By Omodele Adigun
GOING nostalgic about the good old days at the nation’s capital market, Mr. Gamaliel Onosode, the Board Chairman of the Investor Protection Fund (IPF), who passed on recently, at the last interview with Daily Sun in 2013,expressed his belief that hard logic should be allowed to determine the share prices on the trading floor of the Nigerian Stock Exchange (NSE).
According to him, company fundamentals should be allowed to dictate the price at which investors are asking for or willing to offer for stocks, warning that “the moment you lose sight of what they usually call fundamentals,” that is the beginning of market downturn.
As a tribute to him, we decided to rerun the interview
Excerpts:
Hard logic
I am expecting that one of the ways in which confidence has been restored or being restored is to re-introduce that commitment to hard logic. We must all really watch out for that. The moment you lose sight of what they usually call fundamentals, you must let that fundamentals dictate the price at which intelligent investors are asking for or willing to offer, that is the potential (factor) for erosion, if not destruction. of confidence in the market.
Early Stockbrokerage
The beginning was exciting and challenging. When I started as a stockbroker, the prospect of being formally inducted was not as formal as it eventually became. I needed to say that the professional body that brought individual stockbrokers together-that is actually the individuals that went to the stock market and their employers, who were stockbroking companies, did not relate with a chartered organization that was the Chartered Institute of Stockbrokers (CIS), which had not come into being then. And so, the role now subsequently played by the CIS was part and parcel of the Nigerian Stock Exchange (NSE). That was the body that actually provided the platform. The individual stockbrokers interacted then, either on behalf of their customers or clients or on their own behalf. There was no distinction between the jobbers and the brokers. That was the beginning and the only reason why I became stockbroker number 001. That was because we were already in the market before the charter was given. And because I belonged to that initial elite group and I happened to be elected the first President of CIS. And that was the historical perspective that conferred on me the honour of being the nation’s number one stockbroker.
Share prices
One of the things that really established after those early beginning was that there were hard and fast rules that stated that there should be logic in the pricing of stocks in the market. In other words, the entrepreneurial spirit was kept under control. So you might say that if an earning yield of a particular stock was x, you must be able to relate that with the yield obtainable on other securities and be able to give rational explanation why you will buy one stock at a particular price earning ratio, while another, you are quite happy to buy it at say 15 or 20.There was a range and within that range, there was the hard logic. Speculation was very limited. In fact, it was non-existent. I mentioned that because one of the reasons why we crashed, although this is not a Nigerian phenomenon, is speculation. Speculation became so dominant that there was no real logic in the price which people were willing to offer on transactions that went through the market. It was really a matter of time for something to go wrong, and there would be a collapse. So I am expecting that one of the ways in which confidence has been restored or is being restored is to re-introduce that commitment to hard logic. We must all really watch out for that. The moment you lose sight of what they usually call fundamentals- you must let that fundamentals dictate the price at which intelligent investors are asking for or willing to offer- that is the potential (factor) for erosion, if not destruction of confidence in the market.
I believe that we are doing well right now but stockbrokers need to watch , investors need to watch.
Investor Protection Fund (IPF)
Well, the IPF has not yet published formally the criteria that must be met in order to access whatever “compensation” will be available. I believe that before the end of June or middle of July, we would come out with that. But one thing I would say is that the IPF is not there to protect investors who made foolish or senseless decisions in terms of investments. But to offer a measure of comfort and relief when the party in which an investor is being used fall foul of some cherished principles and go under and there is nowhere he, she or it (in case of a company) could seek compensation. I think it is important to note that. Whatever the detailed rules and regulations are, I am quite sure that it is not going to protect you from the consequences of making a bad and unintelligent investment decisions.
Another market crash?
No! I can’t see that right now. I have already said all those who are participating in the market must go beyond paying lip service to the fundamentals. I read piece in the newspapers, they talk about fundamentals and when I look at the prices, I cant really see those fundamentals being reflected in the pricing that are being traded in the market. So we need to watch it.
Source : SunOnline
