Understanding The Nigerian Stock Exchange Gains – Debaj10

1. most investors are in it Long term, 5 to 50+ years.
2. separate them from stockbrokers who play the market.
3. on an average day, only a few companies’ stocks pull up or deflate the market.
4. most other companies take a while to rally under bullish (when there are gains) or bearish (losing) trends.

in the news a few weeks ago we were told that about 40% of the companies in the NSE were flat/dormant all year, 2017.

now we’re told of massive gains in 2 weeks; and the highest value in 8 years.

here’s the economics:
1. divide the value of the NSE in 2009 by the value of the dollar then; do the same for today.
this gives you a general idea of what kind of growth we’ve had, based on the naira:dollar exchange.

2. when dollar went from N200 to N300, the value of your 100k shares went from $500 to $333. so your broker would advise against selling, because you’ve actually lost money in real terms.
therefore to know if the increased share price has covered your losses, calculate for dollar value then factor INFLATION into the result- how many more bags of garri can you buy now, compared to when you first bought shares?

3. a breakdown of the sectors will show you how the real sector of the economy ( companies into manufacturing, construction, healthcare, education and agriculture) benefited from the rise in the index, or if investors are only looking to invest in sectors that will yield quick profits- oil and gas, commodities, etc.

4. rule of thumb: economic growth is measured by growth in the real sector, rather than GDP. the oil industry employs relatively few number of people; how the income is channelled into the economy is therefore crucial to nations like ours.
so while increase in crude prices may benefit the GDP through a few companies, it may have very little impact on the economy.

as they say, the devil is in the details.
so hold off on wailing or cheering until you understand the technicalities and have calculated the real value of the NSE.

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