If you are an investor in Nigerian stocks with a portfolio that has gained since the start of 2019, you are among the lucky few, unlike Sharon, 26, a pharmacist whose equity investment has lost more than a quarter of its value year-long.
With the broad market return still at a negative rate only three months till 2020, Sharon, like many investors, know selling her holdings would be at a significant capital loss yet, is unsure when the market would bottom-out and end a bearish run which started in 2018.
There are several steps you can to ensure you minimise risk and maximize returns in the remainder of 2019.
Reassess your investment horizon and risk tolerance level:
While it is normal to be worried about losing money, anxiously tracking the performance of your portfolio or losing sleep might be the clearest sign you have not decided on your investment horizon.
Not all long-term investors have a zen-like calm amid the stormy equity market, but fidgeting means you had expected to make more returns by this time or you don’t think the market would get better soon.
If this is true, it is time to cut your losses and move whatever you have to other asset classes that are less risky and offer you peace of mind.
Find out what stocks are underperforming and what analysts say:
Don’t throw the baby out with the bathwater! If you are a new investor especially it might be tempting to jettison stocks return to old fashioned piggy banks. Look into your portfolio, find out which stocks are dragging your investment and what analysts think.
A hypothetical investor, for instance, has four stocks in a portfolio worth N600,000.
Stock A makes up 40 percent of the entire portfolio and is down 20 percent, Stock B has a weight of 10 percent and is up 13 percent. Stock C and D make up 25 percent each and while the former is up 15 percent, the latter is down seven percent.
The argument could be to jettison Stock A but if most analysts across investment houses believe the stock has prospects while stock B on account of a corporate disclosure would plunge in the long-term then the argument is faulted.
This example underscores the importance of good research before you decide your next step regarding your portfolio.
It is also a good measure to read reports sent by your broker and weigh it against those of other brokers.
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“Look for stocks of businesses that are not cyclical,” one equity analyst told BusinessDay. “These stocks would perform well even in an economic downturn”
The analyst explained that sectors like telecommunications and the oil-palm segment of agri-businesses can weather weak economic cycles.
“Many others especially the big banks are very cheap and have a good dividend yield,” the analyst said.
Diversify your investment portfolio
You should not put your eggs in one basket so that you balance risk across sectors you are exposed to.
For instance, splitting your investment between equity and fixed income instruments and even diversifying equity holdings across sectors so you do not suffer significantly when a sector you are exposed to suffers a setback.
Exchange-Traded Funds (ETFs), Mutual Funds are also products that can help balance risk.
Disclaimer: BusinessDay is not recommending any investment class or platform. Information provided should be discussed with your professional financial adviser to understand the implication of such a decision.
