Ideas & Debate

At the bourse, yesterday and tomorrow will never be same


One of the essential ingredients to success in the markets is recognising that time is key as it more important than understanding the medium and long-term drivers of market action. FILE PHOTO | NMG


  • Most investors had an easy time in days gone by compared to what is happening today.

Out of the most emotional songs I’ve listened to, “Yesterday” by the Beatles has at least to be amongst the top 10. The song has the lyrics, “Yesterday, love was such an easy game to play.” It makes me think about the markets today.

Yesterday, it was such an easy game to play. Today, investors are having a tough time. Market conditions are difficult and many have faced lower overall returns in the past five years. And since the recovery from August 2019, things have become worse as markets have jumped sharply bruising more conservative investors with higher cash holdings.

Such trends have hurt individual investors and professionals alike, and the pain is not limited to any particular style or approach to markets. Many are now discovering that investing was not meant to be easy.

The unsatisfying performance is there for all to see. The Nairobi Securities Exchange (NSE) 20 Share Index has traded down since topping at 5,496 back in 2015 - this is a peak to trough index fall of about 2,800 points.

Even short-term trading strategies have largely suffered despite their cyclical wins. For instance, statistically, the period from December to April is a more positive time for stocks. From chasing dividends to betting on expected positive annual earnings, returns over this period tend to be elevated.

Nonetheless, the dark cloud (read bear) overhang is still king for now. The woes of investors who jumped into the January – September 2017 rally are well known. That cookie crumbled faster than one could shout Hallelujah.

Going forward, here are a few considerations. One of the essential ingredients to success in the markets is recognising that time is key – it’s actually more important than understanding the medium and long-term drivers of market action as these are always in a state of flux.

It’s time that allows one to ride out the down cycles and volatility.

The intent is to stay long enough (at least three years and beyond) to allow recovery of both economic growth and market sentiment.

More importantly, it’s the only way to navigate the temporary madness and complexity. That being said, logically, this means more weight is put on the investor. Do they have the nerves of steel to withstand the passing volatility?

For traders, a second wave in stock market volatility could happen and it could be worse than what has been witnessed in the recent past.

So, it’ll pay to stay focused on price dislocations and market sentiment to determine whether any market-plumbing inspired overshoot to the downside is an eventual buying opportunity.

In other words, the current rally should be treated as an open window to sell in preparation for the second wave of volatility that we expect to arrive in late April or early June.

Otherwise, should you feel uncomfortable, just don’t play. Call your money in and wait out till it is all clear. For budding investors, remember the first rule is that yesterday is different from today and tomorrow is never the same. With the current markets a little difficult to read, it’s for you to determine whether they are truly a treasure field or a trap.