Wednesday, September 13, 2006

Online trading and more

Monday 11 September was a day of good news in Kenya. The NSE took a leap into the new age by adopting the online trading system. Away with the erratic shouting of the open outcry system that has served us for more than 15 years. With the new system, the prices will be more transparent and the volumes higher. Basically meaning that the transactions will be faster. I just hope that soon I will be able to track the price changes from the comfort of my desk. Problem is most stock brokers and investment banks are themselves still very far behind. Their websites are not interactive and are only informational. The information in most cases is sometimes as old as 2004! Even the NSE website is a shame. The one of CMA is unspeakable and so on. However we must toast this great achievement of the NSE.

Some quarters are saying that the NSE is heated. I don’t agree. I suppose that I would say the market is heated or the counters overpriced only if I see that the firms have no room for expansion. At the moment it would not be accurate to say that the firms have reached their peak. Take KPLC for instance, the opportunities are so huge. You would expect that they would take advantage of the increased capitalization, to offer their services to more people at a lower cost. Prudent managers would have taken advantage and consolidated their position in the country and the region. Same applies to EAC and even Bamburi. Am surprised that the robust trading in the NSE is not reflecting on the activity of these firms. For example EAC still has very docile adverts in the paper. No new exciting jobs from this firm and no new exciting products. For a firm which is a near monopoly in the region, this is not very good. I thought they would be aiming at the Siemens of this world. The only firm showing real activity is Equity bank whose hype is almost equivalent to its real activity.

Does any firm that goes down eventually go up? No. there is no law of gravity in stock market apart from the one that states that money flows for the smart to the dumb! Ok there is another law that states that money flows for the rush to the patient. Actually the only fact that can stand the test of time is that if you buy an undervalued stock and wait patiently, then you will definitely make money. The best strategy however is the contrarian strategy. Contrarians always pick stocks prudently and mostly buy when people are selling and sell when they are buying. They thus always are avoiding the crowd. Of course they don’t do it for its own sake. They actually buy the firm not the stock when it’s under priced and let go of it when it’s prime. That way they make some really tidy sum. like Graham said; The intelligent investor is a realist who sells to optimists and buys from pessimists.

When picking stocks one needs to be very sober and look at the fundamentals, make sure you understand the business they are doing, make sure you know the directors and management. Find out whether they have a future etc. it sometimes helps to go visiting the firm just to get a feeling of what is going on. I was appalled when people kept on buying Uchumi shares when they knew very well that the management was not very well structured and the firm was actually indebted to the neck. I even know shareholders of Uchumi who could not even shop at Uchumi . Where were they going to get profits for their investments!

1 comment:

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