The list of stock market crises globally as captured by Wikipedia is not only almost endless, but dates back to over three hundred years. However, in the present times, with our fair share of market crashes, the stock market has only emerged stronger and much more vibrant in the countries with records of horrendous crashes, than in the sixteenth century, when the first set of crashes were recorded. The need to take cognisance of these for clearer understanding of the subject cannot be over emphasised.
- The stock market is first, made of people before it makes people. How do I mean? The stock market makes people because it is a virile source of livelihood. Statistics have revealed that more than half of America’s population are directly or indirectly linked with the stock market with percentage peaking at about sixty three percent or thereabout. The same could be said in countries like Canada and the United Kingdom. The ten wealthiest Americans have eleven percent of their income being generated from the stock market so the stock market makes people but this is my argument; the stock market can only make people because it exists by the patronage of the people. If you agree with my assertions so far, it suggests therefore, that stock market burst and boom are the making of the people. Please note that market performances are mere expression of investors’ responses to changes in certain critical socio-economic statistics.
- If a structure had only become stronger after records of ups and downs instead of going into extinction, it suggests to me that such must have become an integral part of human existence. Wikipedia’s list comprises of crashes dating back to 1729 and a few earlier occurrences and yet, these markets still exist in those countries where people in years past had lost virtually all. Think about it.
- Records of past crashes had never negatively influenced the establishments of stock market where they never existed in ages past including here in Nigeria. For example, there were more than two hundred years gap between the establishment of the Lagos Stock Exchange in 1960 and the great 1729 market burble in America, sixty one years between the US market crash of 1899 and another fifty three years between the establishment of the Nigerian market and the 1907 US market crash.
In view of the foregoing therefore, it could be inferred that stock market crashes occur in the pattern of disasters, brought about either by nature or human. Recall Noah’s flood, ark and survival? That was about three thousand years back and between Noah and the present, countless numbers of disasters have occurred, yet man has remained on earth in prosperity and population explosion. So has the stock market. It is bound to remain with us until kingdom come. If that holds firm, the thing to do is to seek the best approach to investing in stocks, such that when crashes come, as they are bound to, we would be spared. What are my suggestions?
- NEVER GO WITH THE HERD: Sometime in 2014, the stock of Oando was upbeat, when the news hit that it was buying over Conoco Philips; the herd drove in and in few days, the party was over. Thus, leaving some hooked. Shortly after, the stock was in the news again, this time around, the Federal government of Nigeria who had hitherto inhibited the approvals of the transaction had now given her nod; and what did we see? The herd again moved into action by stretching the stock price to about thirty six naira. And when the party was over, some herd followers got hooked as price got to as low as twenty five. The price had failed every slight attempt to adjust proportionately, rather it at a time dipped below three naira and currently sell around four naira forty five kobo. Conventional wisdom teaches that the herd is a noise follower and when the noise dies down, the movement stops. Hence, following the herd will at best return marginal profit and in most situations, concrete losses. How never to invest again? Never follow the herd. How then do I invest? Do I shut my ears and never seek for news? I thought we were told that the stock market feeds on information? The stock market feeds on information and not noise. I will summarise this part of the discussion by this reference. Mrs Bolatito Akinyemi is a retired Banker and now a full time stock market investor who trades for a living. I placed a call to her when the news of the Oando/Conoco Philips deal’s approval by the Federal Government hit, and the stock price was galloping, aren’t you buying I asked. Mrs Akinyemi smiled and said, “We don’t jump into such stocks” but why? In her own words, ‘I will rather wait for the consummation of the transaction to see where Oando is headed’. But the price would have gone through the roof, I yelled. She simply said to me, ‘Yomi, Oando is one stock that had burnt down investments, trusts have been abused many times’ hence, in her calculation, it is wisdom to wait and see where the company and stock are headed. ‘If the price is too high when I’m ready to buy and I’m not comfortable, I look for another opportunity and if the price is still good enough for me when I’m ready, I buy’. Of course that ends the discussions. Was Mrs Akinyemi right? To my mind, yes. Do you have a contrary opinion? You are at liberty to express via obastocks@gmail.com but reading your mind, I’m sure some will definitely argue that one could have joined the rally and bail out. Yes, it was possible but what tools have you got to measure momentum to precision? If you have such tools, perhaps you could, but if not, going with Mrs Akinyemi’s strategy turned out to be the best. Wait for noise to crystallise into information before entering a stock, for at that, you could be said to know what you are doing. What are the factors that constitute information in stock market investing? We will answer that in a few weeks on this medium but for now; let’s go further on how not to invest.
- DON’T BE GULLIBLE: Do I sound nasty? I’m sorry, but that was what the combination of my mind and hands could generate for now. Gullibility is depending solely on another for your investments decisions. If unfortunately you then lose your money as a result of depending entirely on another, you should not hold the miserable advisor responsible. Knowledgeable investors would take the time to process and fine tune all available piece of advice, before taking any action, and should be ready to take responsibilities for the end results- gain or loss.
- DON’T MISPLACE YOUR PRIORITY: Personal experiences and the study of others have taught me that security of funds/investments should be the first priority in equity investment. Hence, I make bold to say that the hunt for super normal profit in equity investment is a misplaced priority. Looking for immediate returns? See an herbalist for money rituals or approach a casino, but not the stock market! Your waiting and conservative decisions, careful choices and sensible moves rather than frivolous acts will give you good returns.
- STOP BUYING NONSENSE: We all lost money in the last crash because we invested in nonsense(s). Here is the fact: the stock market is and will always remain a mix basket of good, bad and ugly stocks no matter the regulation. Choose the good and leave the ugly and bad stocks until they change their status. The business of the stock exchange is to list stocks, but your own responsibilities begin by sifting stocks, then investing in the best. It’s your money, be mindful of what you buy.
- DON’T HOLD ON TO A LOSER: Stocks are sellable items. Sell a loser and hold on to value. A stock is only fit for your retention to the extent it can deliver. Otherwise, shed it and move on. Holding on to losing stocks might lead to ruin; so make up your mind fast. Note when a supposedly good position becomes bad, act quickly, because as they say, a stitch in time saves nine. Equity prices decline, often comes subtly such that it would require prophetic gift to see ahead. There are periods you might need to combine various equity measurement tools in combination with intuition to act.
- DON’T BE CONCEITED OR LAZY: Some notable equity investors who at a time were the rave of the moments, and bullish traders in ages past, ended up committing suicide while some ended up being bankrupt. No one is precluded from market losses when it comes. Keep your ego, Mr Market respects no man. No man knows it all. Your position become endangered when laisser-faire attitude creeps in. The stock market is not designed for lazy men and women. If you can’t create the time to learn, study, and lay hold on facts; then do money market investments.
7. DON’T EVER GO OUT OF THE MARKET OR MALIGN IT: To make the best of the market, you must love and stay by and with it under all circumstances. As a matter of fact, pray for the market everyday. The market is not a fool to compensate a hit-and-run investor or trader. The scripture aptly declares that those that endure to the end shall be saved. To get the best of the market, endure market fluctuations no matter the length. Something tells me that you will make it big and recover from all the past losses only when your mind is pure and stable with the market.
When you stop maligning everybody and criticizing every step taken by the authorities; but take responsibility for your actions; then you can count on the market for good. You sure think I’m sounding spiritual right? Someone told me the other day that God told him in his dreams to buy Transcorp at two naira per price, needless to tell you know the current price! If you think you can still make it big in the market, you can; if you think there’s a lot of money to be made, then there is; if you think that the market is bad, then to you it will be. As for me? I will tell you more next week. Goodluck.