Every operational environment develops some unwritten rules that work along side the formally written rules to assist in smoothing out performance.
Over time, market players have also developed some informal ‘dos’ and ‘donts’ to help facilitate the growth of their portfolios.
While these rules may not have similar results in different circumstances, a number of practices should be avoided in whatever circumstance.
Avoid Speculation
Speculation basically means investing on rumors and is a relatively controversial area given that a number of investors have put in funds on certain counters and made some good gains. Investing on rumors is quite unstable and exposes such an investor to high amounts of risk.
Aim instead at investing against well researched company fundamentals, the company’s growth prospects, future outlook among other basic factors that help determine the strength and possible future performance of the company. This way, there are concrete reasons against which you determine the counters to put your money into and much as there is a level of risk in any such investment venture, the level is much lower as compared to speculative investing.
You should only indulge in speculation at the point where you have built a well balanced and large portfolio such that you can curve out a certain percentage for speculation, and leave enough to comfortably land on should speculation lead to losses.
Avoid Short Term Investing
Avoid bringing to the market funds that all be needed as soon as three or six months after investment such that any slight decline on the price puts you in a panic. Short term investing only forces you to speculate since at that point you are looking for a company whose shares will be moving up over that time. As earlier noted, it is practically impossibly to determining with absolute certainty which shares prices will be moving up over a certain period of time and to what levels. A price ,ay be on an upward trend over a week then turn around and commence a decline, and there is nothing as bad as being caught in an exit race of a plummeting counter.
Aim instead to invest funds that are currently surplus and will not be required for at least a year. That way, you will appreciate but be in no pressure for immediate growth, you make sober and informed decisions based on fundamentals and greatly reduce your risk exposure. For any shorter term investment, then go instead for treasury bills.
Avoid leaving your Portfolio to your broker’s discretion
Money is a hard earned commodity and in most cases a lot of sweat, time and a large number of other resources are put into it’s realization. Should you decide to put your money in a bank account, then you are fully aware of the charges and interest rate earned. The same goes for investment in bills and bonds. These are fixed income securities that expose you to very little risk and as such you can afford to sit back and wait for your annual or semi-annual interest.
On the other hand, to invest your funds in stocks, considering the risk exposure and price volatility, and leave it to someone’s discretion is a strong “do not”. Only you know the sweat that has gone into its acquisition, and only you know the magnitude of appreciation with every shilling increase on our portfolio worth. Ask for as much advice as you wish, seek for recommendation on a daily basis, call your broker every so often but do not leave the final decision to someone else.
The situation in the country right now is that we have too few service providers and too many people requiring the services, and the number is increasing with every IPO as awareness increases. Brokerage houses are thus overwhelmed which makes it quite difficult for them to follow up your discretionary account as you would wish for it to be done.
MARKET REVIEW
The bourse maintained a strong price appreciation over the week ended 15th September 2006 Only 10 of the active counters captured declines, the largest being on Equity which slid down to close at Kshs. 77 23% below the week’s opening Kshs. 100. All other declines were quite low relative to the appreciating counters.
ICDC captured the highest appreciation, up 46.7% to close at an all time high of Kshs. 264. National Bank edged up 33.7% to close at Kshs. 66.5 while Standard Group closed 29%higher at Kshs. 55.50. Sasini Tea was the highest climber on the Agricultural sector, up 31% to Ksh.50.50. Commercials saw CMC close 25.6% higher at Kshs. 125 while Kenya Airways gained 9% to close at Kshs. 124.
Over time, market players have also developed some informal ‘dos’ and ‘donts’ to help facilitate the growth of their portfolios.
While these rules may not have similar results in different circumstances, a number of practices should be avoided in whatever circumstance.
Avoid Speculation
Speculation basically means investing on rumors and is a relatively controversial area given that a number of investors have put in funds on certain counters and made some good gains. Investing on rumors is quite unstable and exposes such an investor to high amounts of risk.
Aim instead at investing against well researched company fundamentals, the company’s growth prospects, future outlook among other basic factors that help determine the strength and possible future performance of the company. This way, there are concrete reasons against which you determine the counters to put your money into and much as there is a level of risk in any such investment venture, the level is much lower as compared to speculative investing.
You should only indulge in speculation at the point where you have built a well balanced and large portfolio such that you can curve out a certain percentage for speculation, and leave enough to comfortably land on should speculation lead to losses.
Avoid Short Term Investing
Avoid bringing to the market funds that all be needed as soon as three or six months after investment such that any slight decline on the price puts you in a panic. Short term investing only forces you to speculate since at that point you are looking for a company whose shares will be moving up over that time. As earlier noted, it is practically impossibly to determining with absolute certainty which shares prices will be moving up over a certain period of time and to what levels. A price ,ay be on an upward trend over a week then turn around and commence a decline, and there is nothing as bad as being caught in an exit race of a plummeting counter.
Aim instead to invest funds that are currently surplus and will not be required for at least a year. That way, you will appreciate but be in no pressure for immediate growth, you make sober and informed decisions based on fundamentals and greatly reduce your risk exposure. For any shorter term investment, then go instead for treasury bills.
Avoid leaving your Portfolio to your broker’s discretion
Money is a hard earned commodity and in most cases a lot of sweat, time and a large number of other resources are put into it’s realization. Should you decide to put your money in a bank account, then you are fully aware of the charges and interest rate earned. The same goes for investment in bills and bonds. These are fixed income securities that expose you to very little risk and as such you can afford to sit back and wait for your annual or semi-annual interest.
On the other hand, to invest your funds in stocks, considering the risk exposure and price volatility, and leave it to someone’s discretion is a strong “do not”. Only you know the sweat that has gone into its acquisition, and only you know the magnitude of appreciation with every shilling increase on our portfolio worth. Ask for as much advice as you wish, seek for recommendation on a daily basis, call your broker every so often but do not leave the final decision to someone else.
The situation in the country right now is that we have too few service providers and too many people requiring the services, and the number is increasing with every IPO as awareness increases. Brokerage houses are thus overwhelmed which makes it quite difficult for them to follow up your discretionary account as you would wish for it to be done.
MARKET REVIEW
The bourse maintained a strong price appreciation over the week ended 15th September 2006 Only 10 of the active counters captured declines, the largest being on Equity which slid down to close at Kshs. 77 23% below the week’s opening Kshs. 100. All other declines were quite low relative to the appreciating counters.
ICDC captured the highest appreciation, up 46.7% to close at an all time high of Kshs. 264. National Bank edged up 33.7% to close at Kshs. 66.5 while Standard Group closed 29%higher at Kshs. 55.50. Sasini Tea was the highest climber on the Agricultural sector, up 31% to Ksh.50.50. Commercials saw CMC close 25.6% higher at Kshs. 125 while Kenya Airways gained 9% to close at Kshs. 124.
5 comments:
An absolutely great blog! whats you take on EA cables price fall??
Great blog hisagal! But do you think the market can be free of speculation. The NSE especially relies on rumours more than anything else, no market fundamentals at play.
Anon, as discussed, the rise of cables was more speculative than driven by fundamentals. Those who wanted to cash in and out have already done it leaving poor speculators to wait for the next boom bus!
Welcome to blogworld. My dilemna after a years of NSE is that fundamentals have been thrown out of the window in this market - even by the pro's themselves
other tips
- don't rely on professional research alone. one major i-bank had a report setting Uchumi's price at 33 with a buy recommendation after the rights issue
- use your gut: you may know more than your broker sometimes because he recommends only a few stocks any given time.
- make sure you can absorb a hit (because it will come eventually) i.e. so set aside money you don't need
- don't kill yourself over a bad decision (I sold some KQ shares at 24 after buying them at 12 a few months earlier)
this is a good blog Keep up. i agree that you should never rely on your brokers advice!
anonymous,Regarding E.A. Cables, most people who purchased the shares after the 1:10 split info got into the market were speculators. The thinking was,
if they purchase the shares at even as high as Kshs. 600, once the shares spit, this would translate to a purchase price of Kshs. 60, and there is no way the price was going to remain at that level after the split. The expectation (which was eventually met) was that the price would
go as high as Kshs 100 (translating to Kshs. 1,000 before the split). Retail investors were going for as few as 100 shares which would then make up 1,000 after the split.
My feel is that these investors have now made some good gains and are now locking in the profits thus the price drop.
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