The last few months have been tough for some stock market investors, in particular those who bought at the peak towards the end of April.
Having reached a peak of 29 026,92 on April 27, the ZSE All Share Index closed Wednesday at 22 044,22.
That’s a massive 31,67 percent drop.
Benjamin Graham, the writer of “The Intelligent Investor,” wrote:
“The intelligent investor realises that stocks become riskier, not less, as their prices rise — and less risky, not more, as their prices fall. The intelligent investor dreads a bull market since it makes stocks more costly to buy.
“And conversely (so long as you keep enough cash on hand to meet your spending needs), you should welcome a bear market, since it puts stocks back on sale.”
Some stock market investors have watched their investments lose value soon after purchasing and must be regretting buying early, as waiting for a little longer would have got them cheap shares.
The downward trend also mean they might have to wait longer than anticipated to start recording gains on their portfolios.
Those who are into their retirement age and depend on the performance of their stock market investments are in the same bracket.
A weak stock market means lower returns for their stocks and possibly reduced disposable income. If one is a short-term investor, they may not want to look at their portfolio right now. The numbers may be unnerving and can send them into panic mode.
Imagine having your next term school fees invested in the stock market, and the market is coming off.
You begin to appreciate financial advisors who say the stock market is too risk for short term investors.
But the stock market, historically, is a true depiction of the phrase “one man’s meat is another man’s poison.”
As others are smarting in losses others are seeing opportunities to buy. Not because they believe the stock market has bottomed, but because they believe the market can give them good returns in future.
It’s about one’s objectives. Why are you a stock market investor in the first place? There are several answers to that question and these should guide the decision to continue buying or not.
For example, some invest in the stock market because it’s the only available option for them. They cannot invest in the real estate, for example, because they don’t have enough to buy a stand or a house.
The local market does not offer Real Estate Investment Trusts (REITs) which could have allowed exposure to the property market.
They cannot invest in Treasury Bills, for example, because these are big-ticket investments that unfortunately offer real negative interest rates.
Further, the local market does not offer short-term treasury bonds, high-quality corporate bonds, or local authority bonds. So the stock market could be the only destination for excess cash and savings.
As a result, if one has limited options, the stock market might still do the trick for young and long-term investors. Investing in the stock market is a long-term endeavour that involves some risk and every investor has to appreciate that.
The current market decline is an opportunity for those who can handle risk because the bears can last for much longer.
Exchange-Traded Funds can be a good option as well. ETFs, eliminate the risk of owning the wrong specific stocks at the wrong times.
An ETF that tracks the broad market provides an easy and inexpensive way for ordinary investors to capture the overall returns of the stock market.
The dollar cost average strategy can be another good way of staying invested on the stock market.
With this strategy, where the market is heading day to day is not important. Investors will just invest the money gradually, rather than do it all at once. That practice is known as dollar-cost-averaging.
Because day-to-day returns are unpredictable, its not wise to attempt to move in and out of the market at the perfect time.
Given the level at which the local currency has depreciated and the rate at which inflation has run, the stock market is looking undervalued, and sooner, rather than later, the bulls will rampage again.
The information and content provided herein are provided as general information and do not constitute financial, investment, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser.
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