• Christiaan Quyn

The Uninterested Experts — Shares continue to fall in Sri Lanka

Updated: Jul 13, 2021

Finding long term investment value in the Colombo Stock Exchange — March 2019

(Inspired by the article: http://www.ft.lk/front-page/Shares-fall-for-5th-session--rupee-slightly-weaker/44-675196)

This article is part of a series of posts documenting my reasoning, methodology, and logic in evaluating securities. If you would like to read more about investment philosophy, be sure to check out my post about ‘The Intelligent Investor’ here.

In this post, I will continue to talk about the current sentiment of the market and evaluate some companies to determine if the current drop in their share price may represent a value investment.

“In theory there’s no difference between theory and practice, but in practice there is” — Yogi Berra

You’ve probably heard the saying“The stock market is driven by greed and fear”. What does it really mean though? In March 2019, things in Sri Lanka seemed to only take a turn for the worse. With an uncertain political atmosphere and a delay in the release of the national budget, there was certainly plenty of 'fear' in the investment atmosphere.

Economists, wealth managers, and investors became more pessimistic and rejected even reasonable projections and declined to buy at historically low prices as foreign investors continued to sell. Prices just kept going down.

Is it really all that bad?

Past experience, to the extent that is part of memory to anyone who is a student of history, tells us that eventually, extreme pessimism comes to end along with the bargains created with it.

There is no doubt of the uncertainty and concerns of the economic state of Sri Lanka at this time. Irrespective of how the ‘professionals’ feel and the macro investment environment looks like let's look at some value investment fundamentals.

  • The intrinsic value of each potential investment, has the economic advantage or earning power of that business fundamentally deteriorated?

  • Look for any discount of price from the current intrinsic value, plus any potential increases in intrinsic value in the future.

Are the uninterested experts right? Can we come to the suggestion that buying at the current price is a good idea?

Only after careful analysis of each prospect, while also setting a dollar-cost average plan to buy when the price goes even lower to prepare ourselves psychologically — knowing things may very well only get worse in the short term.

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