A timely warn­ing

Finweek English Edition - - Creating wealth -

THE RENOWNED DOW THE­ORY di­vides the up­ward leg of a mar­ket cy­cle into three phases. The first is when there’s ex­cep­tional value avail­able but lit­tle in­ter­est. In the sec­ond, con­fi­dence in­creases and more buy­ers ap­pear. The third is when the mar­ket is high and “ev­ery­body” wants to get in. Small shares, in par­tic­u­lar, at­tract a lot of at­ten­tion and are pushed up by spec­u­la­tors. An­other fea­ture is many new list­ings with share is­sues that are heav­ily over­sub­scribed.

San­lam Private In­vest­ments sug­gests in a news­let­ter that the third of those phe­nom­ena is now the or­der of the day and its head of share broking – Martin Sch­mu­lian – warns that new list­ings must be ap­proached with cau­tion. He refers to the 1998 “list­ing ma­nia” – when the mar­ket was flooded by IT com­pa­nies that were of­ten worth­less. He adds that strangely enough their ad­vice to in­vestors now is the same as it would have been in 1998: look be­yond the hype and noise at the fun­da­men­tals that sup­port real value – solid as­sets, good man­age­ment and a busi­ness plan that makes sense in a spe­cific mar­ket place.”

That’s a timely warn­ing.

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