Taking Advantage of a Dip

Nigerian Stocks fell 1.83% in January as measured by the All Share Index. This is consistent with global trends as most markets declined in January on the back of tapering (reduction in Quantitative Easing) by the US Fed and lower forecast growth in emerging markets that have been the growth engine of the world economy since the onset of the financial crisis in 2007.

A cooling off by the markets in 2014 should not come as a surprise as most markets posted excellent returns in 2013. The Nigerian market went up 47% in 2013 following on an excellent 2012 when it gained 35%. However, for most investors there is this fear lurking which is whether this might be the start of another collapse. You cannot blame these investors, as markets have indeed been very volatile in the last 7 years. Therefore instead of investors taking advantage in the dip in prices, chances are they will sit on the fence or worse still sell in panic.

To be sure no one can say with certainty what will happen to the markets in the next few months or even the next one year. However, the long-term direction looks good despite the gains made in 2012 and 2103. The main reason is that a number of companies especially the banks are still fairly valued and have room to run. There will always be uncertainty and considering the regulatory and political environment, this will not be relieved anytime soon. Indeed it is at times like this when uncertainty is high that fortunes are made.

Let us look at an example. Would you rather have bought Zenith bank at N27.4 a share on 31st December 2013 or buy it now at N22.23? As far as I know nothing has happened to Zenith between 31st December 2013 and now to warrant an 18.9% price drop. I did notice an increase in volume of Zenith traded on the exchange in the last few weeks. It could be that a large foreign speculator is winding down his position. Nevertheless, to my knowledge there is nothing fundamentally wrong with Zenith and I will surely rather buy it at N22.23 than at N27.4.

Therefore, if you have a long-term view this maybe a good time to bring out the cheque book and buy some good companies that are now fairly valued. As for me, I always have an annual buy list and cash permitting I will continue to slowly acquire my 2014 planned purchases at prices lower than initially anticipated. The “change” will be subsequently put to other more immediate pleasurable uses.

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