When a stock market correction is prolonged, it becomes a bear or down market as prices nose-dive. In this kind of situation, many stocks hit their lower lows, while some remain in a range as they oscillate within a set price, waiting for external forces to impact it positively or otherwise.
Whenever the market is in a bearish mood many investors and traders panic and sell even at a loss to cut their loss, preferring to stay away from the market without really sitting down to analyse the factors behind the particular situation.
Over time, I have discovered while reviewing the responses of different classes of investors within this period that most of them and even some players lack understanding of market dynamics (no pun intended).
This is because in the real sense of it, hopelessness and panic are products of the unknown, which therefore suggests that most investors either did not take time off to analyse the situation that led to the market decline. If they did, it could therefore mean that their investment strategy was wrong.
There is a need to briefly comment on types of bear markets and how to ride with them and remain afloat. These are factors that cannot be overemphasized today, just as always.
Causes and Effects of Bear Markets
There is what is called a ‘fundamentally-induced’ bear market. This is so called because the bearishness of the market is traceable to events that have general negative influences on the entire financial or even economic ecosystem within which it operates. In this case, account has to be taken of activities in the global financial system, as well as country specific events such as political unrests, bad governance, wars or attacks, sanctions against a country by foreign bodies, natural disasters, epidemics and the like.
You will discover that these events are such that could adversely affect the confidence level and reduce the earnings power and capacity of the generality of the population. In many nations, you will agree with me that such events have led to capital flight, because businesses and investments operate best in times of peace. In effect, the fundamentals of listed companies in a country at war will be negatively affected. In other words, there would be low capacity utilisation and consequently, poor earnings reports and, of course, declining share prices.
When you sight a down market brought about by the kinds of occurrences mentioned above, please note that it would take a while for such to ease and if you panic, it is justified. Under such circumstance, it may be wise to sell off your positions early and hold cash while you study the market.
A system-induced bear market is associated with negative situations arising from changes in the system or style of managing the financial market, or it could be caused by the bourse itself, government or the regulators.
This could first affect an industry and later spread to the general market. It may also affect the market at the same time, depending on the kind of changes and their sources. For example, you noticed the impact of policy change such as the government’s implementation of the Treasury Single Account (TSA) which led to the movement of public sector deposits in trillions of Naira from the vaults of Nigerian banks in 2015 by the order of the then newly inaugurated President Muhammadu Buhari administration.
More recently, there was the impact of the economic recession that started in 2016 Q1, which heightened by end of last year, and how it played out on the nation’s economy and financial system. There was also the attendant currency crisis that resulted in the devaluation of the Naira by as much as 60%, reflecting in the stock market for months. This obviously caused panic in the system, which was checked by the intervention of the Central Bank of Nigeria (CBN) in the foreign exchange segment of the nation’s inter-bank market with initial special attention paid to manufacturers seeking to import raw materials and investors repatriating their capital.
Again, for now, Nigeria is enjoying relative peace. Regardless of the insecurity in the country’s north east, its economic fundamentals are intact.
Recall also that volatility in the price of crude at the international market put enormous pressure on Nigeria’s budgets, external reserve and the exchange rate, even as foreign portfolio investors sold their positions ahead of the general election of 2015. The Asset Management Corporation of Nigeria (AMCON) also sold assets under its control to raise a significant N1tr, which further piled serious pressure on the stock market.
A system-induced bear market is a buy opportunity. To benefit from this bear market and correction, it is advised that you target stocks with the following characteristics:
1. High dividend yield.
2. Prices are down due to the general bear market.
3. Have always been defensive in previous down markets and still have strong fundamentals
4. High quality dividend stocks with strong earnings and high payout, just as you must
5. Chart the market and stocks regularly to know their resistance and support levels
Attention! Attention!! Attention!!!
Plan to attend the Independent Day Free Investment Education Summit jointly organized by Apt Securities & Funds Ltd/Investdata Consulting Ltd
Theme: PROFITABLE STOCK MARKET TRADING STRATEGIES FOR FINANCIAL INDEPENDENCE AND FREEDOM
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Attend the Independent Day Free Investment Education Summit and our team of expert and time-tested resource persons will show you how you too can successfully and confidently trade and invest in stocks profitably on your own from your phone, laptop and/or desktop computer.
The workshop holds on:
DATE: October 2. 2017
TIME: 10am – 2.00pm
VENUE: Ostra Hall & Hotel, Behind MKO Abiola Gardens, Opposite NNPC Gas Plant, CBD, Alausa, Ikeja. Lagos.
What you will learn at this the Independent Day free workshop:
1. The fundamentals of stock trading and investing
2. Trading and investing strategies that will help you manage your risk, protect your capital and profit from market correction.
3. How to trade on your own online, using the APT e-Trade platform on your phone and laptop.
4. The psychology of trading and investing and how it will make you successful.
Although the seminar is free, participants are however required to registered with N1,500 to be paid into InvestData Consulting Limited’s Zenith Bank account number: 1013033032.
There will be sales of stock trading and investing materials at the end of the workshop, Fundamental and Technical Analysis materials, including home study packs you can play and viewed on your phone, laptop and television set. All at 20% discount for attending. You need to prepare yourself and profit from the market and the recovery economy to truly achieve your financial independence and freedom.
For more enquiries about the programme, please call 08032055467, 08179547605, and 08111811223.
MR. OMORDION AMBROSE
CHIEF RESEARCH OFFICER
INVESTDATA CONSULTING LIMITED
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
