Within the global financial arena, Nigerian Exchange Limited (NGX)’s remarkable year-to-date growth of 37% has stirred a mix of excitement and apprehension among investors.
While some attribute this bullish trend to currency devaluation and the sought-after inflation hedge in equities, others caution against overvaluation, predicting an imminent market correction.
In this scenario, it is imperative for the average retail investor to maintain a levelheaded approach and embrace sound investment practices, steering clear of succumbing to FOMO (Fear of Missing Out).
First and foremost, investors need to recognize that market fluctuations are inevitable, and pursuing short-term gains can be risky. Rather than being lured by rapid price appreciation, a wise approach involves embracing the enduring wisdom of investment stalwarts like Warren Buffett.
As Buffett famously stated, “The stock market is designed to transfer money from the active to the patient,” emphasizing the significance of long-term thinking and avoiding impulsive reactions to market volatility.
Understanding the four phases of market cycles (Expansion, Peak, Contraction, Trough) is crucial for navigating the unpredictable nature of financial markets. Now, more than ever, it is essential to reassess your investment strategy, ensuring it aligns with your long-term goals and risk tolerance.
Brian Tracy’s counsel on goal setting is also pertinent for investors. Establishing clear investment objectives and adhering to a disciplined strategy can shield investors from emotional decision-making.
Tracy’s emphasis on focusing on fundamental values aligns with the idea that investors should concentrate on companies with solid fundamentals rather than being swayed by market sentiments.
In a recent interview, Mr. Temi Popoola, the Group Managing Director/Chief Executive Officer of Nigerian Exchange Group Plc, underscores the importance of adopting a portfolio approach to investing.
He emphasizes, “We firmly believe that embracing a portfolio strategy offers the most effective risk-adjusted option for engaging in the capital market.” NGX is dedicated to providing a variety of products that empower investors to construct well-diversified portfolios by incorporating uncorrelated asset classes, offering a resilient and risk-adjusted alternative for participating in the capital market.
NGX is actively working towards introducing new products aligned with this philosophy, focusing on helping investors manage risk and diversify effectively. Products like Single Stock Futures, Nigerian Depositary Receipts, and Options are integral components of NGX’s strategy to empower investors with tools for risk management and portfolio diversification.
Diversification not only mitigates risk but also positions investors to capitalize on various market opportunities, be it equities, bonds, ETFs, Derivatives, or alternative investments.
Single Stock Futures enable investors to hedge against price volatility in individual stocks, providing a strategic approach to risk management. Nigerian Depositary Receipts offer exposure to international assets, allowing for global diversification within the Nigerian market.
Options provide investors with flexibility, enabling them to protect their portfolios in declining markets while also leveraging potential upside.
To enhance access to the market for retail investors, NGX launched the USSD code *5474#, garnering commendations from stakeholders. Dialling the code enables investors to access stock prices, daily gainers and losers, and even initiate the process of opening a trading account.
Addressing the goal of attracting retail investors to the market, the GMD/CEO expressed, “We recognize the stark contrast between the investors currently engaged in the capital market and the vast potential represented by the 65 million banking accounts in Nigeria. Our vision is to bridge this divide, onboarding millions into the capital market and fostering financial inclusion on an unprecedented scale.”
NGX’s market performance is undeniably impressive. It is vital for retail investors to stay grounded and adhere to timeless investment principles. Diversification, a long-term perspective, and a focus on fundamentally sound companies should guide investment decisions.
NGX’s commitment to offering innovative products for risk management and diversification further supports this prudent approach, providing investors with the tools they need to navigate the market with confidence and resilience.