Is the Market Always Right?

Dear Speculators,

Many a times in the market, we make rational bets in the stock market and we lose even when we are right. Stock market is a game and the system is either rigged in your favour or against you. Because the market participants are all thinking individuals, they decide the market outcomes by voting with their Naira. If a greater number of people believe in a particular outcome, they move in that direction. The force of their investment moves the market in such a way that the outcome of events in the stock market is exactly as they all anticipated.

Confused? Here's a simple example. Imagine you are home alone. You think you will be hungry in an hour so you start cooking an hour early. Nearly an hour later, the food is almost ready and the enticing aroma makes you hungry. "Yes! I knew it", you say, "I correctly predicted what time I will be hungry". But at this point, it is difficult to substantiate correctly what triggered the hunger. It could have been the aroma, your prediction, your stomach, any of them or all of them together. Point is we will never know because the only fact we can confirm is that you are now hungry.

Your hunger for profits in the stock market will push you to make smart decisions or crazy decisions. My advice is don't over think it! If everyone else anticipates the same thing you do, whether right or wrong, the market will move in your favour. Money controls the market not brains. Next time you spot an investment opportunity and you decide to latch onto it, don't think only of what you will do but also how the market will react. Because if your moves aligns with theirs, you will be singing happy tunes to the bank.

Emeka Ucheaga,
Managing Partner,
Emeka Ucheaga Advisory

Comments

ECOWAS: The Silent Opportunity of a Weaker Naira

Dear Speculators, The catastrophic collapse in the value of Naira in 2016 has brought more bad news than good news to Nigeria. This has come at a time when currency manipulation in Japan, China and Switzerland to purposely erode the value of their currency in order to gain trade advantages has angered many foreign governments especially America. Britain was lucky to have had the Pound devalued by the financial markets in the aftermath of the Brexit to the delight of the Bank of England whom like many other Central Banks in the western world are now inflation seekers. But not Nigeria, we don't need a weaker Naira, at least not now. Unfortunately, the drastic fall in the oil price, current account deficit, lower foreign external reserves and withdrawal of foreign investments from Nigeria has dragged the Naira about 58% lower since its January levels at the interbank market. This has almost doubled the rate of inflation in the last one year as imported products make up a si...

Everything is Going Down in Nigeria Except Inflation

Dear Speculators, The wait is over, we anticipated bad news and we got it. Our fears have become reality, the economy has continued to back slide and Nigeria has officially tipped into a recession. Not that this surprises anyone though. Falling oil prices, dollar scarcity, exploding oil pipelines, massive labour retrenchment and import restrictions have all contributed their fair share to weaken growth in Nigeria's economy. However, the stock market arguably has had it worse than the general economy this year as the market is currently down about 3.8 percent against an economy contraction of 2.06 percent in the second quarter. A closer analysis of the stock market brings to light some intriguing statistics. The largest 49 companies in the stock market account for 97% of the total stock market capitalization. 41 companies of the 49 sell at an average of 22x earnings. Only 49 companies out of a total of 171 companies trading on the Nigerian Stock Exchange are valued above ...

CBN: Understanding the Mind of the MPC

Dear Speculators, For the fifth time this year, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria will seat to decide on new monetary policies to influence the general economy to achieve their policy objectives. These objectives can be broken into four macroeconomic goals; economic growth, full employment, price stability, and exchange rate stability. The main policy tool of the MPC is the monetary policy rate (MPR) which is the rate at which the CBN lends money to banks. Now it is almost impossible for the MPC to marry all the objectives by simply using interest rates. This is because while raising rates may favour the last two objectives, it is unfavourable to the first two objectives and vice versa. Understanding what drives each of these objectives is very important. Economic growth is achieved through an increase in productivity in the economy, either through technology or an increase in skilled labour. Even zero rates in America and Europe hasn't ...

Emeka Ucheaga Advisory

Search This Blog