LET THE MARKET BE!

 

Editor, Fortune&Class Magazine

What dominated my thoughts all through the slur of last week’s scandalous heehaw of denials of appointment of market makers for the Nigerian stock market and a supposed N600 billion bail-out, was to simply carry my face, literally speaking, away from official confusion brazenly hoisted on Nigerians by people in government.

That many Nigerian investors nurse a heavy heart in contemplation of the likely consequences of the gathering threat of implosion that may throw into the abyss, their hard earned money, invested, in the first instance, through massive urging by stock market operators and regulators, that had assured of the virility of the market, should be enough to make those in authority respond to issues bordering on matters relating to investment with a stronger sense of official responsibility.

 

When a number of respected daily newspapers published the story of the appointment of market makers and the N600billion bail-out, a buzz had generated in the investment community. Loud arguments on the impact or otherwise of the bail-out plan all that had commenced in earnest. But it was to last a mere 24 hours. Next morning, newspapers banner headlines announced that the Federal Government, the Securities and Exchange Commission plus the Central Bank of Nigeria had not even pondered the thought of a bail-out. It was an anti-climax, a cold water drenching anti-climax at that.

Yet, I reasoned that Nigerians deserve an explanation, an official explanation for the recklessness. Of course, this has nothing to do with the media houses that published the stories, as a journalist, I should know. The papers quoted sources at the Nigerian Stock Exchange, the story in fact, revolved around the conclusions of a marathon meeting of the Council of the Nigerian Stock Exchange.

It was not enough to simply make a rebuttal of the story, the appropriate authorities should have gone farther to inform the public of an intent at investigating the source of the rumour (as the news turned out) and of course, assure the pensive investing public of the seriousness attached to the investigation. At times like these, information has become sacred and the sanctity of it should not be eroded. In the first instance, it was the lack of credible information and perhaps, more troubling, the inclination for close circuiting that heckled the Nigerian stock market into the awkward state that it had degenerated.

Openness rules the market; it is at the heart of investors’ confidence, the deficiency of which has maligned the status of the market. It is sad that we won’t, in the character of institutional arrogance that had defaced relationships with the public, get to hear anything about the shenanigan that led to the breaking of that news. You can imagine what it would do to investors’ confidence to know the motive and goal of the people that held the meeting where resolutions concerning market makers and bail-out plan were made.

And to think that the Council of the Nigerian Stock Exchange was at the centre of these suggestions should be humbling. Though the SEC had announced it had nothing to do with it, yet, as the apex regulatory authority of the market, I guess the SEC should ask Prof. Ndi Okereke-Onyuike what her intentions were and why she did not get the input and approval of the appropriate authorities before sneaking the resolutions of her Council meeting to the public place.

More rubbish imagination of some funny, less thinking officials would still certainly assail us in these trying times. Policies would be made in the heat of anxiety without the corollary aggregation of the implementation procedure, it is the way of Nigerian aficionados, and the stock market is not insulated from this. The frustration of expecting so much from the policy-measures introduced by the egg-heads that gathered in Abuja these past August 26, is hurting enough. If I have my way, I ‘ll suggest that they just let this market be, and for the good Lord’s name sake, will somebody tell those big people that the one per cent limit on the fall of stock price is doing more harm to the market?

Let the market fall of its free will, it’s a reflection of the opinion of investors of the market and clearly attests to the value the market should be, as all things natural respond, when it gets to the nadir, it will generate an upward drive of its own volition.      

I personally can’t fathom the reason for the hysteria that seems to consume everyone about the present state of the market. We all saw it coming, but it suited everybody to chorus the great potential of the market when the run was going good. Turning a recalcitrant deaf ear to the admonition of concerned people that kept reminding us of the manipulations and many under-hand, under-table and a whole regime of under-something deals that were killing the market in instalments.

So, we have a burnt pot of porridge, just too bad, but then, even with the gathering storm of continued conjectures of global capital markets impacting on the Nigerian market, I still dare to insist that if the regulators can be more open in dissemination of information to the investing public, the worrisome situation of the market, can still stabilise. Nigeria and many other African countries are not in the range of the seismic undercurrent, that is at present, rocking the global market; but we can only be assured of our revival if those fiddlers and meddlers in the hierarchy of regulators, can be more discerning.

For the retail investors, many of whom, I understand, had taken flight to cash in hand or the bank, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks — and will also know the right time to get back in.

The truth of the situation is simple enough; the right time to move out of stocks was a year or so ago, before various stock indices the world over, fell by one-third or more.

If you missed that opportunity, you’re hardly alone.

But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.

A guarantee of a small loss may sound good right now. But if you’re not bailing out of stocks once and for all, how will you know when it’s time to get back in? The fact is, any peace of mind you gain by being on the sidelines now will turn into a migraine once you see how much you can harm your portfolio over time by missing just a bit of any rebound.

H. Nejat Seyhun, a professor of finance at the Ross School of Business at the University of Michigan, put together a study in 2005 for Towneley Capital Management, where he tested the long-term damage that investors could do to their portfolios if they missed out on the small percentage of days when the stock market experienced big gains.

From 1963 to 2004, the index of American stocks he tested gained 10.84 per cent annually in a geometric average, which avoided overstating the true performance. For people who missed the 90 biggest-gaining days in that period, however, the annual return fell to just 3.2 per cent. Less than one per cent of the trading days accounted for 96 per cent of the market gains.

This fall, Javier Estrada, a professor of finance at IESE Business School in Barcelona, published a similar study in The Journal of Investing that looked at equity markets in 15 nations, including the United States. A portfolio belonging to an investor who missed the 10 best days over several decades across all of those markets would end up, on average, with about half the balance of someone who sat tight throughout.

So moving to cash right now is just fine as long as you know precisely when to get back into stocks (even though you didn’t know when to get out of them).

At some point, stocks will indeed fall enough that investors will remove the money from their mattresses and put it to work, causing prices to rise significantly. But, as Bonnie A. Hughes, a certified financial planner with the Enrichment Group in Miami, put it, there won’t be an e-mail message or news release that goes out when this is about to happen. It will be evident only afterward, on the few days when the market surges.