In this piece, CHIEF RESEARCH OFFICER of INVESTDATA News, Ambrose Omordion, gives investors tips on how to do away with emotions when investing in the stock market and protect their capital in 2017, learning from the past.

It is true that the stock market comprises traders and investors with money-making in the short and long run as their target. It is the price movement of equities that creates money for investors. They buy into a weak market which is seemingly in a bearish situation, anticipating a bull transition, to sell in a strong market – at a higher price – for profit.
But many a time, things do not turn out as planned, especially when the stock whose price you expected would go up turns the other way and starts going the opposite direction. It may happen that it goes down by as much as 10%, 25% and even 50%, if not checked.
In such a situation, you may lose your capital which is your hard-earned money regardless of the name attached to the particular market situation- whether down-market, correction or downtrend.
In stock market investment, nobody wants to sell stocks at a loss. This is an inexperienced way of investing.
I had the same feeling many years ago… You cannot expect me to sell a stock I bought at a price of N5.00 for N3.20; just as crazy as having to sell Transcorp I bought at N10 in 2007 or thereabout, for 0.89 on Friday January 6, 2017!
I am very sure that many investors would respond in the same manner. But after the 2008/2009 market crash, I learnt a lesson that a bird in hand is worth a thousand others in the bush. Many of us lost our funds, hoping and praying that the market would recover soon. In the process we almost lost everything (in stocks like Afribank, Oceanic International, Spring Bank, among many others).
Before we knew it, stocks that were bought at N120 dropped to N23, N12 stock slide to N1.76; a stock worth N380 went down to N120 and less, just because many of us did not apply the simple rule of cutting our losses, and protecting our capital from further decline.
This looks simple but it works in any market at all times. Cutting your loss is not only a rule but a time-tested stock market principle.
Do you know that there are only two types of investors in the market?
They are the givers and the receivers.
Which type are you?
Do you want to join the receivers’ group?
If your answer is ‘yes,’ you must stop acting emotionally and apply the ‘Stop Loss’ rule while holding cash, rather than stocks.
It is not easy to be receivers in the stock market but you can achieve it if you desire to invest without attaching emotional feelings to any stock when a trade does not meet your expectations. Jump out immediately to protect your capital.
Many investors lose money in the stock market because they don’t want to sell their favorite stocks. They think the stock price would bounce back eventually. The argument has always been that, when the price drops and you sell, you lost your funds, but as far as you didn’t sell-off out of panic, it the loss remains unrealized. That is probably what was playing out and you watched the price of your stock fall from N45 to N0.50 as in the then Intercontinental Bank, Spring Bank and their like in 2009, even when the tell-tale signs were all over.
If you let your stock go down 50% and more as was the case in 2016 for Forte Oil Plc (-74.42%); Skye Bank (-68.35%), Caverton (-63.56%); Diamond Bank (61.74%) and Sterling Bank (-58.47); you will need the stock to gain 100% or more, just for you to break even.
Unfortunately however, it is not at all times that stocks double in price, especially in our market where players are tending towards trading. Smart traders target between 18 and 25% profit and thereafter they are out of that stock.
Yes, sometimes the stock price will come back, but most of the times it never does. Yes, I mean never. So, why take the risk of allowing your stock to drop, hoping its price would come back? Just take a small loss and move on to other stocks in the market or hold cash to know the market direction first.