By Ephraim Njenga via fb
HOW TO PLAY DEFENSE AT THE NSE
Given the current turbulence at the NSE the best strategy at the moment is to play defense. The aim is to avoid high losses and take advantage of the opportunities which are plenty in the market.
One of the NSE top billionaire investor narrates about how he bought one million Kenya Power shares at KShs 1 each during the last days of the KANU regime and sold them one year later at KShs 6 each. Such moves only happen by thinking long-term and strategically while efficiently managing risks.
Currently defensive play can be achieved as follows;
1. Invest in top 5 banks. Banks have several layers of scrutiny from CMA and CBK. The possibility of any of the top five banks collapsing are low.
2. Invest in companies that can never go under. These are companies with assured revenues such as NSE Ltd, Kengen, Kenya Power, Safaricom etc
3. Invest in companies with significant presence outside Kenya. These include; Equity, KCB, Longhorn, EABL, Scangroup etc. The regional diversification will help them when there is trouble at home
4. Invest in companies with assured dividend income. In this category I can only think of FAHARI-IREIT. The IREIT is mandated to pay a minimum of 80% of distributable earnings within four months after the end of the financial year. It is however facing challenges due to the poorly performing real estate sector
5. Avoid any unstable small caps. Some of these small caps have been performing so poorly that investing in them carries nearly the same risk as gambling
6. Always have cash as part of portfolio in order to take advantage of opportunities as they emerge
7. Re-invest dividends. This is one way of compounding your earnings and also averaging down good shares acquired at a high price
8. Book gains when you hit your targets. Currently gains are rare yet opportunities are many. It makes sense to book a gain given the long-term uncertainties facing the economy. Once you book a gain look for opportunity to further strengthen your portfolio
9. Forget those who tell you not to closely monitor your investment. Check things daily. Have the courage to take tough decisions including selling at a loss when prospects of a counter change drastically and long-term outlook for the company dims. One of the toughest yet most important lessons in investment is knowing how to lose. Sometimes a loss is inevitable and is often a step towards winning in the end. A loss also comes with valuable lessons
10. Ensure you have an online access to your trading account. This will empower you to speedily execute decisions when need arises. Relying solely on a broker can be a big risk when urgent decisions need to be made.
The key rule in stock markets is to buy low and sell high. The best time to pick stocks at low price is when markets are tumbling. You only need to know how to pick quality. Also remember that whether the market is in a bearish or bullish mode money is always made and lost at a stock market.