SECONDARY MARKET

Understanding rumours and gossip

Share Shah

People generally rely more on gossip about company news and prospects even when it contradicted their own direct observations. It is thus totally impossible for the regulatory body to stop mom pop investors gossiping, spreading rumours and speculating. Research by social scientists have found that gossip-especially juicy titbits of supposed fact we share about a third party-serves many purposes, including strengthening social ties, spreading social norms and helping others avoid crooks.
   Hearsay can be the most reliable source of information about situations with which one has no experience. But when one hears gossip that is incongruent with a person or incident one is familiar with, anyone would think that people will totally disregard such rumours in favour their own direct knowledge. A study by the National Academy of Sciences, USA reveals individuals sometimes place too much stock in gossip that they accept it as true even if their own observations and experiences suggest otherwise.
   "Gossip has a strong manipulative potential that could be used by cheaters to change the reputation of others or even change their own," author of the study Ralf Sommerfeld of the Max-Planck-Institute for Evolutionary Biology and his colleagues write. "This finding suggests that humans are used to basing their decisions on gossip, rumours or other spoken information." Prof. Sommerfeld and his colleagues examined how gossip transmitted information and how it affected another person's behaviour.
   In the study, 126 undergraduate biology students played a computer-based game in which each student was paired up with another student via their computers, and had to decide whether to give a certain amount of their starting money to the partner. By dishing out 1.25 Euros, the receiver got 2 Euros, so being on the receiving end was a must. The assumption was that in later rounds, ones generosity would be rewarded with generosity returned.
   Over a series of rounds, students switched their partners and received that partner's track record-how many times the person had given money and not given money. Students were more likely to give money to cooperative partners who had previously given money to others. Then, they had to write a snippet of gossip about the other players they had interacted with. Sommerfeld noted some gossip examples: "He's a generous player" or "He's a Scrooge, watch out." It is no surprise that players who read a positive comment about another individual, having no knowledge of that person's past generosity record, were more likely to hand over cash to that individual. The opposite was true for negative gossip, where players held tight to their money.
   In another set of rounds, there was more interesting observation. Players received information on each partner's track record (how often they said "yes" and "no" to doling out money) as well as the gossip blurb. Without any added gossip information, students cooperated 62 per cent of the time. That number increased to 75 per cent when students had positive gossip in addition to the partner's track record. Even in instances where the partner had a track record of no giving, positive gossip won out and the other individual handed over money to their partner. The weirder outcome was that negative gossip decreased cooperation to just 50 per cent, regardless of the players' track records. "If people would act rationally, they would only base their decisions on what they really see because they know exactly the past behaviour of these people,"
   Sommerfeld said, "But they were still influenced by this gossip." Gossip also showed this persuasive power in light of any information marring the reputation of the actual gossip monger. For instance, participants acted on gossip even when a blurb (also considered gossip) described the actual source as a "nasty miser" or other uncooperative description. The scientists suggest the added information might be an overload for participants, or perhaps people do not link cooperative behaviour with gossip honesty.
   Some evolutionary biologists believe that gossip mongering and rumour spreading is an inbuilt system in our psyche. Ages ago when we did not have modern forms of communication, gossip was the only way for people to find out about other people and what was going around. Our stock market situation is not much better than the dark ages. Our small investors rarely look into the fundamental facts about the company and prefer gossip and rumours; thereby giving unabated opportunity to some unscrupulous persons to manipulate the stock market prices and profit.
   Perhaps in the long term education of both the stock dealers and investors would help. But for the present Securities & Exchange Commission may consider certain measures which could reduce unwarranted speculation. Exchanges in particular should pounce upon any security which suddenly jumps or goes down. The lead time must be as small as possible preferable action must be taken the same day and the replies of the issuer should be obtained and published on the trading system. The other aspect which fires speculation is long drawn spread between dividend announcement and record date. It has been observed that with wide differences between announcement and record date, speculation increased. Finally in this context the regulator may consider changing the false perception of the investors about the intrinsic value of shares. Some scrip appears cheap and so influences the investors. For instance we have Taka one, Taka ten, Taka hundred and Taka 1000 par value shares. Often the investor is duped in believing that Taka one share is cheap when it is actually very expensive! In any case we should not forget the old adage that says, "Buy on a rumour but sell only when you have the facts."

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In the sphere of shipbuilding Bangladesh has a bright prospect. A successful shipbuilding requires proper planning, monitoring and control mechanism in addition to quality control and safety measures. Bangladeshi engineers possess all such skills and given the opportunity, they can perform as efficiently as almost any other country. Low wage is an additional incentive. The banks should be quick in financing. The Government should adopt a skill enhancement programme for training up technical manpower for the sector.
   Holiday's Shamsul Huda met Khan Brothers Group Chairman Md. Enamul Kabir Khan, who has embarked on export-oriented shipbuilding industry. The excerpts from the interview follow:
   Question: Do you think Bangladesh can build world-class ships? If yes, how can we utilise the opportunity of exporting ships in the global market?
   Answer: There can be no reasons why Bangladesh will not be able to build world-class ships. We must understand the intricacies in the shipbuilding industry. The industry is characterised by small ratio of capital involvement in turning out, skilled manpower and moderate use of machinery. Technology involved is relatively low. However, a successful shipbuilding requires strong planning, monitoring and control mechanism aided with a powerful quality assurance, quality control, production control and safety measures. Bangladeshi engineers possess all such skills and given the opportunity, they can perform as efficiently as almost any other country. In fact, Bangladesh is richer compared to many competing shipbuilding countries in this respect.
   Bangladesh has a strong inland shipbuilding industry and we can get semiskilled manpower from the industry. They are to be elevated to international shipbuilding standard, which can be achieved very quickly. This is an asset, which no other country in the world possesses. The low wages is an additional incentive.
   Utilising this opportunity is not an option but an extreme necessity. The entrepreneurs must be brave enough to come forward. The banks should be quick in financing. There should be a skill enhancement programme by the government. There should be an arrangement to disseminate information, tools and all supporting services required for shipbuilding. This is important because ships are to be built satisfying a host of rules and regulations. Without these knowledge entering into shipbuilding may become disastrous. In fact, there is no option but to educate ourselves if we want to build ships.
   Q: According to you, what are the obstacles and impediments in the sector?
   A: Since Bangladesh is just trying to enter shipbuilding, there are many obstacles and impediments in the sector. The main obstruction is earning confidence from ship owners. This is a teething problem that may be overcome soon with sincere efforts from the shipbuilders who have already signed contracts with overseas buyers. Many shipyards are coming up. There should be an immediate skill development programme. The bankers are already coming forward but they must be quick, of course maintaining the procedure making sure that the opportunity is not being abused. The shipyards require a lot of banking support required for execution of a shipbuilding contract. This includes a relatively small working capital but significant non-funded banking facilities. Since this involves foreign banks as well and the total cost is too high. Some support from the government could perhaps reduce the burden. Government has already started acting to support the sector. A Green Channel has already been established for all importable.
   Q: What kind of policy support do you expect from the government regarding ship export?
   A: Hardly any policy support is required. The policy of the government is already very conducive to export-oriented industry. However, the government may adopt some supporting measures. This should include making land available for setting up shipyard, speedy statutory approvals such as enlistment with the Board of Investment, environmental clearance, approve gas connection on priority basis for captive power generation etc. The government may allocate fund for financing shipbuilding sector through public and private banks. However, this must be done with mechanism to prevent abuse as has happened with similar funds in future.
   Q: Would you describe planning and operation of your own company?
   A: We are working on several fronts simultaneous. On one side the physical facilities are being developed and civil construction works are in progress as per prepared plan and layout. We have selected the machinery and procurements are in progress. We tried to make a judicious combination of which equipment is to be imported and which ones can be sourced from local market.
   We have also started hiring manpower and training of the core manpower is in progress. Gradually more and more manpower will be recruited as per the organogram prepared and they will be trained for the purpose. Systems of operation of the shipyard are also being prepared. In the process, we expect to be ready for starting the basic steel works within next July. In the meanwhile, we are also talking to prospective buyers for negotiating a contract so that works can start as soon as facilities are in place.
   Q: Any other point(s) worth mentioning?
   A: Bangladesh has a large pool of skilled welders and technicians, qualified engineers and brave entrepreneurs. This is an ideal combination for a shipbuilding industry to prosper. However, we need to be careful as well. There is possibility of failures and lack of probity. We must be very careful from both within the industry and outside.

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