The Bearish NSE
If you have closely followed the news since the beginning of this year, the word about the Nairobi Securities Exchange (NSE) has been nothing but negative.
Foreign investors, who have traditionally accounted for more than half of the NSE market share, have been fleeing the Nairobi bourse like how wildebeests migrate from Maasai Mara in Kenya to Serengeti in Tanzania at the offset of long rains at the Mara.
Foreigners have exited the Nairobi bourse for several reasons. Most sources cite the tension and uncertainty that comes during the election period. Others claim that nothing good will likely come from the NSE backing their claims with the lack of IPOs in the last few years.
Other reasons include the rising interest rates by central banks around the world to curb inflation and the weakening of the Kenyan shilling.
Losses
There is an old joke in stock trading that says that you only lose money when you sell.
It has not been easy for foreigners exiting the NSE. Most of the holdings have been on a bearish run since 2017. As reflected by the indices tracking the NSE performance, most foreigners have been forced to exit their positions at a loss.
Not only have they had capital depreciation, but the weakening Kenyan shilling also means they ended up with fewer dollars due to the weakening of the Kenyan shilling.
However, some of the blue-chip stocks had made impressive capital gains before the bear market earlier this year, and some investors may have exited the market with the upper hand.
The Way Forward
The NSE has seen some light with just a few days to the presidential debate and barely a month to the general elections. In just one week, investors have made Sh 192B in the week’s bullish run.
This has left investors with mixed reactions as they are unsure whether it’s the start of a bullish run or a relief rally. As defined by Investopedia, a relief rally is a respite from a broader market sell-off that results in temporarily higher securities prices.
Is it too early to get into or too late to get interested? Only time will tell.
Timing The Market And Buying The Dip
As I previously wrote, buying low and selling high is easier said than done. This is because you are trying to time the market, which is very hard.
“Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.”
Nick Murray
As local investors continue to wait for Safaricom to hit below Sh20, Equity to hit below Sh 35, and the other stocks with their prices, nobody knows how low the dip will be.
You may have your cash ready to buy the dip, wait too long, and miss the dip entirely.
Dollar Cost Average
The market has been bearish since the beginning of the year. The wise investors have been shopping for cheaply priced blue-chip stocks. They are not waiting to buy the bottom of the dip. They are buying the whole dip. They are not waiting to buy Safaricom once it hits below Sh 20. They have been buying since it started declining.
“Even God couldn’t beat dollar-cost averaging. Because buying the dip only works when you know that a severe decline is coming, and you can time it perfectly.
So if you attempt to build up cash and buy at the next bottom, you will likely be worse off than if you had bought every month. Because while you wait for the next dip, the market is likely to keep rising and leave you behind.”
Bear Markets Will Make You Rich
They say bull markets can make you money, but bear markets will make you rich. This is because bear markets come with market corrections and price declines. During bear markets, you get to own great companies that are cheaply priced.
So if there was a better time to invest in stocks, it’s now. Not because you want to time the market and buy the dip, but because you want to own valuable companies at low prices. And that, as Warren Buffett famously said, is what investing is all about—finding valuable companies that are cheaply priced and investing in them.
