eBusiness Weekly
Kudzanai Sharara
The Zimbabwe Stock Exchange has been on a rally during the past two weeks. On Tuesday this week, the ZSE reached a record market capitalisation of $651,7 billion.
Using the official exchange rate the market cap is at an all-time high of US$7,7 billion. In July 2013, the ZSE market cap touched US$6 billion.
Using the parallel market exchange rate, the market capitalisation is anywhere between US$4,6 billion and US$5,4 billion. Not a bad return still, given the state of the economy and what has been happening in the last couple of years, in particular between May 2016 and now.
May 2016 is historical because that’s the first time authorities came to the public with information showing that all was not well with the currency system in place at that time.
While officially the multi-currency system in use did not include a local currency, there was money creation taking place in the system and this money was disguised as US dollars.
There was then a mismatch between what was in the system and the actual US dollars. The mismatch resulted in banks failing to honour withdrawals by depositors.
Withdrawal limits were first imposed by individual banks, and later endorsed and regulated by the central bank.
The problem did not go away, with the 2016 tobacco farmers threatening to stop selling their crop, amid failure to access cash from banks.
The RBZ responded by announcing plans to introduce bond notes. For a few years after introduction, bond notes were treated at par with the US dollar.
Then all hell broke loose in 2017. The rest as they say is history. The economy has since gone full circle and is still struggling with the exchange rate.
The exchange rate dilemma is the reason why this article has three different market capitalisation figures for the ZSE.
The different levels of market capitalisation could be more if we were to use the various exchange rates obtaining in the country.
Last week, at a Bureau De Change I transacted at a rate of 92,75. That would put the market capitalisation at US$7 billion.
That’s obviously not what I want to talk about today. The title of this article reads, what separates the winners from the losers on the stock market.
But before we look at that again, let’s highlight some of the winning stocks on the ZSE, so far in the year.
As at Wednesday this week, Unifreight was the top performing share on the ZSE after gaining 6 889 percent since the beginning of the year.
NTS follows with a year to date gain of 3 615,8 percent, then Getbucks with 896 percent, Nampak with 600,8 percent.
To complete the top five is Lafarge with a year-to-date gain of 600 percent. Those who bought these shares at the start of the year, are clear winners.
Those who bought CBZ at the start of the year are clear losers if they still hold the shares. CBZ’s share price is down 4,1 percent since the beginning of the year. It’s the only one in red.
Then there are others whose year-to-date gains might have been eroded by inflation and exchange rate depreciation.
ZHL has a year-to-date gain of 4,5 percent, that’s no match for year-to-date inflation above 20 percent.
Cafca with a year to date gain of 22,3 percent has probably not made a dime for its investors since the start of the year.
RTG is also among the losers, with a year to date share price gain of 19,9 percent. Those who bought at last year’s closing prices and still hold these shares are clear losers.
The above stocks are some of the winners and losers on the stock market.
What clearly separates them is that some are in favour of investors while others are not.
One could also separate them by the liquidity and illiquidity of their shareholding. Illiquid stocks tend to perform while liquid stocks tend to be volatile.
The above are obviously not direct opposites, but still separates winners from the losers on the stock market.
Winners can also be separated from the losers by their previous performance. Current performance can be a result of price re-rating or price correction.
Last year CBZ could have been overbought and this year its correcting. Unifreight did not do so much last year and this year it could be playing catch up.
Each individual share has its intrinsic valuation. Time and again it can trade below or above this valuation. Market efficiencies in most cases correct such anomalies and the result is winners and losers on the stock market.
Company-specific fundamentals also contribute in the separation of winners from the losers on the stock market.
A set of bad results for bank A is likely to give us losers than winners. The opposite is true for a set of good results from bank B.
But again that’s not my focus for today.
Today we want to look at what separates the winners from the losers on the stock market from an investors’ point of view. What makes some investors win and others lose.
While the ZSE has been rallying, there are some investors that are yet to recover from losses.
Spare a thought for those who bought when the Old Mutual Top Ten Exchange Traded Fund (ETF) peaked at $2,16. Some sold on that day while others bought.
Those who bought at the peak, were as of Wednesday this week, still smarting in losses.
The ETF’s last trading price on Wednesday was $2, still below the peak price. Those who bought at peak and still hold are losers.
On the other hand, those who sold at the peak, and bought back when the ETF fell to below $1,65 are smiling once again, as the unit price reached $2 on Wednesday. The question is what separates the winners from the losers.
One thing clear is that the losers failed on the basic rule of stock market investing.
Buy Low and sell High is as basic a rule as any can be. As much as one cannot time the market and can’t tell the highs or the lows until after they are reached, reading trends can always help.
Buying in a bull market has high chances of buying at peak while buying in a bear market has high chances of buying at the trough.
To be on the side of winners or losers also depends on how selective investors are in their choice of stocks.
Fundamentals should never be ignored unless one is a speculator. Yes, one can make or lose money by looking at fundamentals or by just speculating, but the losses are more on the speculator than the selective investor.
Fear of missing out (FOMO) is another aspect that separates winners from losers on the stock market.
One thing to remember is that investors make money in both bullish and bear markets, but FOMO leads to slaughter.
During a bull run, some investors when they see certain stocks rallying, they want to own them too. Without looking at other fundamentals, the focus becomes the rallying price. They buy and ignore the basic principle they use in their everyday life. If bread is $1 today and tomorrow, you find it priced at $2 do you buy?
Obviously not, it’s now expensive. How does a 100 percent price increase become an attraction? No one rushes to buy that bread until the new price is justified and also until there is no alternative and cheaper option.
The same goes for stocks.
If you want to be a winner, don’t let FOMO drive your investments. Markets going higher doesn’t mean that you should be buying more.
This is the reason why investors must always have an investment strategy. There is no better time to trust your strategy than when everything looks like an opportunity or a big risk.
