A visit in person to the Thai SEC’s, number two man.
For a long time I have been complaining on the local bad & unprofessional practice about Thai brokers never allowing two separate accounts. I was told by most to stop nagging. Every broker told me this is a SEC rule, end of story. Hence I decided to finally go check for myself! Next time a broker tells you this, report them to the Thai SEC! Be very careful on not mixing trading with investing.
From: Khun Rapee Sucharitakul, Senior Assistant Secretary-General.
Thailand Securities and Exchange Commission.
August 16 "04
Dear Khun Paul Renaud,
Pursuant to our meeting last week I would like to follow up on your questions concerning the opening of accounts with the brokerage firm.
After thorough checks I can confirm that no such SEC regulations exist that would prevent you from opening trading accounts and investment account at the same brokerage firm. However, we have also checked with the SET and it appears that there was one circular directive letter issued by the SET that had the effect of prohibiting such actions. Nevertheless, it is our understanding that the directive in question is no longer in force.
I also wish to take this opportunity to say that I have enjoyed the exchange of views that have taken place. Long term sustainability of the Thai capital market rest on the fact that there must be longer term investors, both institutional and retail. It is the way to achieve that which remains the challenge to all parties concern.
Yours sincerely,
Rapee Sucharitakul
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August 17 "04.
Dear Khun Rapee,
Thank you very much for following through on my question regarding two different broker accounts, by the same person.
I can tell you, Thai brokers I speak to, never allow this. Always quickly stating "its against the law". This is an unfortunate misunderstanding as it so promotes unsuspecting stock investors to end-up mixing trading and investing. In the US, this practice has led to many abuses and so many years ago it was established to mandate brokers not to allow mixing of trading and long term investing accounts. One key problem is that novice investors then trade out their winning positions (often solicited by the marketing officers) which have gone-up a bit in value and yet, decide to hold on to the laggards.
In time, the portfolio becomes a mix of laggards! Every book on responsible investing warns against the "deadly" practice on co-mingling investing with trading.
The other point I wanted to clarify is why smaller stocks in the US have higher p/e’s, then large cap US stocks. It is not so much that US investors speculate on smaller cap shares (the inverse of here) as I think you suggested. Actually, it is much justified and not at all irrational nor driven by irrational speculation. A company whose earnings are expected to grow faster then another company (or say the market average) deserves a much higher p/e valuation. In finance, we can demonstrate that double the long term growth rate is worth more then double the valuation. Hence, faster growing smaller companies deserve a much higher valuation, as indeed they justifiably get in the US. Smaller companies often grow much faster then the large "blue chips", in most countries.
Sadly so however in Thailand smaller faster growing companies are valued considerably lower then the SET averages, or large caps. And unlike their counterparts in the US, here investors receive high dividends on smaller market cap stocks. Whereas in the US there are no dividends on smaller growth stocks. In both markets, liquidity has a premium but in Thailand this otherwise justified variable is grossly distorted.
As local brokers are obsessed with liquidity as they view any stock, regardless of the investors"objective, only with a "trading hat" on.
While this acute distortion works to the advantage of the individual investor, it is an unfortunate situation on the SET and for Thailand as it heavily penalizes smaller fast growing firms -by artificially undervaluing their stock prices. Yet, it is smaller faster growing firms which make-up the backbone of economic activity here.
Thank you for your time and follow-up which I most appreciate. Yes, I much agree long term investing is far too infrequent here, for many years, and so has created many distortions. One key reason is because marketing officers are not for the most part building a book of investors, but instead focus on "trading galore", which is compromises the investor, the industry and critical savings intermediation in Thailand.
In my view, one key way to mitigate this abnormality & industry abuse would be to strictly mandate local brokers to open separate accounts, one for trading and one for investing -and this only after the retail investor has clearly initialed the account opening form. Later a copy of this form should be registered mailed to the customer.
Very Best Regards and with Highest Respects,
Paul A. Renaud.
