Ideas & Debate

Open season on the equity market invites investors

Despite the poor performance of the stock
Despite the poor performance of the stock market, the bad news is a true investor’s best friend. FILE PHOTO | NMG 

I hate to sound like a broken record, but it is open season on the equity market.

I understand many are still questioning; what good is a bargain if the market never recognises it as such? What if the stock market never comes back? Why is everyone fleeing?

Well, the short answer is; mood swings.

The long answer is; investors are rightfully wary of highly leveraged businesses in weak competitive positions, poor corporate governance, and weak global economic outlook and so on.

Nonetheless, the bad news is a true investor’s best friend. Today’s article is a dedication to these three investors; the bold, the spooked and the clueless.


Let me address the latter with a bit of history here: the NSE has tanked over half of its value since 2013, nine out of the 13 segments of the market have recorded a drop in market capitalisation and investors have lost about Sh272 billion in paper wealth in the past 12 months.

However, the three things that might allow investors to realise significant gains in the market going forward; GDP growth is expected to continue at above 5.5 percent annually, interest rates are expected to say the same or fall and the political environment is likely to remain calm.

Why you should invest? Bargains are plenty - dividends yields (5.5 percent) are significantly above their 10 year record (3.8 percent). Moreover, corporate tax as a percentage of GDP is still up - stood at 3.8 percent last year, up from 2.2 percent in 2008.

For the spooked, stay dispassionate and patient. Don’t be swayed by every opinion you hear and every suggestion you read.

Fears regarding the long-term prosperity of the market’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have.

But most major companies will be setting new profit records five, 10 and 20 years from now.

By staying invested during this season – or by even investing more – investors can keep their portfolios on track in pursuit of their long-term goals.

Sooner or later, the market will mirror this strength. History has shown that markets bounce back, and staying invested through volatile episodes lets you benefit from a rebound.

For the bold, the hunting season is on. Pick the solid ones selling at ridiculously low prices. Yes, ignore the news. Over the long term, the stock market news will be good.

More importantly, buy because you want to own these businesses, not because you want their stocks to go up.

People have been successful investors because they’ve stuck with successful companies (not because they’re traders).

To sum this up, now is the time to invest.

Though I may not predict the short-term movements of the stock market and haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year – from now or what the averages are going to do next, what is likely, however, is that the market will move higher.

This will indeed happen, perhaps sooner, well before current bearish sentiment turns up. So if you’re waiting for the whistle, the “game” may soon be over.