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Volatile Markets: An Opportunity Basket



Dear Speculators,

The last 12 weeks in the Nigerian stock market has been relatively better than the first 12 weeks. We witnessed a sharp decline in stock prices in the first quarter and a good number of stocks have recovered but stocks are generally down about 6% year-to-date. The market has finished down, up and down again. Uncertainty about the economic outlook in Nigeria has been a huge negative factor, no wonder the market has shed over 1 trillion naira in market capitalization since May 2015. Some investors have made fantastic returns during this period, other have lost and foreign participation in the market has drastically reduced.

The best way to profit from volatile markets is first by understanding the root cause of the volatility, then measuring the extent to which the problem can disturb fundamental company earnings and profiting from panic asset sales from knowing better than the market the true value of a particular security. In reality, we can all win in the market if our time horizon coincides with beginning of the market cycle. This means that regardless of what stock you pick, there is a very high probability it will go up depending on how long you are willing to wait for the market to come around. The main problem is that we are all trying to predict which stock will jump the highest and invest in such security. What is wrong with that is we will be wrong more than 50% of the time and this sort of stocks are usually very volatile in nature.

You have heard it a lot, "patience is a virtue". Well, the market will truly test your patience. You must be able to stock big losses on your portfolio during bear markets before it finally produces phenomenal returns in bull markets. The sun always rises after every storm. Your actions during these periods greatly determines your reward.


In volatile markets, we must hold out nerves and stick to our stocks if we believe our choice was fundamentally correct. Increase holdings if stocks gets beaten down too much because if we believe that the stock will eventually go up when the dust settles then why not make more bucks buying at a discount?! In this up and down world, let your head guide your path and not your fears.

Signed:
Emeka Ucheaga,
Managing Partner,
Emeka Ucheaga Advisory

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