PREAMBLE

The current cyclic trend at NSE,whereby stocks keep rising marginally and then falling soon thereafter and vice versa,and the fact that even undervalued blue chips like EB,CFC,BBK,etc have been unable to break out of this trend seems to have baffled many a financial expert / gurus. Can we attempt to explain this phenomenon?

Here’s my layman's take….

For the purpose of this post,I will categorize traders at NSE into three groups:

(a) Long term investors with an outlook of 1yr and above like Young,Mukiha and myself
(b) Short term investors with an outlook of upto yr like Ectasy,Pablo etc
(c) Active traders or speculators like jammo,eli,etc

· If market is dominated by steady investment by (a) and (b),you find stocks generally appreciating (i.e. bull market)
· If market is dominated by steady offloads by (a) and (b),you find stocks generally depreciating (i.e. bear market)
· If market is dominated by (c),you get a cyclic market. And this is what we are currently witnessing at NSE. Thus,EB goes up to 190 one moment,the following week we are back to 160-150 levels as speculators cash in to make gains. Likewise Safcom goes up 10cts,the following day it loses 10cts! In between you find 30m shares have been traded.

Looking through all jammo’s posts (and I respect his insight),he seems to have this firm mindset that everyone is an active trader / speculator. Thus in one of his posts he advises ‘guys’ to avoid buying CO-OP now since it is likely to go down in Feb etc,etc. But has he considered that some people at SK are long-term investors with an outlook of 5+yrs and it is perfectly OK for them to buy CO-OP even at 11/-? These long-term investors are also ‘guys’ right?

Polished stock gurus do not give specific advice on what to buy at what particular price / time through the press or open forums like SK. This is because such info can be misleading. A share that may not be good for a speculator at any one time may be very good for a long-term investor and vice versa. So Jammo et el let’s desist from assuming everyone is a speculator OK?

Of course someone will say that everyone is free to make own decision regardless of the ‘advise’ posted here. But recently NSE seems to have been infiltrated by speculators – thus resulting into the cyclic trends that seem to be headed nowhere. I do not know who reads SK. But I believe some fund managers and high net worth individuals do. Now,if these guys have followed advise given here by jammo et al,and have switched from value investing to speculating,then we are doomed - likely to see more of this cyclic trend. A counter rises one moment,then falls the next moment as everyone rushes to cash in.

In such a market,if someone is not in a position to do active trading like jammo,eli,etc,I think their cash is better of in real estate – plots,houses,etc and T bills.

What do others think? Why do we have a turn-over of over 100m every day at NSE and yet no stock seems to sustain a steady rise? please I have heard enough about global financial crises,post election violence,January expenses,inflation,liquidity,etc,so spare me from these.....

@ BAAK
You are very right. Some of us,needs cash every month,if not everyweek and everyday! I cannot wait for 5 years to get cash. No. Not at all.

Why on earth,should I for example,buy EB at 131bob,and it rises to 192,and having made a cool 61bob,pure profits,JUST SIT THERE AND WATCH IT DROP! I know too well,that it will drop and you want me to just sit there and watch it drop? Really?

Well,If you have read the book,The Stock Trader,by Tony Oz (That book,when brand new,it goes for Kshs. 70,000,I bought a second hand at 13,000). You will realize that you can make alot of cash on speculation. THAN JUST SITTING THERE waiting for the stock to make big capital gains! Sample this,KQ was 8bob,in Nov 2004. It went up to 138bob in 2006 and hence people made super profits! Now if you were waiting for your 5+ years,man,the dem share have gone down,from 138 bob,to a paltry 28bob! Now,HAVE U LOST OR HAVE YOU GAINED,BY YOUR 'LONG TERM INVESTMENT STRATEGY?'

A class 1 will tell you that 138-8bob,is 130bob( pure profits) and its bigger than 28bob-8bob,hence take profits when time allows. DONT JUST SIT THERE!

To everybody else,please invest as your conscience allows you to! The current prices are too discounted for long term investments. You will gain in the long run and gain big time. Use fundamentals ( works perfect in bullish market). But in the bear market we are in,let some of us,who needs cash every day,go the speculative way (its very dangerous,we burn our fingers at times,when u make wrong choices).

Conclusion: Speculation is too hard to resist,if you've mastered how the market works. Too hard to resist! Its easy money,free money,its like money falling from a tree. Its like the river of cash. Too juicy to let go!

A billionaire in waiting!

@BAAK

Everyone has their own approach to investing as you clearly pointed out in the type of investors a,b,c. You make a choice where your competetiveness is and hence no need to blame ant particular class. The game is to win and whichever way as long as you win


Kim

BAAK you had started it very well but somewhere along the way it seems you a trying to discourage speculators.

another thing is that you should encourage the likes of jammo because he is straight forward and usually give reasonable reasons as to why he is of a certain opinion...the reason why s.k. is so popular is because contributors here are straight forward unlike broker reports,its upto to those reading to know that this are just opinions and not neccessary gospel truth...

I will always prefer to make 30% return after say 3months than to wait 5years to get 50%...


A penny SAVED is a penny wasted if not INVESTED.

Good news. It takes all sorts!

If we were all in it for the long-term then when would we get cheaper prices (e.g. KCB,KQ) or sell when the prices are sky-high?

Overall as long as there is no manipulation or inside information,I say thanks for the ups & downs!

Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

@BAAK... Ever heard the edict 'no one can ever beat the trend'...n price trends are cyclical..wither short..or long. There's no thing like a longterm investor.. Just a long term speculator!! Think back in 1975-77... US,china was goin thro a recession n global markets were slumped serious...gettin a 25-35year olds to invest in stocks was as impossible as taxin our mps!! Now..that same lot is grown up wishin they had invested then and are investin now..buyin from the babyboomers hurriedly tryin finance retirement.. while em young guys are criticisin stocks and wonderin why anyone is buyin....cycles exist..as short as 5days..or long as 50 years.. Investment is a personal thing..not individual..but personal..u realign ur goals with market trends..short term or longterm depends on particular counter and ur goals. Disinterest in stocks now has most investors within last two years just cashin in and leavin..it won't last with average shortterm speculator havin revised their turnover from 1 month to 3month window.. 8-14weeks ago kengen was 12bob..very few speculators boarded..now they wish they had...not coz its goin anywhere..but coz sh3 appreciation is huge...... Short or long..get smart. Learn the cycles..ride them..not castigate beneficiaries!

The race is not always to the swift..nor the battle always to the strong..nor food always to the wise..nor riches always to the intelligent..favor is not always to the skilled..or learned..but time and chance happens to all. Ecl9:5..

When I read jammo's post you can easily detect those are words from a wise man

A penny SAVED is a penny wasted if not INVESTED.

Aaaaaghrrr!

All that glitters is not gold

@ Eli - great post.

As an investor (Long term or short term) one thing you have to understand before getting into the market is that its cyclical.
For the KQ case,imagine buying at 8 bob share rising to 136 (a return of 1550%). At some point you should have been smart to realize that the trend was not going to keep going up at this rate and got out. On the other hand EB at 95 was unsustainable so you should have bought because you can see that at some point it would rise again.
The best investors are those who know how to predict unsustainable gains or losses it doesn't matter if it's within a week or 5 years.