Falling market: A loss or an opportunity? Grab, secure and maintain your shares in the bearish trend
Sun, Jan 7, 2018 6:00 AM on Latest, Exclusive, Featured, Others, Stock Market,
There are few investors who get on their nerves once the market starts going towards the downward trajectory while there are investors who wait all year long just to benefit from the falling market. The bear market can be scary to few but an opportunity to those who are willing to see.
With the current trend of bear market, Nepalese investors are worried how to secure their investment. Therefore, the article aims to provide strategies to our esteemed investors for their next step in the falling market.
The first strategy is called “value strategy”. The investors in the downward market can buy stocks of companies that have low prices relative to earnings, dividend, book assets and other measures of fundamental value. This strategy involves investors to find companies that are trading below the intrinsic (actual) value.
Investors in market usually overreact to certain new information. This results in the price fluctuation of certain stocks. In such cases, the lower price of the company does not resemble its long term financial and operational fundamentals. So, the investors can look for those companies which are underpriced in the current falling market and grab their shares. Investors can then; hold these shares for a long term or sell it off with a profit margin once the market starts to move upward.
For instance, banks such as NIB, EBL has been trading lower than its intrinsic value and thus, it might be an opportunity to investors in a way or other to make profit by grabbing such shares.
Investors with excessive cash in hand can take advantage of such situation by buying such shares of the company excessively at low prices. In return, they can gain profit by selling those shares at the right time.
The second strategy that investors can adopt in bearish market is “regret aversion strategy”. In downward market, investors can minimize further losses by selling their shares at a higher price instead of waiting for the price to rise. To add upon, if the scrip of a company is constantly moving downwards, the investor can sell the shares today rather than waiting one more day to incur bigger loss. However, this strategy might seem inconsistent with the long term strategy. Although investors might sell these shares today, in order to prevent further loss but the same shares might see an excessive incline in price in a year or two.
For instance, the speculators of the market holding shares of Naya Nepal Laghubitta Bikas Bank Limited (NNLB) could have given up their shares on 26th December, 2017 at LTP of Rs 3065 instead of waiting till 4th January, 2018 with LTP of Rs 2331. NNLB had adjusted 20% bonus share proposed from last FY profit. However, the adjusted price should be Rs 2554 considering Rs 3065 as base price. The investors still have 8-9% loss on it. Nevertheless, the investors with long term strategy might object this approach as NNLB might perform better in the days to come.
These are few stratagems that Nepalese investors can utilize to secure their investment. Unlike international stock markets, Nepalese stock market lacks intraday trading facilities, put options, short selling facilities due to which investors might not gain a striking return in the downward falling market. However, these simple strategies will help the investors make at least something out of nothing even in the bear market.
(Disclaimer: Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE and financial reports of the company so, any changes not updated in these may differ in the analysis.)
The second strategy that investors can adopt in bearish market is “regret aversion strategy”. In downward market, investors can minimize further losses by selling their shares at a higher price instead of waiting for the price to rise. To add upon, if the scrip of a company is constantly moving downwards, the investor can sell the shares today rather than waiting one more day to incur bigger loss. However, this strategy might seem inconsistent with the long term strategy. Although investors might sell these shares today, in order to prevent further loss but the same shares might see an excessive incline in price in a year or two.
For instance, the speculators of the market holding shares of Naya Nepal Laghubitta Bikas Bank Limited (NNLB) could have given up their shares on 26th December, 2017 at LTP of Rs 3065 instead of waiting till 4th January, 2018 with LTP of Rs 2331. NNLB had adjusted 20% bonus share proposed from last FY profit. However, the adjusted price should be Rs 2554 considering Rs 3065 as base price. The investors still have 8-9% loss on it. Nevertheless, the investors with long term strategy might object this approach as NNLB might perform better in the days to come.
These are few stratagems that Nepalese investors can utilize to secure their investment. Unlike international stock markets, Nepalese stock market lacks intraday trading facilities, put options, short selling facilities due to which investors might not gain a striking return in the downward falling market. However, these simple strategies will help the investors make at least something out of nothing even in the bear market.
(Disclaimer: Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE and financial reports of the company so, any changes not updated in these may differ in the analysis.)
