Let cumulative dividends surpass your actual investment

Want to stay calm during the market volatility?

Focus on reducing your net cost in a stock over a longer time horizon, a lesson learned from the experience of veteran investor and stockbroker Mostaque Ahmed Sadeque.

The founding managing director of brokerage firm Investment Promotion Services Ltd and the former president of DSE Brokers Association (DBA) started his stock market career in the early 1980s following his 16-year experiences as a private sector executive.

Some of the blue-chip stocks, bought at market lows are in his portfolios even after two decades as he did not sell them either at the market peaks or during the declines.

Fundamentally sound stocks like, Bangladesh Oxygen Company (BOC) that turned Linde Bangladesh later, Square Pharmaceuticals and some multinationals paid him hefty dividends over the years that his net cost at the stocks dropped to negative territory as the dividends surpassed his initial investments to own the stocks.

For example, one bought a share at Tk25 and has been being paid Tk1 or Tk2 every year as dividends over the last 15-20 years. The stock turned free for him in terms of net input and is being traded at much higher, like over Tk200, Tk500 or even Tk1,000.

Mostaque Ahmed bought primary shares of the then BOC at a face value of Tk10 apiece in 1976 when his daughter was only 2 years old, added some from the secondary market after the trading debut at Tk25 and forgot the investment.

Two decades later his daughter turned 22, got married and the investment grew to Tk1 crore.

"I sold some of the BOC shares and that was enough to pay all the bills for my daughters' wedding ceremony," he said in a recent interview with The Business Standard, adding that he was still holding some of the shares.

Square Pharma shares in 1995, 11 years later he bought a membership of the Dhaka Stock Exchange, came in the initial public offering (IPO) at 800% premium over face value, once it dipped 20% from the issue price and who bought them at the market pessimism now are enjoying their fortune.

Through stock and cash dividends investors' Tk1 grew to Tk18 or more nowadays and that is the beauty of holding good stocks over a long timeframe.

Mostaque Ahmed said he learned the investment approach from the legendary value investor Warren Buffett – both of them are leading happy and long lives. 

"Warren Buffett is my lord, I follow him. He says that look into the man behind the company and also analyse what would unfold five or more years later," said Ahmed.

Unfortunately, in Bangladesh the fundamental analysis did not always work and it was mainly because a number of entrepreneurs were not honest enough while raising money from the public, he said.

The rosy picture often eroded as soon as the capital raising was done, he added.

"Many companies' performance drops, they do not payout enough cash dividends."

About the Dhaka Stocks' weak season, he said the regulator should come out of the floor price restriction as it hurt investors' confidence by making the market illiquid, depriving investors of exit opportunities.

The market should not be that panicked as the Bangladesh economy is not in that bad shape amid the global turmoil, he opined.

Too tight regulations discourage good companies from going public and the regulator should increase entrepreneurs' confidence in this regard to make the stock market vibrant and big.

Also strengthening the institutional capacity should be the key to the strengthening of the market that reacts too much in any economic situation, he advised.

"Just buy the good stocks when everyone is in panic and hold them for long."

Mostaque Ahmed Sadeque, Former president, DBA