[Dexter on Custom Street] Adventures of Retail Investor

First, it was the November Massacre of 2014, then we had the pre-Valentine’s Day Sell-off, culminating in the mind-blowing +8.3% one-day gain in the NSE ASI on April 1st 2015. It’s been volatility all the way. Since last November, the wild swings on the Lagos bourse at Customs Street have presented dangers and opportunities to traders and investors alike.

This is the maiden edition of Dexter on Customs Street where some of my trading adventures (especially the wins not losses), the twists and turns inherent in the financial markets and related matters will be penned. I’ll cut to the chase.

–The Emotional Tail Wags the Rational Dog–

I can bet that Jonathan Haidt, a psychology professor at New York University’s Stern School of Business, was thinking of nothing but his field of moral reasoning and judgement while he developed the wag-the-dog illusion in a 2001 paper – not the financial markets. However, in the spirit of consilience, it is clear from observed market moods that the ‘rational’ dogs in the market process of exchanging one security for money (or for another security) are largely being controlled by their emotional tails.

The three inflexion periods noted above from November 2014 through April 2015 were probably the most volatile ever seen on Customs Street and all represented points of high tension in Nigeria’s macroeconomic outlook. The stock price pattern of GTBank Plc, Nigeria’s darling blue chip company, looked like the smooth mathematical curves we were taught defined repetitive oscillation of electric circuits back in college. The emotional disposition of the markets could easily be seen to follow variants of these repetitive chart patterns with special price and volume parameters, such that one with an “eye” for these special formations could close his ears to the sadness (or happiness) of the markets, open his eyes only to the charts and make a killing. Indeed Dexter and a few likeminded entities made a killing.

It is to the psychology of these interactions among danger, opportunity, profit and loss that we will pay very close attention to going forward.

May the odds be ever in thy favour…