Dear Speculators,
The Nigerian stock market has moved steadily in
one direction since July, 2014 and this direction is not up! The downward
spiral in the market is now only a few months away from clocking three years,
yet when you stretch the time horizon backwards, things haven’t been rosy
either. The stock market All Share Index currently sits at the same level it
was in May, 2004, that is now 13 years ago! In English, that is over a decade
of zero growth in the broad market. Another similarity between 2004 and today is that the Nigerian economy was in a recession in 2004 and is currently experiencing a recession in 2017 that started in 2016. Interestingly, the All Share Index is currently less than half
its level in March, 2008. Whereas most Western stock markets have already recovered losses sustained during the global financial market meltdown in 2008. In dollar terms, the market is down over 60% since
2004.
Not to say that stock market investing is a bad
idea but the market has not been generous at least in the last 15 years. The
size of losses local and foreign investors have suffered in the local market over the
past decade is beyond imagination. To further buttress our world of opposite, at a time when investors in Europe
and America are switching to a more passive investing strategy seeing the
positive growth in the broad market since the crash of ’08, local investors are
forced to switch from passive investing to active investing or get wiped out of the market with
quantum loses.
Whether or not the next decade for the Nigerian stock
market will be better than the last, “Hugging the Index” as an investment
strategy already has a terrible track record. If the future is anything like
the past, active management will continue to be a superior strategy to
indexing.
Emeka Ucheaga,
Managing Partner,
Emeka Ucheaga Advisory
Enlightening
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