Everyone is a genius in a bull market. Those who follow stock market news must have heard this statement a thousand times.
It’s normally used when the market rallies to the extent that even companies without any justifiable fundamentals become top performers.
To put it differently, the statement is often used when the market rallies as a result of macroeconomic fundamentals and not company specific fundamentals.
At such times, people start to question why fund managers are paid so much to manage people’s portfolios yet anyone can invest and come up with good if not better returns.
We are seeing it right now on the ZSE. Individual investors with less than a couple of months in the game are making very good returns. Returns some fund managers can only dream about.
I am not exaggerating. The latest GroWealth Report, for example, profiles fund managers and how they fared for the six months to June 2021.
As per that Report, the best performing General Equities Fund is managed by Platinum. It has a year-to-date return of 158,69 percent.
The best Aggressive Equities Fund is managed by Datvest. It has a year to date return of 153,27 percent.
This is at a time, some investors, fresh in the game, are seeing returns of more than 1 000 percent in their chosen stock picks. Who needs a fund manager, what for, they could ask?
But as I said earlier, everyone is a genius in a bull market. On the ZSE this year, very few, no matter how fresh to the game they are, have made losses.
All ZSE indices are positive. The least performer is the ZSE Top 15 Index which is up 98,68 percent. But that too is ahead of year to date inflation of less than 25 percent.
If beating year-to-date inflation is a yard stick, maybe only those who bought CBZ, with its 11,8 percent gain are the losers.
If we use exchange rate depreciations, maybe we can add those who bought counters like ZHL and Bindura as losers.
Unless one bought at the peak of a share price and it later weakened or has not moved, then they have made good returns on the ZSE. They are geniuses so to speak.
Having seen thousands of new investors get into the game in less than a year, this trend is worrisome.
New investors are getting into the market where the RBZ’s actions with regards money supply, and not increased production and sales, is what is driving the market.
I get worried because many are chasing price performance and getting sucked into a trading game they will eventually lose.
Agreed there are some stocks whose economic fundamentals are getting stronger by the day.
According to Imara in its Investment Notes for June 2021, most businesses are in a very good space.
But that does not mean investors should pump in money into any listed stock, even those whose prices are now lofty.
The market’s performance at the moment has to do more with momentum than fundamentals.
A momentum-based market can be the result of a few stocks artificially inflating the overall market due to their outsized gains. Unifreight, is one such stock.
The stock market is at record levels, and that is worrisome for those buying into stocks that are overvalued and with weak fundamentals.
When the dust settles, only stocks with strong fundamentals will survive the fall. In fact the dust will settle on them.
One variable which should be a sign that the time to pay any price for any stock is over is the inflation one. Inflation is slowing down and any time from now new figures will show an even slower inflation rate, below 60 percent.
This means expected returns on the ZSE will also fall. There won’t be much headroom for share price appreciation, in particular those stocks that had already run.
The lesson here is that, while the previous seven months’ performance of the stock market was momentum-based, the rest of the year might be fundamentally driven unless Government decides to fund agriculture again resulting in money supply growth.
Already the government wage bill has reportedly got a 50 percent bump.
That money will find its way to the market if not by direct purchase of shares, then by purchase of products and services offered by listed companies.
All the same, no matter which direction the market will take in the short to medium term, it’s an opportunity to learn how to become a long-term investor.
In a momentum-based market anyone can be a genius, but in the longer term, traders typically end up losing all their money.