Facing the Bear

The NSE has been on a downward trend for a little over a month now; I’ve even forgotten the last time my portfolio made a reasonable gain. All but one counter (Stanbic UG) are in the red now and I’m wondering if my investment strategy is working. At some point last months I almost put into practice Aly Khan’s Safaricom stop loss strategy on all the stocks in my portfolio, but decided otherwise since I couldn’t see any fundamental reason to do so. I consoled myself that I’m a long term investor (every stocks investor does this at one point or the other), but how much decline can I take before I wedge in?

Several explanations have been given as to why the market is looking so bearish. Optimists see a correction, pessimist see a bear run. But all agree that things are tight in this market. The last time the NSE was this low was during the January post election violence. So what could be causing this now with everything looking fine except for the high inflation.

Talking to a friend the other day I found myself with little to say about the market outlook, the only thing I kept on saying was that the market will rebound sooner than later and the depression in share values present a good opportunity for getting in. I think this make me an optimist or simply in denial. But I want to believe that this will be the case and not the opposite.

Like many other investors I would like to face the turn in market trend boldly. This has driven me searching for a simple solution for any investor faced with a bear run in the stocks market. Many investor at the NSE are used to invest in a bullish market, where you buy stocks expecting their price to rise above you buy price for one to make some capital gain. This scenario has turned many retail investors to mere speculators, in for a quick gain here and there without focusing on the long term. And there is where our entire problem lies.

Investing in a bear market is far much tricky than one can imagine. MainT of KCIG recently gave some survival strategies for investor in such a market. It’s during a bear market that you’ll differentiate the big boys (true investors) from the kids (speculators). In such a market, the more free & fluid your cash flow the better, since you will be able to position your self and buy at ridiculously cheap prices from bullish speculator scampering to leave the market and save face.

Panic in not any investor’s pal. That’s for chicken investors who get slaughtered on their way out. The only thing to do in such a market is keep a level head and seek as much information as you can. It’s at such times that many investors see the importance of investing through an advisor, even if it cost a dime. Good information is worth more than gold in a bear market and will help you a great deal in making strategic moves that will eventually grow your investment, even if its only marginal growth. Be happy with low returns, it could have been worse.

Don't feed the bear!



Brokers are known to be very witty and will only advise you to buy in a bear market citing that most shares are selling at a bargain. In most cases that’s not true, the only thing the broker is concerned about is his transaction fee when you trade and will care less when you burn your fingers. You’ll be better off holding cash. Equally, selling at a loss in one counter to jump for what you consider a bargain is a very wrong decision. Although there will be some bargains in a bear market, often it will be a case of catching a falling knife, with only painful results.

Some of the industries to invest in a bear market include banking, construction and petroleum, which are most likely to gain from the re-emergence of the economy and in effect the stock market. Hey! This is not advice to buy; it’s only a suggestion that has been proved to work before in bigger and better markets. But for our NSE it’s wise to be patient and wait the correction (bear?) to reach the bottom. For how long it will take for the market to bottom out nobody knows.