflate it? A call to a retired stockbroker friend confirmed to me that it has been used and abused widely in the NSE in the past and perhaps it is still in use and still being abused even now.
He went on to state that the use is most prevalent when firms already listed on the exchange want to go to the capital market for additional funds.
Then crossing had been used to boost the price of shares to lure investors. If that is true, the NSE has done a superficial job by just imposing a fine and suspension on Nova; it must go beyond that and carry out a forensic study of all the shares whose prices have appreciated astronomically from 2006 to 2008 May; and whose directors and management have sourced funds from the capital market during the period under review, to determine how many have been subjected to share price manipulations by a few people for their own benefits and to the detriment of the millions of investors who have been under the illusion that the NSE was operating a free market.
As a necessary corollary to that inquiry, the rest of us, because I am also involved, would want to know who, if anybody, were the people involved in these shady deals because we certainly have several dates in several courts with all of them.
I hope no bank is caught in the web of the conspiracy that fraudulent manipulation of crossing represents because millions of Nigerians invested in their securities based on the unprecedented appreciation of their share prices before each and every IPO. The invasion of Rome by the barbarians and the rapine and pillage that accompanied it will be child’s play compared to the wrath of investors who paid N45, N36, N30 for shares that are now tending towards N5, N4 or N3. If it turns out to be so, not only will the banks Boards and directors face violent uprising, they would have destroyed the Nigerian Stock Exchange beyond repair for years to come.
It goes without saying that not only would the NSE and the SEC Boards, Management and the Stockbroking firms will also come under scrutiny but they would also have lost the most important element in their operations - investor confidence. And they should expect it, because of what use is it for millions of people to be tricked into playing a game in which the deck is stacked in favour of a few and the stock brokers knew it all along?
However, while we must ascertain the truth; we must be very careful that we don’t, out of perhaps justified anger, destroy more than we should. Until another exchange is created, and a case can be made for the establishment of a rival exchange because of the known evils of any monopoly, we should not completely destroy this one in the interim. We should balance anger with reason.
These are some, but by all means not all, of some of the consequences of this private war between the two men. And that is the reason for calling on friends, relatives, advisers (especially lawyers) of the parties to mediate and prevent further escalation. Former President Obasanjo, as well as President Yar’Adua might even find the time to call the two to Aso Rock for a peace meeting.
The truth is; if they go down on account of deliberate or inadvertent self-destruction, they will take a lot of Nigeria’s economy down with them. War is hell. And hell is one more thing we don’t need in this country right now; at least not one between two people who hold some of the keys to our future advancement. If ever this nation needs experienced mediators, this is the time and this is the conflict requiring their services; for the sake of Nigeria.
Saturday, April 4, 2009
Saturday, March 28, 2009
Capital Market Crisis:SEC Seeks Tax Incentives As Bailout
- Nigerian Tribune.
The Securities and Exchange Commission (SEC) is seeking tax incentives as a bailout option for the current crisis in the capital market.
Director General of SEC, Mr. Musa Al-Faki, disclosed this on Thursday in Abuja at a roundtable on Tax Incentives and Waivers in the Nigerian capital market.
According to him, tax incentive as a fiscal policy adopted by government was to grant individuals or corporations exemption from, or reduction in, their tax liabilities with a view to increasing savings and investments in particular markets or sectors of the economy.
Noting that various incentives were granted to the industrial, energy, tourism, telecommunications and export sectors, the SEC DG regretted that not much had been extended to the capital market in spite of its long recognised role of aiding economic growth and development.
The Securities and Exchange Commission (SEC) is seeking tax incentives as a bailout option for the current crisis in the capital market.
Director General of SEC, Mr. Musa Al-Faki, disclosed this on Thursday in Abuja at a roundtable on Tax Incentives and Waivers in the Nigerian capital market.
According to him, tax incentive as a fiscal policy adopted by government was to grant individuals or corporations exemption from, or reduction in, their tax liabilities with a view to increasing savings and investments in particular markets or sectors of the economy.
Noting that various incentives were granted to the industrial, energy, tourism, telecommunications and export sectors, the SEC DG regretted that not much had been extended to the capital market in spite of its long recognised role of aiding economic growth and development.
Nigeria: SEC Seeks Partnership With Accountants on Repositioning
Michael Eboh27 March 2009
The Securities and Exchange Commission (SEC) has announced its decision to partner with accountants and other professional body in the country in its drive towards repositioning and restructuring its operations.
According to a statement by the commission, its repositioning became necessary following the recent crisis rocking the capital and in order to brace it up for the enormous challenges ahead.
The Director-General of the commission, Musa Al-Faki, who was recently conferred with the award of a Fellow by the Association of National Accountants of Nigeria (ANAN), in Jos, Plateau State, was quoted as saying, "To position SEC for the task ahead as the capital market regains itself, accountants of repute, analysts and lawyers will be needed, to work alongside other professionals within and outside the Commission."
He called on accountants and other professionals in the financial sector to embrace integrity, making it their watchword as they go about their assignments in their respective organizations, or as external auditors, contracted to audit a company"s records.
Relevant Links
West Africa
Economy, Business and Finance
Nigeria
He disclosed that it becomes very imperative, especially at the point in time, to ensure the entrenchment of International Financial Reporting Standards, which have been accepted globally, to ensure that the current global financial meltdown is halted and reversed as soon as possible.
He expressed satisfaction at the fact that Nigeria has so many talented individuals, whose resourcefulness can be tapped into to restore the nation's economy.
Al Faki noted that the fellowship awarded him is a call to duty, as such recognition is meant to ginger recipients not to rest on their oars, but to become more committed to taking on greater challenges in the future.
The Securities and Exchange Commission (SEC) has announced its decision to partner with accountants and other professional body in the country in its drive towards repositioning and restructuring its operations.
According to a statement by the commission, its repositioning became necessary following the recent crisis rocking the capital and in order to brace it up for the enormous challenges ahead.
The Director-General of the commission, Musa Al-Faki, who was recently conferred with the award of a Fellow by the Association of National Accountants of Nigeria (ANAN), in Jos, Plateau State, was quoted as saying, "To position SEC for the task ahead as the capital market regains itself, accountants of repute, analysts and lawyers will be needed, to work alongside other professionals within and outside the Commission."
He called on accountants and other professionals in the financial sector to embrace integrity, making it their watchword as they go about their assignments in their respective organizations, or as external auditors, contracted to audit a company"s records.
Relevant Links
West Africa
Economy, Business and Finance
Nigeria
He disclosed that it becomes very imperative, especially at the point in time, to ensure the entrenchment of International Financial Reporting Standards, which have been accepted globally, to ensure that the current global financial meltdown is halted and reversed as soon as possible.
He expressed satisfaction at the fact that Nigeria has so many talented individuals, whose resourcefulness can be tapped into to restore the nation's economy.
Al Faki noted that the fellowship awarded him is a call to duty, as such recognition is meant to ginger recipients not to rest on their oars, but to become more committed to taking on greater challenges in the future.
AP shares finally make gainers' chart
African Petroleum (AP) Plc's share that has been topping the Nigerian Stock Exchange (NSE) losers' chart for weeks finally appreciated on Wednesday.
The stock gained N2.44 on its N48.91 per share to close at N51.35 at Wednesday's trading.
The increase in the share price of AP came two days after the company alleged that Nova
Finance and Securities Limited, and Alhaji Aliko Dangote are influencing the rapid
decline in its share prices.
The company's share price that was worth N293 per share at the beginning of the year declined to N48.91 as at Tuesday, 24th March, 2009.
Sola Oni, Assistant General Manager, Corporatre Affairs Department of the Nigerian Stock Exchange, refused to comment on AP's allegation.
He said that the NSE will inform the public once their full scientific and technical investigations to determine the veracity of the claim are completed.
Meanwhile, stock market struggles to gain after Wednesday's trading.
The NSE's market capitalisation gained 0.01 per cent, or N528.52 million to close at N4.507 trillion.
The index of all the shares traded however lost 58.73 points, or 0.29 per cent, to close at 19,959.87 points from 20,018.60 points it opened the day.
A total of 206,417,892 quantities of stocks, valued at N1.187 billion were recorded in 5,888 deals. While 26 stocks appreciated in share price, 46 others record loses.
7UP Bottling Company Plc and Mobil Oil Nigeria Plc followed AP Plc in the price gainers' chart with an increase of N1.20 and 41 kobo respectively on their initial prices of N37.80 and N87.60 per share.
Oando Oil Plc led the price losers' chart with a loss of N2.90 to close at N62.10 per share.
Ecobank Transnational Incorporation Plc and Glaxo Smithkline Consumer Plc followed in the losers' chart declining by 73 kobo and 70 kobo respectively, to close at N13.89 and N15.50 per share.
The banking sub-sector maintained its lead on the most active sub-sectors' chart with 97,880,146 quantities of shares, valued at over N716.613 million in 3,566 transaction.
Trading in this sector was driven by activities in the shares of First Bank of Nigeria Plc, Bank PHB Plc, and Access Bank Plc.
The insurance sub-sector followed with 76,395,389 shares, worth N181.616 million in 443 deals.
Custodian and Allied Insurance Plc, N.E.M Insurance Company (Nig.) Plc, and Cornerstone
Insurance Company Plc drove the volume in this sub-sector.
The Information Communication sub-sector was third in the chart, with 7,602,905 shares worth N12.149 million in 86 deals.
The share value volume in this sub-sector was boosted by activity in the shares of Chams Plc, Starcomms Plc, and MTI Nigeria Plc.
The stock gained N2.44 on its N48.91 per share to close at N51.35 at Wednesday's trading.
The increase in the share price of AP came two days after the company alleged that Nova
Finance and Securities Limited, and Alhaji Aliko Dangote are influencing the rapid
decline in its share prices.
The company's share price that was worth N293 per share at the beginning of the year declined to N48.91 as at Tuesday, 24th March, 2009.
Sola Oni, Assistant General Manager, Corporatre Affairs Department of the Nigerian Stock Exchange, refused to comment on AP's allegation.
He said that the NSE will inform the public once their full scientific and technical investigations to determine the veracity of the claim are completed.
Meanwhile, stock market struggles to gain after Wednesday's trading.
The NSE's market capitalisation gained 0.01 per cent, or N528.52 million to close at N4.507 trillion.
The index of all the shares traded however lost 58.73 points, or 0.29 per cent, to close at 19,959.87 points from 20,018.60 points it opened the day.
A total of 206,417,892 quantities of stocks, valued at N1.187 billion were recorded in 5,888 deals. While 26 stocks appreciated in share price, 46 others record loses.
7UP Bottling Company Plc and Mobil Oil Nigeria Plc followed AP Plc in the price gainers' chart with an increase of N1.20 and 41 kobo respectively on their initial prices of N37.80 and N87.60 per share.
Oando Oil Plc led the price losers' chart with a loss of N2.90 to close at N62.10 per share.
Ecobank Transnational Incorporation Plc and Glaxo Smithkline Consumer Plc followed in the losers' chart declining by 73 kobo and 70 kobo respectively, to close at N13.89 and N15.50 per share.
The banking sub-sector maintained its lead on the most active sub-sectors' chart with 97,880,146 quantities of shares, valued at over N716.613 million in 3,566 transaction.
Trading in this sector was driven by activities in the shares of First Bank of Nigeria Plc, Bank PHB Plc, and Access Bank Plc.
The insurance sub-sector followed with 76,395,389 shares, worth N181.616 million in 443 deals.
Custodian and Allied Insurance Plc, N.E.M Insurance Company (Nig.) Plc, and Cornerstone
Insurance Company Plc drove the volume in this sub-sector.
The Information Communication sub-sector was third in the chart, with 7,602,905 shares worth N12.149 million in 86 deals.
The share value volume in this sub-sector was boosted by activity in the shares of Chams Plc, Starcomms Plc, and MTI Nigeria Plc.
NSE suspends stockbroking firm over AP's share price scam
SEC commences own investigation
By Gbenga Agbana and Femi Adekoya
NIGERIAN Stock Exchange (NSE), yesterday, suspended Nova Finance and Securities Limited (NFSL), a stockbroking firm, over alleged manipulation of African Petroleum (AP) Plc's share price.
Beside, NSE imposed a fine of N500,000 per day on the stockbroking firm, effective from the date of suspension, over the share price manipulation, which has made investors to lose over N240 billion.
Also, the Exchange slammed a fine of N300,000 on AP, for contravening its post listing requirements.
Already, the Securities and Exchange Commission (SEC), the industry's apex regulatory body has commenced its own investigation into the saga.
In a chat with The Guardian on Tuesday, SEC's spokesman, Mr. Lanre Oloyi said the commission has set up a committee to look into the matter, after which appropriate action would be taken.
In a press release made available to The Guardian yesterday, the Council of the Exchange noted that its investigations into the allegation of price manipulation of AP's shares, revealed that the activities of Nova Finance and Securities Limited constitute a breach of Articles 103 and 107 of its rules and regulations.
According to the statement, "the Council of The Nigerian Stock Exchange has carefully examined the recent alleged manipulation of share prices of African Petroleum Plc through incessant buy and sell transactions by Nova Finance & Securities Limited (a dealing member firm).
"Our investigations and findings revealed that activities of Nova Finance & Securities Limited constitute a breach of Articles 103 and 107 of our Rules and Regulations, which preclude our dealing members from creating a false market on a specific security to effect a change in its price".
"Consequently, the council of the Exchange has suspended Nova Finance & Securities Limited from all capital market activities and a fine of N500,000 per day has been imposed on the firm from the effective date of suspension until the fine is paid."
The NSE lamented that AP's "avalanche of advertorials on the alleged manipulation is a breach of the Exchange's post listing requirements on information dissemination by quoted companies. The companies are obliged to inform the Exchange of any matter that affects their operations before going to the press.
"African Petroleum Plc has brought the integrity of information emanating from the Central Securities Clearing System (CSCS) Limited to ridicule by publishing what was purported to be CSCS document and we wish to assure the investing public of the confidentiality of their records at the CSCS.
"The published document by African Petroleum Plc is definitely not a CSCS document. Consequently, the Council of the Exchange has also imposed a fine of N300, 000 flat on African Petroleum Plc for contravening the post listing requirements."
Allaying the fears of the investing public, NSE reiterated its continued commitment to integrity of the market and enforcement of its rules, regulations, conventions and usages.
AP, in an advertorial in some national newspapers, alleged that NFSL, "acting under the instruction of and with active support and connivance of Alhaji Aliko Dangote," has been primarily responsible for the steep decline in the value of the shares of AP Plc, on the floor of the Nigerian Stock Exchange."
In the disclosure, AP stated that its investigations revealed that "in the last eight weeks, there has been a premeditated and orchestrated 'crossing' of AP Plc shares amongst similar entities owned and controlled by either of Alhaji Aliko Dangote or Nova Finance and Securities Limited."
AP, whose share was marked down at N273 from N300 during its public offer last year, has now had it whittled down to N51.48, as at yesterday causing the phenomenal loss of N240 billion to the shareholders.
NSE, in a swift reaction, said that "a scientific and technical investigation has commenced" on the alleged share price manipulation by NFSL.
But the National Co-ordinator of Independent Shareholders Association of Nigeria (ISAN), Mr. Sunny Nwosu, said NSE's action has come too late, saying that "a big chunk of ordinary Nigerians investments have already been sadly compromised through the negligence of regulatory authorities."
Nwosu pointed out that the AP's publication was an exposure of what has been happening to the common man in the nation's capital market.
"The association's concern is mainly for the common people whose contributions to the economy, through the stock market, have been wiped-off through unethical manipulations of their share prices, by a stockbroking firm, in alleged connivance with Alhaji Aliko Dangote.
"We are not happy that somebody who is aspiring to become the President of the Nigeria Stock Exchange should be involved in such unwholesome activity.
"We are equally unhappy that the manipulations were serially carried out right under the nose of the regulatory authorities, without being detected.
"We are however happy that AP management found the courage to make the exposure, without which investors would have continually been given the impression that market fundamentals were behind such phenomenal sharp drop in the share price.
"We are terribly worried that other prices of other shares could have suffered the same fate, moreso as other companies would have not had the courage or capacity to make the thorough investigation by AP management, which exposed the unethical market operators.
"Consequently, we are demanding for a comprehensive investigation into the operations of the capital market, which will go beyond the one which the exchange said it has now initiated," Nwosu added.
Another shareholder, who spoke to The Guardian on condition of anonymity, said he has lost over N38 million to the manipulated share price crash.
"Right now, I am on ground zero. With such colossal loss, which represents my total life savings, I may soon go below ground zero, as capacity to continue living has been totally eclipsed.
"The painful aspect of it all was that the whole thing was planned and executed by those who should have been contended with what they had already been endowed with. To say their action has now brought some other common men to their knees, financially, is most sinful," he said.
An AP official, who also spoke on condition of anonymity, said they did their home work very well to unravel the mystery behind the share price crash.
"What baffled us in the company was that the regulatory authorities were quick in querying us for price manipulation at a time, when the share price was going up. Why did they not observe the factors behind the sharp share price fall?", he asked.
He pointed out that the situation could impact negatively on investors' confidence in the market.
"The fact that the share crossing was undetected by the authorities for that long speaks volume about the sincerity or alertness of those that should regulate activities at the capital market," he said.
AP, in its statement, said the unethical practice of share crossing or round tripping, was perpetrated by NFSL, through transfer "and or purportedly selling a minimum of 50,000 units of AP Plc, which is required as the minimum to drop the price on a daily basis."
The statement added: "Shares from any of Alhaji Aliko Dangote and Nova Finance and Security Limited's owned and controlled company to another of their owned and controlled company are transferred amongst themselves, thus creating a false impression of activity on AP Plc stocks.
"This, having been done on a daily basis in the last eight weeks, has led to a drastic fall in the value of the AP stocks from over N293 to an all time low of N54.
"For the avoidance of doubt, the shares were not traded but merely crossed daily by two principals, working in concert with the sole aim of bringing down the stock. This, they have achieved from N293 to N54 in the last eight weeks."
Officials of Dangote Group declined to comment on the matter. One of the officials confirmed that Dangote had travelled out of the country and could not be reached on phone. "May be he was in a meeting over there. We shall however react to the allegation at the appropriate time," he said.
- NIGERIAN GUARDIAN NEWSPAPER ONLINE
http://www.ngrguardiannews.com/business/article01/indexn2_html?pdate=270309&ptitle=NSE%20suspends%20stockbroking%20firm%20over%20AP's%20share%20price%20scam
By Gbenga Agbana and Femi Adekoya
NIGERIAN Stock Exchange (NSE), yesterday, suspended Nova Finance and Securities Limited (NFSL), a stockbroking firm, over alleged manipulation of African Petroleum (AP) Plc's share price.
Beside, NSE imposed a fine of N500,000 per day on the stockbroking firm, effective from the date of suspension, over the share price manipulation, which has made investors to lose over N240 billion.
Also, the Exchange slammed a fine of N300,000 on AP, for contravening its post listing requirements.
Already, the Securities and Exchange Commission (SEC), the industry's apex regulatory body has commenced its own investigation into the saga.
In a chat with The Guardian on Tuesday, SEC's spokesman, Mr. Lanre Oloyi said the commission has set up a committee to look into the matter, after which appropriate action would be taken.
In a press release made available to The Guardian yesterday, the Council of the Exchange noted that its investigations into the allegation of price manipulation of AP's shares, revealed that the activities of Nova Finance and Securities Limited constitute a breach of Articles 103 and 107 of its rules and regulations.
According to the statement, "the Council of The Nigerian Stock Exchange has carefully examined the recent alleged manipulation of share prices of African Petroleum Plc through incessant buy and sell transactions by Nova Finance & Securities Limited (a dealing member firm).
"Our investigations and findings revealed that activities of Nova Finance & Securities Limited constitute a breach of Articles 103 and 107 of our Rules and Regulations, which preclude our dealing members from creating a false market on a specific security to effect a change in its price".
"Consequently, the council of the Exchange has suspended Nova Finance & Securities Limited from all capital market activities and a fine of N500,000 per day has been imposed on the firm from the effective date of suspension until the fine is paid."
The NSE lamented that AP's "avalanche of advertorials on the alleged manipulation is a breach of the Exchange's post listing requirements on information dissemination by quoted companies. The companies are obliged to inform the Exchange of any matter that affects their operations before going to the press.
"African Petroleum Plc has brought the integrity of information emanating from the Central Securities Clearing System (CSCS) Limited to ridicule by publishing what was purported to be CSCS document and we wish to assure the investing public of the confidentiality of their records at the CSCS.
"The published document by African Petroleum Plc is definitely not a CSCS document. Consequently, the Council of the Exchange has also imposed a fine of N300, 000 flat on African Petroleum Plc for contravening the post listing requirements."
Allaying the fears of the investing public, NSE reiterated its continued commitment to integrity of the market and enforcement of its rules, regulations, conventions and usages.
AP, in an advertorial in some national newspapers, alleged that NFSL, "acting under the instruction of and with active support and connivance of Alhaji Aliko Dangote," has been primarily responsible for the steep decline in the value of the shares of AP Plc, on the floor of the Nigerian Stock Exchange."
In the disclosure, AP stated that its investigations revealed that "in the last eight weeks, there has been a premeditated and orchestrated 'crossing' of AP Plc shares amongst similar entities owned and controlled by either of Alhaji Aliko Dangote or Nova Finance and Securities Limited."
AP, whose share was marked down at N273 from N300 during its public offer last year, has now had it whittled down to N51.48, as at yesterday causing the phenomenal loss of N240 billion to the shareholders.
NSE, in a swift reaction, said that "a scientific and technical investigation has commenced" on the alleged share price manipulation by NFSL.
But the National Co-ordinator of Independent Shareholders Association of Nigeria (ISAN), Mr. Sunny Nwosu, said NSE's action has come too late, saying that "a big chunk of ordinary Nigerians investments have already been sadly compromised through the negligence of regulatory authorities."
Nwosu pointed out that the AP's publication was an exposure of what has been happening to the common man in the nation's capital market.
"The association's concern is mainly for the common people whose contributions to the economy, through the stock market, have been wiped-off through unethical manipulations of their share prices, by a stockbroking firm, in alleged connivance with Alhaji Aliko Dangote.
"We are not happy that somebody who is aspiring to become the President of the Nigeria Stock Exchange should be involved in such unwholesome activity.
"We are equally unhappy that the manipulations were serially carried out right under the nose of the regulatory authorities, without being detected.
"We are however happy that AP management found the courage to make the exposure, without which investors would have continually been given the impression that market fundamentals were behind such phenomenal sharp drop in the share price.
"We are terribly worried that other prices of other shares could have suffered the same fate, moreso as other companies would have not had the courage or capacity to make the thorough investigation by AP management, which exposed the unethical market operators.
"Consequently, we are demanding for a comprehensive investigation into the operations of the capital market, which will go beyond the one which the exchange said it has now initiated," Nwosu added.
Another shareholder, who spoke to The Guardian on condition of anonymity, said he has lost over N38 million to the manipulated share price crash.
"Right now, I am on ground zero. With such colossal loss, which represents my total life savings, I may soon go below ground zero, as capacity to continue living has been totally eclipsed.
"The painful aspect of it all was that the whole thing was planned and executed by those who should have been contended with what they had already been endowed with. To say their action has now brought some other common men to their knees, financially, is most sinful," he said.
An AP official, who also spoke on condition of anonymity, said they did their home work very well to unravel the mystery behind the share price crash.
"What baffled us in the company was that the regulatory authorities were quick in querying us for price manipulation at a time, when the share price was going up. Why did they not observe the factors behind the sharp share price fall?", he asked.
He pointed out that the situation could impact negatively on investors' confidence in the market.
"The fact that the share crossing was undetected by the authorities for that long speaks volume about the sincerity or alertness of those that should regulate activities at the capital market," he said.
AP, in its statement, said the unethical practice of share crossing or round tripping, was perpetrated by NFSL, through transfer "and or purportedly selling a minimum of 50,000 units of AP Plc, which is required as the minimum to drop the price on a daily basis."
The statement added: "Shares from any of Alhaji Aliko Dangote and Nova Finance and Security Limited's owned and controlled company to another of their owned and controlled company are transferred amongst themselves, thus creating a false impression of activity on AP Plc stocks.
"This, having been done on a daily basis in the last eight weeks, has led to a drastic fall in the value of the AP stocks from over N293 to an all time low of N54.
"For the avoidance of doubt, the shares were not traded but merely crossed daily by two principals, working in concert with the sole aim of bringing down the stock. This, they have achieved from N293 to N54 in the last eight weeks."
Officials of Dangote Group declined to comment on the matter. One of the officials confirmed that Dangote had travelled out of the country and could not be reached on phone. "May be he was in a meeting over there. We shall however react to the allegation at the appropriate time," he said.
- NIGERIAN GUARDIAN NEWSPAPER ONLINE
http://www.ngrguardiannews.com/business/article01/indexn2_html?pdate=270309&ptitle=NSE%20suspends%20stockbroking%20firm%20over%20AP's%20share%20price%20scam
Friday, March 6, 2009
Can Buying And Trading In Penny Stocks Make Me a Millionaire?
Buying penny stocks has really grown in popularity throughout the years. It used to be that traders only would look at the mid and large cap companies, whether it be for long term trades or even day trades. But with the emergence of traders penny stock trading, the stock market has changed. People would used to have to have a big time bank account in order to bring in a high income. Mostly because you needed at least a few thousand dollars in order to buy just 100 shares of some mid cap stock. With trading penny stock though, the doors have opened for the working class people.
Will you be millionaire buying penny stocks? Well it's pretty hard to become a millionaire trading any market. Everyone knows the statistics, however penny stocks gives you an advantage that you can't find in most trading instruments: leverage. With the kind of leverage that penny stocks give a trader, it means that the average Joe on the street can play the market. Also, many of them have grown to be extremely successful traders, and it all started with trading these dirt cheap stocks.
People that brush off penny stocks as disposable, forget the fact that many gigantic companies have started off on the bargain bins. Imagine if you were able to buy shares in those companies when they were 15 cents a share? It's the kind of thing that would not only make you rich, but it also gives you some bragging rights. That's what buying penny stocks can do.
Will you be millionaire buying penny stocks? Well it's pretty hard to become a millionaire trading any market. Everyone knows the statistics, however penny stocks gives you an advantage that you can't find in most trading instruments: leverage. With the kind of leverage that penny stocks give a trader, it means that the average Joe on the street can play the market. Also, many of them have grown to be extremely successful traders, and it all started with trading these dirt cheap stocks.
People that brush off penny stocks as disposable, forget the fact that many gigantic companies have started off on the bargain bins. Imagine if you were able to buy shares in those companies when they were 15 cents a share? It's the kind of thing that would not only make you rich, but it also gives you some bragging rights. That's what buying penny stocks can do.
Penny Stocks? Wisdom Path to Investing And Trading Profitably On Them!
Investing in penny stocks is often seen as a cheaper alternative to buying regularly traded stock. While it’s true that it’s easier to enter this market, this doesn’t mean that the risk is lower, to the contrary, penny stocks are considered quite volatile.
A penny stock is also known as a microcap (or nano) stock which normally trades for under $5 per share. These smaller stocks are often offered by upstart and struggling companies as a way to obtain quick cash flow for their business. This is not Coca Cola or Microsoft you’re investing in. These companies have not yet proved they are stable enough to stick around for the long haul.
Because of their low cost, you may be tempted to invest in several microcap stocks that look like a good bet. Keep in mind that you cannot just randomly pick a winning stock by your gut feeling. Just like with larger stocks, penny stock investing requires lots of research on the investor side, before putting down any money.
Online, there are several companies that provide stock analysis and lists of their current picks that are formulated according current market trends. It is almost impossible for the average person who has a full-time job to do proper stock analysis by themselves. The speculative nature of small cap stocks is somewhat like riding a roller coaster. Companies you invest in will have their ups and downs.
While you can try winging it yourself, you’ll have better success if you use expert analysis that shows you what are the most promising picks, and whether or not you should keep the stock you already own or sell. Knowing when to buy and when to sell are the key ingredients of successful stock trading. This is especially true when it comes to smaller stocks.
Because these stocks are so much cheaper to buy, you could typically buy 1,000 shares of stock at fifty cents per share for a cool $500. Indeed, this is a lot of shares and if your pick is a good one, you’ll make a pretty profit. However, if it’s a bad one, you’ll lose all of your money. Therefore, choosing the right stock analysis system is really important.
No matter which stock system you choose, you should still plan on losing money, because no system is 100% accurate all of the time. There are just too many variables that can happen to a company that will be completely unpredictable. Being a successful investor, means you want to have more winners than losers.
Every successful investor also knows not to put all of their money into one stock. You will need to spread out your risk. This means investing minimal amounts of money in several stocks and watching them carefully. A wise investor will narrow their picks down to companies that offer the least risk. Finding these companies will take time and patience.
If you are new to penny stock trading, you will find it extremely beneficial to do paper trading before jumping into the market with real money. You can learn how to use a trading system by making fake trades based on real data, and then keeping score of how well you do. Paper trading is a great way to know whether a particular system is right for you without risking any money.
Once you know what to look for in a small cap company, it’s very possible to earn a nice living investing in the future of small businesses. Make sure that you have reliable resources and training tools by your side so that you have the best possible chance at making substantial profits.
A penny stock is also known as a microcap (or nano) stock which normally trades for under $5 per share. These smaller stocks are often offered by upstart and struggling companies as a way to obtain quick cash flow for their business. This is not Coca Cola or Microsoft you’re investing in. These companies have not yet proved they are stable enough to stick around for the long haul.
Because of their low cost, you may be tempted to invest in several microcap stocks that look like a good bet. Keep in mind that you cannot just randomly pick a winning stock by your gut feeling. Just like with larger stocks, penny stock investing requires lots of research on the investor side, before putting down any money.
Online, there are several companies that provide stock analysis and lists of their current picks that are formulated according current market trends. It is almost impossible for the average person who has a full-time job to do proper stock analysis by themselves. The speculative nature of small cap stocks is somewhat like riding a roller coaster. Companies you invest in will have their ups and downs.
While you can try winging it yourself, you’ll have better success if you use expert analysis that shows you what are the most promising picks, and whether or not you should keep the stock you already own or sell. Knowing when to buy and when to sell are the key ingredients of successful stock trading. This is especially true when it comes to smaller stocks.
Because these stocks are so much cheaper to buy, you could typically buy 1,000 shares of stock at fifty cents per share for a cool $500. Indeed, this is a lot of shares and if your pick is a good one, you’ll make a pretty profit. However, if it’s a bad one, you’ll lose all of your money. Therefore, choosing the right stock analysis system is really important.
No matter which stock system you choose, you should still plan on losing money, because no system is 100% accurate all of the time. There are just too many variables that can happen to a company that will be completely unpredictable. Being a successful investor, means you want to have more winners than losers.
Every successful investor also knows not to put all of their money into one stock. You will need to spread out your risk. This means investing minimal amounts of money in several stocks and watching them carefully. A wise investor will narrow their picks down to companies that offer the least risk. Finding these companies will take time and patience.
If you are new to penny stock trading, you will find it extremely beneficial to do paper trading before jumping into the market with real money. You can learn how to use a trading system by making fake trades based on real data, and then keeping score of how well you do. Paper trading is a great way to know whether a particular system is right for you without risking any money.
Once you know what to look for in a small cap company, it’s very possible to earn a nice living investing in the future of small businesses. Make sure that you have reliable resources and training tools by your side so that you have the best possible chance at making substantial profits.
Stocks: A Sure-fire Path to Impact On Your Life
The concept of stocks, the things that grant us the right of ownership or vote within a corporation, have been around for a lot longer than we think. The Roman Empire contracted out a significant portion of its services to private groups. Even though the records for this are incomplete, a statement in Edward Chancellor’s book implies that the first speculative bubble occurred in those times.
Later on, in the 17th century, the Dutch East India Company was the first recorded company to issue what we call today stocks. This led to the birth of a new and innovative concept that would bring economic growth to Europe in the Middle Ages: joint ownership.
This brings us to the present day. Today there are lots of companies that enjoy great success even though they didn’t have the necessary funds to start with. Just about every huge corporation in the world has a number of shareholders behind it.
Buying and financing stocks is usually done through a broker. This is a person that arranges the stock transfer between the buyer and the seller in exchange for a commission. The process of selling stock is relatively the same with the one for purchase. Usually the broker that handles the transactions between the parties involved is listed with a stock exchange.
The stock market can bring a person great profits, but also great losses. This is due to the fluctuation of the price of stocks, which goes hand in hand with supply and demand. There are many factors that play a role in determining the price of stock and according to that price you can be either in profit or in debt. Your choices are the ones that play the most important role.
In order to be sure that you have the best results, you should make sure that you make the best choices. These choices should be made based on some criteria of analysis. The results of that analysis present the best option for you called stock picks.
Stock picks are the choices of stock you make that achieve their goals. The goals for any stock are to maximize the total return on the investment you have made, which means an increased appreciation and dividends, and also reducing the risk or limiting it to acceptable levels.
With some of the right stock picks you can rest assured that your future will be guaranteed. Some of the wealthiest men in the world have enjoyed great success with stock picks and you can be one of them. All it takes is patience and dedication.
Analyzing the potential of stocks is durable and somewhat complicated. If you are inexperienced, you should leave this task to people who know what they are doing and solicit their services when needed in order to make sure your investment is profitable.
Your broker is one of the persons that can provide some tips regarding what you should buy or sell and when to do that. Other sources of inspiration can be found over the internet. Try visiting the website speculatingstocks.com and look at some of their stock picks.
Later on, in the 17th century, the Dutch East India Company was the first recorded company to issue what we call today stocks. This led to the birth of a new and innovative concept that would bring economic growth to Europe in the Middle Ages: joint ownership.
This brings us to the present day. Today there are lots of companies that enjoy great success even though they didn’t have the necessary funds to start with. Just about every huge corporation in the world has a number of shareholders behind it.
Buying and financing stocks is usually done through a broker. This is a person that arranges the stock transfer between the buyer and the seller in exchange for a commission. The process of selling stock is relatively the same with the one for purchase. Usually the broker that handles the transactions between the parties involved is listed with a stock exchange.
The stock market can bring a person great profits, but also great losses. This is due to the fluctuation of the price of stocks, which goes hand in hand with supply and demand. There are many factors that play a role in determining the price of stock and according to that price you can be either in profit or in debt. Your choices are the ones that play the most important role.
In order to be sure that you have the best results, you should make sure that you make the best choices. These choices should be made based on some criteria of analysis. The results of that analysis present the best option for you called stock picks.
Stock picks are the choices of stock you make that achieve their goals. The goals for any stock are to maximize the total return on the investment you have made, which means an increased appreciation and dividends, and also reducing the risk or limiting it to acceptable levels.
With some of the right stock picks you can rest assured that your future will be guaranteed. Some of the wealthiest men in the world have enjoyed great success with stock picks and you can be one of them. All it takes is patience and dedication.
Analyzing the potential of stocks is durable and somewhat complicated. If you are inexperienced, you should leave this task to people who know what they are doing and solicit their services when needed in order to make sure your investment is profitable.
Your broker is one of the persons that can provide some tips regarding what you should buy or sell and when to do that. Other sources of inspiration can be found over the internet. Try visiting the website speculatingstocks.com and look at some of their stock picks.
How To Buy And Sell Stocks Below Market Prices
Stock trading is like thousands of transactions that take place everyday in other venues just like the stock market with one common denominator, a buyer and a seller. Stock trading is not unlike the retail world, where supply and demand reflect the price of goods and services just like supply and demand determines the price of individual equities. Although there is a similarity with the example of supply and demand, a stock may be bought or sold at different prices.
Retail goods are usually sold for a static price, stocks however can be purchased at different prices with these prices reflected in the offer or ask price and the bid price.
For example, every stock has a current bid and offer. The bid price is reflected on the left side of the box and is usually what sellers can sell the stock for at the current market price. A seller can initiate a trade to sell their stock at the current bid price with the sale almost always taking place immediately once the trade is initiated. A buyer can also use the bid side to buy stock at a lower price than what is currently being displayed on the offer or right side of the box.
If a trader does not want to pay the offer price that buyers are willing to sell their stock for, he can place a stock trade and bid for the stock on the left side of the stock at a lower price than what is being offered on the ask or offer side.
Usually if the stock is liquid, a seller will eventually sell to the bidder at the price the trader has placed on the bid side to buy the stock.
The same works for the right side of the box, the offer or ask price. The offer side is where buyers can purchase the stock at the current market price and are paying the top price for the stock at this given time during the trading day. However, if a seller wishes to sell his stock at a higher price than what is currently showing on the bid side of the stock, the trader can initiate an order and offer his stock on the ask or offer side and wait for buyers to pay the current market or best offered price for the equity. With patience, traders can buy and sell stocks for lower than the current market price making more money than he would otherwise receive at the prevailing prices.
It should be noted that stock prices do fluctuate throughout the trading day as the ebb and flow of supply and demand dictate in the financial markets. Liquidity is very important in order to purchase and sell stocks below the prevailing market price. Stocks that have very little liquidity do not lend themselves to this practice since it is difficult for buyers and sellers to name their own price in illiquid stocks.
The practice of buying and selling below the current market price is usually the realm of the scalper who takes small profits in many transactions throughout the trading day and the day trader who may buy and sell just a few times during the day. However, this trading strategy is not only for these two types of traders, the swing trader and long term investor can also profit from buying and selling below the current bid and offer price if patience is exercised.
Retail goods are usually sold for a static price, stocks however can be purchased at different prices with these prices reflected in the offer or ask price and the bid price.
For example, every stock has a current bid and offer. The bid price is reflected on the left side of the box and is usually what sellers can sell the stock for at the current market price. A seller can initiate a trade to sell their stock at the current bid price with the sale almost always taking place immediately once the trade is initiated. A buyer can also use the bid side to buy stock at a lower price than what is currently being displayed on the offer or right side of the box.
If a trader does not want to pay the offer price that buyers are willing to sell their stock for, he can place a stock trade and bid for the stock on the left side of the stock at a lower price than what is being offered on the ask or offer side.
Usually if the stock is liquid, a seller will eventually sell to the bidder at the price the trader has placed on the bid side to buy the stock.
The same works for the right side of the box, the offer or ask price. The offer side is where buyers can purchase the stock at the current market price and are paying the top price for the stock at this given time during the trading day. However, if a seller wishes to sell his stock at a higher price than what is currently showing on the bid side of the stock, the trader can initiate an order and offer his stock on the ask or offer side and wait for buyers to pay the current market or best offered price for the equity. With patience, traders can buy and sell stocks for lower than the current market price making more money than he would otherwise receive at the prevailing prices.
It should be noted that stock prices do fluctuate throughout the trading day as the ebb and flow of supply and demand dictate in the financial markets. Liquidity is very important in order to purchase and sell stocks below the prevailing market price. Stocks that have very little liquidity do not lend themselves to this practice since it is difficult for buyers and sellers to name their own price in illiquid stocks.
The practice of buying and selling below the current market price is usually the realm of the scalper who takes small profits in many transactions throughout the trading day and the day trader who may buy and sell just a few times during the day. However, this trading strategy is not only for these two types of traders, the swing trader and long term investor can also profit from buying and selling below the current bid and offer price if patience is exercised.
Stock Market Wisdom Fable - The Tortoise And The Hare
Once upon a time, there was a young hare, a hotshot rabbit investor who would always brag to anyone that would listen and that he was the smartest, fastest, best performing investor in the world. He would constantly tease the old tortoise about his slow, solid investment style.
Then, one day, the annoyed tortoise answered back: "There is no denying that you are very aggressive in your investment strategy. You take very high risks and get high returns. But even you can be beaten."
The young hare squealed with laughter. "Beaten? By whom? Surely not by you. I bet there's nobody in the world that can win against me, because I'm so good. If you think that you can beat me, why don't you try?"
Provoked by such bragging, the tortoise accepted the challenge. Each of them put an equal amount of money into a new account and the race was on. The hare yawned sleepily as the meek tortoise trudged slowly off.
As might be expected, the tortoise invested in high quality blue chips, companies with household names.
The hare, as anticipated, invested his money in dotcom stocks and options.
You know the story. The aggressive hare jumped out to a big early lead. In a rising market, the highest risk stocks perform the best. This is called momentum investing. Money flows into the investments that are performing the best.
The hare, having jumped out to such a large early lead, stopped paying attention to the market environment. Basically, he fell asleep. He thought to himself, "I'll have 40 winks and still remain way ahead of that stupid old turtle."
The hare awoke from his sleep and gazed around looking for the tortoise, who was nowhere in sight. Unfortunately, while he was sleeping, dreaming about what he would do with his winnings, the market turned against him.
His very high-risk portfolio had taken a terrible beating and was now practically worthless.
The tortoise, a Warren Buffett style investor, had passed the sleeping rabbit long ago. He had been plodding forward, steadily, since the beginning of the contest. The Tortoise never for a moment stopped, but went on with a slow but steady pace straight to the end of the course.
The hare realized that the tortoise was way ahead of him, and away he dashed. He leaped and bounded while gasping for breath, but it was too late. The tortoise had beaten him.
There are two very important lessons to be learned here.
First - slow and steady wins the race.
Second - never confuse your own intelligence with a bull market.
Then, one day, the annoyed tortoise answered back: "There is no denying that you are very aggressive in your investment strategy. You take very high risks and get high returns. But even you can be beaten."
The young hare squealed with laughter. "Beaten? By whom? Surely not by you. I bet there's nobody in the world that can win against me, because I'm so good. If you think that you can beat me, why don't you try?"
Provoked by such bragging, the tortoise accepted the challenge. Each of them put an equal amount of money into a new account and the race was on. The hare yawned sleepily as the meek tortoise trudged slowly off.
As might be expected, the tortoise invested in high quality blue chips, companies with household names.
The hare, as anticipated, invested his money in dotcom stocks and options.
You know the story. The aggressive hare jumped out to a big early lead. In a rising market, the highest risk stocks perform the best. This is called momentum investing. Money flows into the investments that are performing the best.
The hare, having jumped out to such a large early lead, stopped paying attention to the market environment. Basically, he fell asleep. He thought to himself, "I'll have 40 winks and still remain way ahead of that stupid old turtle."
The hare awoke from his sleep and gazed around looking for the tortoise, who was nowhere in sight. Unfortunately, while he was sleeping, dreaming about what he would do with his winnings, the market turned against him.
His very high-risk portfolio had taken a terrible beating and was now practically worthless.
The tortoise, a Warren Buffett style investor, had passed the sleeping rabbit long ago. He had been plodding forward, steadily, since the beginning of the contest. The Tortoise never for a moment stopped, but went on with a slow but steady pace straight to the end of the course.
The hare realized that the tortoise was way ahead of him, and away he dashed. He leaped and bounded while gasping for breath, but it was too late. The tortoise had beaten him.
There are two very important lessons to be learned here.
First - slow and steady wins the race.
Second - never confuse your own intelligence with a bull market.
Saturday, February 21, 2009
WHERE'S THE MARKET HEADED NOW?
When stock prices are falling, the question on most investors' minds is "when will it stop?" In the midst of a roaring bull market, investors are eventually forced to wonder how long it can last. Since trading began in lower Manhattan and in other major financial centers around the world, individuals have wondered about and attempted to analyze the factors that drive the stock market. What causes markets to move? While there is no one answer, there are factors that are known to have a positive or negative impact on the equity markets, both on a daily basis and over time.
Supply and Demand
Daily stock market movements are largely based on the laws of supply and demand. This means that stock prices will tend to appreciate in value as demand perks up and the supply of stocks for sale decreases. Conversely, if demand for a particular issue is low and the supply or volume of stocks for sale in the marketplace is high, prices will tend to decline.
Consider the following analogy:
During the summer months, when drivers are on the road traveling in large quantities, gasoline inventories are quickly used up and therefore the price at the pump usually increases. On the other hand, when it's colder, drivers tend to stay home, and the demand for fuel goes down. In turn this usually leads to lower prices at the pump. This is very similar to how the stock works as a whole: when a lot of people are buying, prices go up. (For more, see Economic Basics: Demand And Supply.)
The Overall Health of the Economy/Interest Rates
During flush economic times, investors of all stripes (retail and institutional) generally have lots of money to invest. As they put their money to work by investing in individual issues or mutual funds, which often hold positions in dozens and sometimes even hundreds of issues, equity prices tend to rise. On the flip side, during a recession or a period of slow economic growth, investors will be more reluctant or even unable to commit investment dollars. This can lead to a decrease in demand for equities and, by extension, a decrease in stock prices.
An example of what can happen to equities when the economy slows can be found in an analysis of the period after the terrorist attacks in New York and Washington on September 11, 2001. In fact, within a few months after the attacks many firms, particularly in the financial sector, fired swaths of employees and, as a result, the economy began to slow. This translated into less investing; the stock market responded by trending lower for the first three quarters of 2002. (For related reading, see Terrorism's Effects On Wall Street.)
Interest rates and their direction can also have a dramatic impact on the economy and the stock market. Lower interest rates stimulate borrowing by investors, individuals and companies. This in turn can lead to economic expansion, an environment in which saving and investing is common. Also, because consumers may have more cash, they will tend to spend more at retail locations, which drives up corporate profits and, by extension, stock prices.
Conversely, as interest rates rise, individuals and companies tend to borrow and expand their businesses less. This can translate into less saving and investing. It may also put a damper on consumer spending and force corporate profits to decline or level off. When this happens, stocks tend to decline.
Institutional Investors
Just like retail mom-and-pop type investors by or sell stocks, so do large institutions, such as brokerage firms and mutual funds. Only they don't purchase or sell securities in small quantities - they move large blocks. The large volumes that these institutions trade can often have an effect on daily, weekly and even monthly trading activity and price action.
In other words, if a large firm, such as Fidelity (NYSE:FNF) were to purchase 500,000 shares of XYZ stock over a period of two trading days, the price of the shares could increase rapidly as the supply of stock available for sale is soaked up. Conversely, if Fidelity is looking to unload a similarly-sized position within the same period of time, this would put a tremendous number of shares into the market all at once. If there are not enough buyers, the stock's price will fall.
Program Trading
Large institutions will sometimes use computers and computer programs to help manage portfolio risk and execute orders. The good news is that they can be used successfully. The bad news, however, is that these programs can be used to fire off mass orders to buy or sell an individual security or group of securities in a short period of time; this can have a huge impact on trading.
In fact, some say that the crash of 1987 and the many large point drops that the U.S. stock market experienced throughout the 1990s and early 2000s have been caused, or at least exacerbated, by program trading.
Psychological Issues
If individuals and institutions are upbeat about the future prospects for the economy and the markets, they will often purchase stock and drive prices up. On the flip side, if individuals and institutions are bearish about the future, they may sell some of their stock holdings. This can create a self fulfilling prophecy - in the markets, wide-scale pessimism can drive down stock prices.
In fact, psychological issues can have a tremendous effect on the markets. They can lead to both irrational exuberance and stock market bubbles, or sell-offs and short-term corrections in equity prices.
Effects of Commodity Prices
Commodity prices can have a positive or negative impact on the equity markets as well. When the price of oil goes up, the price of gasoline goes up, which means that fewer potential consumers will be on the road or shopping. Also, companies that ship their goods via truck or freighter will have to pay more for deliveries, which in turn may have an adverse impact on their margins.
For example, cotton is a large component in many of the things that we buy from clothes to furniture. If the price of cotton increases markedly, consumers will usually buy fewer of those items, which could drive profits (and stock prices) down for manufacturers who use cotton in their product.
Investors should keep commodity prices in mind because this is another factor that can impact stock prices.
Bottom Line
There are a number of factors that can impact equities trading, including supply and demand, interest rates, institutional investors and programs, market sentiment and psychology and commodity prices. Investors should be aware of these factors before getting into the market, and certainly monitor them after they've made an investment.
by Glenn Curtis, (Contact Author | Biography)
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses
Supply and Demand
Daily stock market movements are largely based on the laws of supply and demand. This means that stock prices will tend to appreciate in value as demand perks up and the supply of stocks for sale decreases. Conversely, if demand for a particular issue is low and the supply or volume of stocks for sale in the marketplace is high, prices will tend to decline.
Consider the following analogy:
During the summer months, when drivers are on the road traveling in large quantities, gasoline inventories are quickly used up and therefore the price at the pump usually increases. On the other hand, when it's colder, drivers tend to stay home, and the demand for fuel goes down. In turn this usually leads to lower prices at the pump. This is very similar to how the stock works as a whole: when a lot of people are buying, prices go up. (For more, see Economic Basics: Demand And Supply.)
The Overall Health of the Economy/Interest Rates
During flush economic times, investors of all stripes (retail and institutional) generally have lots of money to invest. As they put their money to work by investing in individual issues or mutual funds, which often hold positions in dozens and sometimes even hundreds of issues, equity prices tend to rise. On the flip side, during a recession or a period of slow economic growth, investors will be more reluctant or even unable to commit investment dollars. This can lead to a decrease in demand for equities and, by extension, a decrease in stock prices.
An example of what can happen to equities when the economy slows can be found in an analysis of the period after the terrorist attacks in New York and Washington on September 11, 2001. In fact, within a few months after the attacks many firms, particularly in the financial sector, fired swaths of employees and, as a result, the economy began to slow. This translated into less investing; the stock market responded by trending lower for the first three quarters of 2002. (For related reading, see Terrorism's Effects On Wall Street.)
Interest rates and their direction can also have a dramatic impact on the economy and the stock market. Lower interest rates stimulate borrowing by investors, individuals and companies. This in turn can lead to economic expansion, an environment in which saving and investing is common. Also, because consumers may have more cash, they will tend to spend more at retail locations, which drives up corporate profits and, by extension, stock prices.
Conversely, as interest rates rise, individuals and companies tend to borrow and expand their businesses less. This can translate into less saving and investing. It may also put a damper on consumer spending and force corporate profits to decline or level off. When this happens, stocks tend to decline.
Institutional Investors
Just like retail mom-and-pop type investors by or sell stocks, so do large institutions, such as brokerage firms and mutual funds. Only they don't purchase or sell securities in small quantities - they move large blocks. The large volumes that these institutions trade can often have an effect on daily, weekly and even monthly trading activity and price action.
In other words, if a large firm, such as Fidelity (NYSE:FNF) were to purchase 500,000 shares of XYZ stock over a period of two trading days, the price of the shares could increase rapidly as the supply of stock available for sale is soaked up. Conversely, if Fidelity is looking to unload a similarly-sized position within the same period of time, this would put a tremendous number of shares into the market all at once. If there are not enough buyers, the stock's price will fall.
Program Trading
Large institutions will sometimes use computers and computer programs to help manage portfolio risk and execute orders. The good news is that they can be used successfully. The bad news, however, is that these programs can be used to fire off mass orders to buy or sell an individual security or group of securities in a short period of time; this can have a huge impact on trading.
In fact, some say that the crash of 1987 and the many large point drops that the U.S. stock market experienced throughout the 1990s and early 2000s have been caused, or at least exacerbated, by program trading.
Psychological Issues
If individuals and institutions are upbeat about the future prospects for the economy and the markets, they will often purchase stock and drive prices up. On the flip side, if individuals and institutions are bearish about the future, they may sell some of their stock holdings. This can create a self fulfilling prophecy - in the markets, wide-scale pessimism can drive down stock prices.
In fact, psychological issues can have a tremendous effect on the markets. They can lead to both irrational exuberance and stock market bubbles, or sell-offs and short-term corrections in equity prices.
Effects of Commodity Prices
Commodity prices can have a positive or negative impact on the equity markets as well. When the price of oil goes up, the price of gasoline goes up, which means that fewer potential consumers will be on the road or shopping. Also, companies that ship their goods via truck or freighter will have to pay more for deliveries, which in turn may have an adverse impact on their margins.
For example, cotton is a large component in many of the things that we buy from clothes to furniture. If the price of cotton increases markedly, consumers will usually buy fewer of those items, which could drive profits (and stock prices) down for manufacturers who use cotton in their product.
Investors should keep commodity prices in mind because this is another factor that can impact stock prices.
Bottom Line
There are a number of factors that can impact equities trading, including supply and demand, interest rates, institutional investors and programs, market sentiment and psychology and commodity prices. Investors should be aware of these factors before getting into the market, and certainly monitor them after they've made an investment.
by Glenn Curtis, (Contact Author | Biography)
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses
BUY WHEN THERE'S BLOOD IN THE STREETS
Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that "The time to buy is when there's blood in the streets."
He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own."
This is contrarian investing at its heart - the strongly-held belief that the worse things seem in the market, the better the opportunities are for profit.
Most people only want winners in their portfolios, but as Warren Buffett warned, "You pay a very high price in the stock market for a cheery consensus." In other words, if everyone agrees with your investment decision, then it's probably not a good one.
Going Against the Crowd
Contrarians, as the name implies, try to do the opposite of the crowd. They get excited when an otherwise good company has a sharp, but undeserved drop in share price. They swim against the current, and assume the market is usually wrong at both its extreme lows and highs. The more prices swing, the more misguided they believe the rest of the market to be. (For more on this, read Finding Profit In Troubled Stocks.)
Bad Times Make for Good Buys
Contrarian investors have historically made their best investments during times of market turmoil. In the crash of 1987, the Dow dropped 22% in one day in the U.S. In the 1973-74 bear market, the market lost 45% in about 22 months. The September 11, 2001, attacks also resulted in a market drop. The list goes on and on, but those are times when contrarians found their best investments.
The 1973-74 bear market gave Warren Buffett the opportunity to purchase a stake in the Washington Post Company (NYSE:WPO) - an investment that has subsequently increased by more than 100-times the purchase price - that's before dividends are included. At the time, Buffett said he was buying shares in the company at a deep discount, as evidenced by the fact that the company could have "… sold the (Post's) assets to any one of 10 buyers for not less than $400 million, probably appreciably more." Meanwhile, the Washington Post Company had only an $80 million market cap at the time. (For more on Buffett's strategy, read Think Like Warren Buffett and What Is Warren Buffett's Investing Style?)
After the September 11 terrorist attacks, the world stopped flying for awhile. Suppose that at this time, you had made an investment in Boeing (NYSE:BA), one of the world's largest builders of commercial aircraft. Boeing's stock didn't bottom until about a year after September 11, but from there, it rose more than four-times in value over the next five years. Clearly, although September 11th soured market sentiment about the airline industry for quite some time, those who did their research and were willing to bet that Boeing would survive were well rewarded.
Also during that time, Marty Whitman, manager of the Third Avenue Value Fund, purchased bonds of K-Mart both before and after it filed for bankruptcy protection in 2002. He only paid about 20 cents on the dollar for the bonds. Even though for awhile it looked like the company would shut its doors for good, Whitman was vindicated when the company emerged from bankruptcy and his bonds were exchanged for stock in the new K-Mart. The shares jumped much higher in the years following the reorganization before being taken over by Sears (Nasdaq:SHLD), with a nice profit for Whitman. Thanks to moves like this, the Third Avenue Value Fund has earned a market-beating 14.3% return since Whitman founded the fund in 1990.
Sir John Templeton ran the Templeton Growth Fund from 1954 to 1992, when he sold it. Each $10,000 invested in the fund's Class A shares in 1954 would have grown to $2 million by 1992, with dividends reinvested, or an annualized return of about 14.5%. Templeton pioneered international investing. He was also a serious contrarian investor, buying into countries and companies when, according to his principle, they hit the "point of maximum pessimism." As an example of this strategy, Templeton bought shares of every public European company at the outset of World War II in 1939, including many that were in bankruptcy. He did this with borrowed money to boot. After four years, he sold the shares for a very large profit. (To learn more about Templeton and other great investors, see the Greatest Investors Tutorial.)
Putting It On the Line
But there are risks to contrarian investing. While the most famous contrarian investors put big money on the line, swam against the current of common opinion and came out on top, they also did some serious research to ensure that the crowd was indeed wrong. So, when a stock takes a nosedive, this doesn't prompt a contrarian investor to put in an immediate buy order, but to find out what has driven the stock down, and whether the drop in price is justified.
Conclusion
While each of these successful contrarian investors has his own strategy for valuing potential investments, they all have the one strategy in common - they let the market bring the deals to them, rather than chasing after them.
- investopedia
He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own."
This is contrarian investing at its heart - the strongly-held belief that the worse things seem in the market, the better the opportunities are for profit.
Most people only want winners in their portfolios, but as Warren Buffett warned, "You pay a very high price in the stock market for a cheery consensus." In other words, if everyone agrees with your investment decision, then it's probably not a good one.
Going Against the Crowd
Contrarians, as the name implies, try to do the opposite of the crowd. They get excited when an otherwise good company has a sharp, but undeserved drop in share price. They swim against the current, and assume the market is usually wrong at both its extreme lows and highs. The more prices swing, the more misguided they believe the rest of the market to be. (For more on this, read Finding Profit In Troubled Stocks.)
Bad Times Make for Good Buys
Contrarian investors have historically made their best investments during times of market turmoil. In the crash of 1987, the Dow dropped 22% in one day in the U.S. In the 1973-74 bear market, the market lost 45% in about 22 months. The September 11, 2001, attacks also resulted in a market drop. The list goes on and on, but those are times when contrarians found their best investments.
The 1973-74 bear market gave Warren Buffett the opportunity to purchase a stake in the Washington Post Company (NYSE:WPO) - an investment that has subsequently increased by more than 100-times the purchase price - that's before dividends are included. At the time, Buffett said he was buying shares in the company at a deep discount, as evidenced by the fact that the company could have "… sold the (Post's) assets to any one of 10 buyers for not less than $400 million, probably appreciably more." Meanwhile, the Washington Post Company had only an $80 million market cap at the time. (For more on Buffett's strategy, read Think Like Warren Buffett and What Is Warren Buffett's Investing Style?)
After the September 11 terrorist attacks, the world stopped flying for awhile. Suppose that at this time, you had made an investment in Boeing (NYSE:BA), one of the world's largest builders of commercial aircraft. Boeing's stock didn't bottom until about a year after September 11, but from there, it rose more than four-times in value over the next five years. Clearly, although September 11th soured market sentiment about the airline industry for quite some time, those who did their research and were willing to bet that Boeing would survive were well rewarded.
Also during that time, Marty Whitman, manager of the Third Avenue Value Fund, purchased bonds of K-Mart both before and after it filed for bankruptcy protection in 2002. He only paid about 20 cents on the dollar for the bonds. Even though for awhile it looked like the company would shut its doors for good, Whitman was vindicated when the company emerged from bankruptcy and his bonds were exchanged for stock in the new K-Mart. The shares jumped much higher in the years following the reorganization before being taken over by Sears (Nasdaq:SHLD), with a nice profit for Whitman. Thanks to moves like this, the Third Avenue Value Fund has earned a market-beating 14.3% return since Whitman founded the fund in 1990.
Sir John Templeton ran the Templeton Growth Fund from 1954 to 1992, when he sold it. Each $10,000 invested in the fund's Class A shares in 1954 would have grown to $2 million by 1992, with dividends reinvested, or an annualized return of about 14.5%. Templeton pioneered international investing. He was also a serious contrarian investor, buying into countries and companies when, according to his principle, they hit the "point of maximum pessimism." As an example of this strategy, Templeton bought shares of every public European company at the outset of World War II in 1939, including many that were in bankruptcy. He did this with borrowed money to boot. After four years, he sold the shares for a very large profit. (To learn more about Templeton and other great investors, see the Greatest Investors Tutorial.)
Putting It On the Line
But there are risks to contrarian investing. While the most famous contrarian investors put big money on the line, swam against the current of common opinion and came out on top, they also did some serious research to ensure that the crowd was indeed wrong. So, when a stock takes a nosedive, this doesn't prompt a contrarian investor to put in an immediate buy order, but to find out what has driven the stock down, and whether the drop in price is justified.
Conclusion
While each of these successful contrarian investors has his own strategy for valuing potential investments, they all have the one strategy in common - they let the market bring the deals to them, rather than chasing after them.
- investopedia
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