Around a dozen blue-chip stocks at the Dhaka Stock Exchange have returned very well over the last bearish decade, even though bought at the peak of 2010 bull market
Long-term investments in stocks can pay off hefty returns, no matter how volatile the market becomes.
The only thing an investor needs to keep in mind is that the stocks must be fundamentally good ones – and worth holding for years.
Like Renata, the descendant of Pfizer in Bangladesh, has come up with more than 180 times return for its patient shareholders over 16 years till December last year, according to an analysis of data of Dhaka Stock Exchange.
Even if somebody had bought Renata shares at the end point of the 2010 bull market, his or her money already has grown by 4.2 times in just nine years, nearly three times higher return than the bank deposits.
The return over the same time horizon was more than 400 percent for Marico Bangladesh and British American Tobacco Company Bangladesh – the respective champions in the market of hair care and tobacco products in Bangladesh respectively.
While, over the decade – since the beginning of 2010 until the end of 2019 – the market as a whole returned virtually nothing but the cash dividends saw an average yield of over three percent. And, investors lost up to 95 percent of their money in shares of some weak companies.
Calculation by the value investment team at the local investment bank, who requested not to be named, suggests that there had been about a dozen companies that performed very well in their business and stock return over a decade was a byproduct of that.
Their return table includes cash and stock dividends alongside price gains in the secondary market.
Square Pharmaceuticals Ltd, the country's pharma leader with consistent business performance, has returned around 300 percent since the end of 2009, which peaked to over 500 percent in 2017—the interim market top.
Chartered Financial Analyst Md Moniruzzaman, managing director of investment bank IDLC Investments, like many others in his community, believes in long-term investments in good companies.
He said, "In our market, people often say fundamental analysis does not pay off. It may sound true in a short-time span, but the reality is completely opposite in the long run."
Moniruzzaman, also the vice president of Bangladesh Merchant Bankers Association, found that long-term holding of quality stocks is the best way to generate wealth in the stock market sustainably, even in Bangladesh.
Investors buying at the end of 2009 and holding up to last December have gained 936 percent in Olympic Industries shares. The company emerged as the unbeaten leader in the biscuit market in Bangladesh.
Net return from the decade-long holding over the same period was 771 percent in BATBC shares, 629 percent in Marico shares, 460 percent in shares of Berger paints, the leader in paints market.
The return figures were way higher till 2017, since the time blue-chip stocks too began to suffer a sale pressure, said CFA Society Bangladesh's President Shahidul Islam, also the CEO of VIPB Asset Management.
His firm, as the manager of mutual fund assets, was return champion in the industry for six to seven years in the last nine.
"We look for companies with competitive advantage in their own industries, then check if it is well-governed and efficiently managed, and finally look into market price at which we may buy the company stocks for long-term holding," said Islam, also a global charter holder in financial risk management.
He named Linde Bangladesh and Bata Shoe Bangladesh among the companies which returned well in the last decade.
"Market may be up, may be down, your profits or losses may vary in particular seasons in the secondary market, but good companies ultimately return way higher than other popular alternatives here like gold and real estates," added Shahidul.
Veteran investment banker Md Fayekuzzaman, former managing director of Investment Corporation of Bangladesh, said buying good company stocks during a depressed market is the best idea, if you have money.
"If you buy good stocks during a depressed market, naturally you will stay ahead in the return table," said Fayekuzzaman, who is heading HF Asset Management Company now.
The annual average return, expressed as CAGR – compound annual growth rate – from the selective stocks is found to be maximised in a longer time horizon.
Those who had bought in extreme bad days after the 1996 crash – like from 1999 to up to 2003 enjoyed a CAGR of 20 to up to 38 percent in blue chip stocks; way higher than the CAGR achieved from the same stocks bought a decade later.
Buying and holding over a longer period helps absorb the pains of market swings, mainly because good companies often bring down investors' costing per share near or below zero after a couple of years of holding.
Beximco Pharmaceuticals Ltd, another Bangladeshi drugs giant in both local and export markets, returned less than FDR over the last decade, but the CAGR is more than any fixed income alternatives if the stock was bought 16 years ago.
Lenders like Brac Bank and IDLC have returned less in recent years because of adversities in the money and capital markets, but investments made there a decade ago still look profitable.
Warren Buffet, the world's most successful investor, taught that time is the friend of excellent businesses and enemy to mediocre ones.
Because, time lets the management of good companies – with significant edges in business and commitment to shareholders and the society – unfold the strengths. While, the mediocre companies struggle to keep pace with time and below average companies keep exhibiting their weakness over years.
It is the investors' job to find the next decades' Renata, Berger and Olympic to avert the risk of owning companies like Keya Cosmetics, United Airways or Dacca Dyeing Limited. The latter's stocks lost more than 90 percent of their market price since 2010.