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Investment Tips

How top traders make the most money from the Nigerian stock market

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The Nigerian stock market has become the proverbial successful child who everyone wants to associate with. The NSE All Share Index went up by 42% last year, and has already done a whopping 15% in January alone.

While retail investors are getting excited about the market again, smart money has begun exiting their positions. Here are a few tips on how one can be a successful trader.

  1. Paying attention to results

Results are key drivers of prices on the Nigerian Stock Exchange (NSE). Top traders get into a stock before the full year results are released, when the results are positive and consistent. They also exit a stock when a company has had consistent negative quarterly results.  Amateurs wait till full year results are released, when most of the upside or downside would have been priced in.

Case study: Everyone could see that Dangote flour had an impressive result after it was taken over. The company had paid down its debt,retained earnings and become healthy. Ideally, that would have been the best time to go in. Not when the stock has done over 100%.

The same applied to FMCGs that were massively hit by foreign exchange losses. The losses were a one-time thing, but the markets punished the stocks heavily. Successful traders held on because the foreign exchange issue was one that would eventually be sorted out.

  1. Pre-market and 14.29 are important

Top traders typically make their plays during pre-market and a few minutes to market close. Pre-market is between 9.30 and 10.14am on the NSE. It often shows the stocks that are in play. One can then decide to position on either the buy or sell side depending on the direction of demand.

The same protocol applies to 14.29 or market close. Stocks that often pop up during this period often make last minute gains or losses. The pattern also continues consistently for some trading days or when a stock is in the news.

Buying during the middle of the trading session is typically sluggish.

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  1. Successful traders always cash in profits

Successful traders always convert their paper profits to actual cash, no matter how little.  While it’s nice to look at your portfolio when it’s all green, those are just paper profits. You have not actually made profits as a trader until you have cashed in or converted paper gains to actual profits. A 30% profit could turn to a loss in 3 or 4 trading sessions.

  1. Pay attention to the larger economy

The stock market does not operate in a bubble; it mirrors the larger economy. The NSE’s performance is largely correlated with the price of crude oil. Foreign exchange liquidity also plays a key role since the market is mostly driven by foreign investors.

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Gurus in trading got into the market when the exchange rate crisis was easing off.Not when Nigeria hit $60 billion in reserves. The smart traders will also exit in the event of an oil price shock, way before it reflects in the foreign exchange market

  1. Stick to what works for you

Top traders are successful because they stick to strategies that work for them. It doesn’t mean that they don’t adapt other strategies. They only do so when theirs stops working.

There are over 100 securities on the NSE. They don’t trade all stocks. They find a niche and stick to it;be it large cap stocks, or just stocks in a particular sector.

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  1. Tread your own path

Traders who make it to the top in the market do not follow the crowd. They exit their positions when the entire market has keyed into them. Markets tend to follow the NSE 30, but practically any stock can be traded for short term gains.

Case study: First Bank traded at N5 for a large part of last year. The bank has had to make provisions running into hundreds of billions of nairas a result of bad loans to the oil and gas sector. But house cleaning by the new management means that the stock is on its way to recovery.

The right time to buy the stock would have been when it was weather-beaten at N5. Successful traders would have exited their holdings by now, having done over a 100% on their entry price.

  1. Top traders do their own research

Traders who top the market do their own research. They attend the boring annual general meetings and ‘Facts Behind the Figures’ presentations. During events like this, management can speak explicitly because they are put on the spot, and not hide behind the fluffy press releases issued.

The real information is contained in the annual reports and quarterly statements, which the regular investor tends to pass on. They prefer to read a 2 or 3 page summary, by investment houses, which may not tell the full story.

  1. Use several trading platforms

Successful traders know that platforms can suddenly go offline without prior notice – sometimes for days or weeks. To avoid being stuck, they trade using several platforms.

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Case in point: Morgan Capital suspended operations for several weeks last year. CSL stockbrokers also had a few down days on their online platform.  For traders with no other platform, that meant losses running into millions of naira.

  1. Top traders do not develop emotional attachments to a stock

Because a stock has done well does not mean that it will repeat the same performance in the future. There is no need holding a stock on the premise that it once did well. Traders who do well do not develop attachments to particular stocks. It is not a human being and even human beings don’t play together forever.

  1. Deduct your fees from your profit

Stockbrokers have various charges for their online platform which are not uniform, so deduct them accordingly. Also deduct other costs such as data and power. This will enable you to know if you are making a profit or just breaking even.

  1. Avoid over-trading

Experienced traders avoid the need to constantly trade, since they have developed a strategy that works for them. Constantly trading leads to fees piling up and makes inexperienced traders constantly second guess themselves.

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Conclusion

Trading stocks can be interesting and very profitable, but you have to be mindful that you are not running your business at a loss while doing it. Learn from these tips and join the league of top traders.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training.He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE).He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy.You can contact him via [email protected]

Exclusives

In a hyperinflation economy like Nigeria’s, these are the best investments to consider immediately

A deeper review of investments to consider amid the prevailing high inflation in Nigeria.

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Where to buy Real Estate in Lagos in 2021, Nigeria's Real Estate Sector recorded positive growth after three year low, Real estate: Declining credit reflects underlying weakness 

Let’s face it, Nigeria’s rising inflation plus lower options for high yielding investments are already driving a significant number of investors away from Africa’s leading frontier market. This is coming at a time when Nigeria’s top performing investment asset class for 2020 is currently having a year-to-date return of around -3.30%.

Recent data published by the National Bureau of Statistics (NBS) reveals Nigerian inflation rate surged to a 33-month high, as it rose further to 16.47% in January 2021 from 15.75% in December 2020. This is marks 17th consecutive month of rising inflation in the country.

Consequently, Nairametrics interviewed selected financial experts on the investment options best suitable for such macro.

That being said, it’s important to note that there are no guarantees when it comes to investing during high inflation. At best, such investments may be inflation-safe, but returns can never be guaranteed.

READ: The Nigerian economy is increasingly dollarized but there is a way-out

Debo Adejana, MD/CEO, Realty Point Limited, Chairman, REDAN South West Zone.

At 16.5% inflation rate as of January 2021, the obvious is that there are very little short-term investments that can outperform that especially in the short term. So, that being said, my traditional conservative disposition of the fact that the best investment term is the long-term.

To make returns that will consistently be higher than 16.5% in short term investments will require very good knowledge of the asset class and share dedication.

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If that is clear, then by my own understanding, the following are some of the possible investment areas or strategies to adopt with real estate being my most preferred asset class anytime:

  1. Financial player in a JV Property Development Scheme. This helps to save time and gives faster turnover of investment fund.
  2. Buying distressed property now, renovate, rent-out for 2years of more just to hold if necessary and sell after.
  3. Crowd owning/funding property deals
  4. Guaranteed rent discounting
  5. International property investment for positive cash flow and to enjoy foreign exchange appreciation

All the above can be done as a large ticket investor or little fractional holder using a well-structured and regulated vehicle.

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READ: Real estate sector GDP positive in Q4 2020, but still in the woods

Darlington-Morsi Onyemaka, Co-founder, Quba Exchange

Inflation means that prices for things are rising, and as such the same amount of money buys less over a certain period of time. This in itself is especially not good for cash savings as the best way to manage inflation is by investing in instruments that give you a return higher than the current rate of inflation or at least one that keeps up with it.

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The best kinds of assets to invest in during inflation are tangible assets that have fundamental values and as such, their worth measures up together with inflation. These assets include real estate, growth stocks, and commodities like food, crude oil, and gold (especially gold).

On the flip side, one should avoid long-term fixed-income investments. This is because the value of the underlying security falls as investors tend to focus on higher-yielding alternatives when the interest rates of that instrument start rising.

READ: FG says Finance Bill 2020 will check inflation

Thelma Ugonna Ohiri-Anyanwu, CFA

Inflation is the increase in prices of goods over a period of time, where a specific amount of currency will be able to buy less than before.

In as much as inflation erodes the value of funds, this should not deter one from investing as some investment’s types are great hedge against inflation and helps to preserve capital. Some of such investments are Gold, REITs, real estate, commodities and a well-balanced stock portfolio.

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Silas OZOYA, Founder/CEO SUBA Capital

Inflation in many ways affect the general health of a countries economy and her citizens literally and the only way out of inflation is continuous and increased investments in local production, expansion of existing local businesses and enacting fiscal policies that would strengthen the currency of such country.

To mitigate this, increased and persistent investment from all angles in Agriculture, local processing, and increased export would do a positive dent on our inflation rate and keep us far away from recession through job creation, wealth growth, food, and cash crop production at scale.

Nigerian’s home and abroad should consider investments that support economic growth through investments in Agriculture and agro-allied ventures.

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Agriculture from my experience is one of the very few sectors that puts food on the table, employs people, and grows the value of your money against inflation all in one value chain.

The general public, high net worth individuals, and Nigerians abroad should consider holding at least 20% of their asset portfolio in Agriculture and agro-allied investments.

Angela Aya, Head, Institutional Sales at Alonati

There are a lot of investment opportunities for both the wealthy and not so rich investors in Nigeria, investors desiring to get an income or return on investment. Some are the FGN Savings Bonds, Stocks, Real Estate, Gold, Cryptocurrency, Agriculture etc. However, below are some investments that offer inflation protection:

Real Estate

Investment in real estate has been profitable and remains lucrative especially in Nigerian urban cities.

This investment however requires medium to high capital. Nigeria is still a developing Country in the world and the need for housing to match the Country’s increasing population size remains critical, as urban-rural migration continues to increase due to the neglect of development of the rural areas by the States and Federal Government.

The value of land and property has continued to rise and will continue to appreciate due to the margin between demand and supply as the need for residential and commercial buildings in major cities remains high.

Gold

Investing in gold has remained an agelong golden income space. The value of gold has continued to appreciate over the years because of the importance attached to it all around the world.

Gold remains an important symbol of wealth and affluence, and can be purchased as bars, coins or jewelries and resold at a higher price over time.

Bottom line

A disciplined investor can hedge against inflation risks by investing in the following asset classes that often outperform during high inflationary climates.

  • Debo Adejina – Real Estate,
  • Darlington-Morsi Onyemaka – real estate, growth stocks, and commodities like food, crude oil, and gold (especially gold).
  • Thelma Ugonna Ohiri-Anyanwu, CFA – Gold, REITs, real estate, commodities and a well-balanced stock portfolio.
  • Silas OZOYA – Agriculture and agro-allied ventures.
  • Angela Aya – Real Estate & Gold.

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Investment Tips

Retail franchise investment next gold mine for Nigerian investors- CIG

Retail franchise investment curbs unemployment  and create buffer for people looking for side hustle

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The Choice International Group (CIG) has tasked both unemployed and employed Nigerians to embrace retail franchise investment, as the initiative would curb unemployment in the nation  and create buffer for people looking for side hustle.

In line with a recent FBDS Study, there are over 450,000 Nigerian career professionals with minimum investible funds of N1 million, looking out for investment opportunities.

In the majority, these funds are looking for franchise type opportunities for ease of venturing and minimal failure risk.

As far as CIG chairperson, Diana Chen, is concerned, such investor should look no further but consider the group’s retail franchise investment opportunity, which offers Nigerian community mouth-watering offer of owning Gree & Lontor retail stores.

According to him, Gree is the world’s residential air-conditioner manufacturer, while Lontor provides high-quality, energy-saving and convenient rechargeable home appliances and lighting products for global consumers.

He said, “Both brands have been built by the CIG into a world-class electronic retail chain in Nigeria opening no less than 20 brand shops in Lagos and Oyo over the last 18 months.

“The sales performance of its existing stores in the country makes Gree & Lontor one of the most profitable businesses in Nigeria with yields of an average return on investment of 50% and above per annum.

“CIG is offering investors the opportunity to own any of six regional logistics centres, or any number of Gree & Lontor brand shops in viable locations across Nigeria.

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“It is the decision of the company to open up these opportunities to the investing public through a Franchise Retail partnership.”

 

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He added that the company has mapped out two investment models it says are simple, transparent, and hassle-free.

“The first model involves only six regional logistics centres located across the geopolitical zones in Nigeria.

“Whoever invests in this will require a capital outlay of $1 million, and become a mega distributor partner of the Gree & Lontor brand, and service a network of brand shops.

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“The second investment model involves the Gree & Lontor brand shops – retail franchise stores that require an initial capital outlay of N20 million.

“The investor will secure a store size of 120-150sqm at any choice location, shopping mall, plazas, high streets and even residential neighbourhoods.”

What they are saying

Nigeria is a growth market for franchising and franchise development services.

Gbenga Ajayi, an Entrepreneurship analyst, said, “The retail industry comes second to the food industry among sectors with best franchising opportunities.

“As with other emerging markets, one of the challenges of franchising in Nigeria remains the strengthening of intellectual-property regimes so that franchise companies can transmit knowledge and franchise system concepts with the confidence that such know-how will be protected.

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