How To Cut Your Losses in a Bearish Market

The equities market has been on a downtrend in the last few months and September has shown signs of following the same pattern. This has largely been due to investors fleeing emerging markets and exiting the country ahead of the elections in 2019.

Year to date, the All Share Index is down 10.81% and is the worst performing exchange in Africa.

It is, however, important that investors learn to cut their losses in a bearish market and move on. Holding on to a stock in a bearish market, with the hope of a rebound would inevitably lead to stock positions with large unrealized capital losses.

So, the question is how do you cut your losses when investing? To effectively cut your losses when investing, you need to properly monitor your investment. Don’t just buy financial instruments and keep them like some fancy jewelry. Even if you are investing for the long-term, be conversant with what is happening to your investment.

Watch/read financial and economic news, be in the know as to what is happening in the market and how it affects your investment. If you cannot keep up with the news and happenings around, hire an investment advisor who will watch over your portfolio and guide you on what to do as the tide changes.

Flexibility is important in investing, be flexible with your investment decisions; look out for other viable investment options. At the moment the debt market offers better returns than the equities market (rates on 90day bills are going for 11%). You can withdraw funds from the equities market and invest in the debt market till the economy/equities market starts showing signs of a rebound.

For new investors, make sure you have an investment plan/strategy in place before putting your money on any financial instrument. An investment strategy will clearly state, what to invest in, when to buy and sell, it would state prices at which to take profit or stop losses.

Before putting together an investment strategy, assess the factors that influence the movement of the market which are basically the socio-economic environment, economic actions of superpowers, corporate actions, stock fundamentals, and market sentiments.

Put this side by side with your investment goals to form a realistic investment strategy. Make sure you have credible reasons for buying or selling a stock. Do not buy a stock because you like the company or other personal sentiments.

The sole aim of any investment decision is to grow your funds and give impressive yields. Investing for the sake of investing makes no economic sense. Monitor your investments and try to get as much as you can from them. Every naira counts.

We advise that investors consult an investment advisor or broker before taking investment decisions.

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*This article was first published on Nairametrics on October 25, 2016, and has been updated to reflect current information.