Stop the bleeding of your portfolio, don’t sell, reduce loss and hold

The Ghana Stock Exchange ended the week positively, following 0.22% rise in GCB’s stock price. The GSE-Composite Index closed recording a year to date of 7.11%. The GSE-FSI gained 0.73 points to close trading at 1,695.04 points reaching  a CYTD of 9.64%.
There have been a lot of activities on the exchange this year with some stocks recording their highest trades ever since inception of trading. This looks promising after a tough year in 2016.
Some investors who got into the market whiles the market was at its low point are beginning to get out retrieving their gains in some good performing stocks like Fan Milk (FML) and GCB bank among others. The issue of timing is very crucial when it comes to investing. Others are still taking advantage of the relatively low prices of stocks in the market hoping for a better year under the new government.
Despite all these some investors are just totally giving up on the capital market and resorting to the money market hoping it gets back to its 2016 form.
Dumsor threatens, Inflation drops, IMF support to stay, probable drainage of Heritage fund to commence, what should one do with the bleeding portfolios of stocks.
This morning, I decided to mitigate the losses by buying more of the stocks I hold at a lower price than I earlier bought them. By so doing, a slight increase in the share price will restore me to the profit zone than waiting for the market to fully recover.
To stop the loss and start seeing gains, you need to consider buying more at the current lower price. How much more will depend on how deep the fall is from your cost price and how much you already hold.

I guess this is your best way out at this current state of the market. It is better than selling you out hoping on the money market.

What if things turn the other way round? Won’t that cost me more? Yes….. It surely will. That’s why it’s a risky market hence you need to be tough and make that decision to stop the breeding.

14-day winning streak halted on GSE as 2 becomes greater than 5

Upward price movement in five stocks failed to hold off losses in two stocks as the stock market’s 14-day winning streak was halted. The GSE Composite Index was down 30.85 points to 1,794.74 from a record high of 1,825.59. The year-to-date return on the bourse fell to 6.26%. The GSE-Financial Stock Index slipped 40.79 points to close at 1,684.33.
 
Trade volume and value increased by 24.37% and 23.77%, compared with the previous session. The volume traded was 0.14million, and the corresponding value, GHS0.14 million. UTB recorded the highest volume of trade, with 42.10% of the today’s volume whiles TOTAL trades accounted for 38.34% of the total value traded.
 
There were five gainers, BOPP, GCB, SOGEGH, TOTAL and UNIL, and two losers, GOIL and SCB. – CBL

What To Do Before Buying Any Stock

In all my investment coaching I tell my clients who want to venture into stocks trading or investment, to do one thing and that’s what you should do before buying any stock in 2017.

And that is; READ MORE ABOUT EVERY COMPANY YOU DESIRE TO OWN.

Knowing more about the companies you buy or sell always gives you some upper hand and courage.

So get to work. And this is how;

On the Ghana Stock Exchange for instance there are about 35 listed companies. In 2017, target to read the Annual Reports, related news and learn more about what each of these 35 companies do.
You can dedicate one week to study about one company and before you know it, you will be more abreast with what’s happening in the Market and then you can make informed decisions.
Most of the information you will need can be found here (www.annualreportsghana.com)
Fast readers can take two companies a week and read on.
Do not be scared of the figures and do not worry about interpreting the financial statements. The goal here is to know what these companies do to make profit, nature of their business, what industry they operate in, who is on their boards or management, who are the top 10 or top 20 shareholders, and any other relevant information you will get in their annual reports.

Doing this will not only get you informed but also build up some zeal or interest in you towards investing on the stock market.

You can apply this principle to other Investments you intend to hold, being it real estate, mutual funds, fixed income securities etc.

Simple task that always pays. Enjoy reading.

Young means Equity &The Fallacy of time diversification

From my earlier post against diversification, let me take time to address the flawed logic people have about diversification which is captured well in Jordan, Miller and Dolvin book on Valuation and Management.
Has anyone ever told you “ You’re young, so you should have a large amount of equity in your portfolio?  I know some of the people I coached during my early days of the Investment Coaching would say, Yes Patrick, you told me that. Well, while this advice could be true, the argument frequently used to support the strategy is generally incorrect. People say, although stocks are more volatile in any given year, over time this volatility cancels itself out. Investment professionals say this is a flawed argument. And they refer to the phenomenon as time diversification fallacy.
Jordan, Miller and Dolvin helped with this line of reasoning. You might remember from your statistics class that we can add  variances together. The fact means that annual variance grows each year by multiplying annual variance by the number of years. Standard deviations (SD) cannot be added together because the SD is the square root of the variance, however, an annual SD grows each year by the square roots of the number of years.  This feature is very handy when we are describing the returns and risk of an investment.  For example, If  we take a randomly selected portfolio of large –cap stocks of standard deviation of about 20%, and hold this portfolio for 16 years, the SD would be about 80%, which is 20% multiplied by the square root of 16.

Bottom line:Volatility increases over time – Volatility does not “cancel out” over time.  Whiles investing in equity gives you a large chance of having a portfolio with extremely large value, it also increases the probability of ending with a really low value.

So, should younger investors put more money into equity?  Probably YES, but for a more logical reason other than the reasoning underlying the fallacy of time diversification.

It is advised by professionals that, if you are young and your portfolio suffers a steep decline in a particular year, you should make up for this loss by changing your work habits / job / source of income or getting a second source of income.  People approaching retirement have little future earning power hence a major loss will have larger impact on their wealth no wonder the young should rather consider more equity.

Fan Milk Ltd (FML) hits year high amid low turnover

The GSE-Composite Index recorded its fourth win in four trading days, following positive returns on FML. The index closed trading 3.63 points higher at 1,771.47 points. The year-to-date return is -11.20%.

A 0.07% dip in Standard Chartered Bank (SCB) forced the GSE financial stock index down 0.29 points, closing at 1,656.27 points from 1,656.56 points.

A total of 0.04 million share exchanged with a corresponding trade value of GHS0.01 million. The turnover and trade value was 66.53% and 82.30% less than the previous session’s volume and value respectively. CAL chalked up 39.64% of the traded volume whereas FML dominated in terms of value traded, accounting for 55.05% of the trade value.

FML gain more ground, climbing to a year-high of GHS8.00 from GHS7.82.

Courtesy: CBL

Stocks to invest in on Ghana Stock Exchange – May Results

Results from the Stocks polls on my blog for last month revealed that, 34.48% of some readers on this blog think Fan Milk ltd is the best stock to buy on Ghana Stock Exchange among the options presented to them ( Ghana Commercial Bank -GCB,  Fan Milk Ltd -FML, HFC Bank ltd -HFC & Ghana Oil Company -GOIL). HFC Bank ranked second among these stocks according to the polls.
To find out more about FML and what other investors think, read my post on “The Fan Milk (FML) Debate: Is FML over-valued on GSE? #FMLdebate 

Results from Stocks Polls
Click to Enlarge

Join the next poll for the next weeks. The question this time is,
Where should a 60-year old man in Ghana invest? Capital market or Money market?