Overselling Leads to Undervaluation, N'est Pas?

Dear Speculators,

Lamenting is my least favorite activity but I'm truly baffled at the magnitude of issues left unresolved in the country. Too many questions and no answer. Too many speeches and no action. Too many problems, yet no solution. The Nigerian economic situation is definitely one of a kind. First we had an oil price shock, then a currency crisis. A decline in share prices precipitated by an economic meltdown. Soon, double digit inflation led to negative real interest rates and suppressed bond prices.

We could spend weeks listing all our problems but that will do us no good. We could stay at the sidelines and wait for the problems to all go away but they never do. There is no such thing as a perfect stock market or a perfect economy. We do with what we have and that makes us who we are. A smart investor reaps profits all the way up and down in a stock market cycle. Empirically, market participants tend to over react in booms and burst. They get overly excited and overbuy when the economy is booming, and become excessively pessimistic and oversell during a crisis. Right out there, there is excellent intrinsic value, both in undervalued stocks and absurdly high bond yields. Buy low, sell high means buy stocks when the market is down and sell when the market is up. Unfortunately, too many people do the opposite. Crisis come and go, recessions are temporary and economic agents always adjust to the prevailing market conditions.

Nigeria may have many issues but the biggest problem you have today is the cost of doing nothing. In our world, opportunity does not come once, it comes during every crisis. Find yours, TAKE IT!

Emeka Ucheaga,
Managing Partner,
Emeka Ucheaga Advisory

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