For the past few days, the Finance and Investments segment has been the mover in the price rally experienced in the Nairobi Stock Exchange (NSE). Some people just thought that the market was acting strange while others took advantage and jumped into the bandwagon in anticipation of good half year results posted by the listed banks. To their surprise, the people who chose to watch instead of buy could be regretting their decision as the peak seems to be settling in.

Of attention to investors were NIC Bank, CFC Bank, Kenya Commercial Bank and the British Multinational-Barclays. Though National Bank gained slightly, Housing Finance had its price stagnate at its all time high of Kshs 30.  Their half-year results are yet to prove to the public that they too were to be part of the hype.  NIC gained the highest with its share price appreciating by Kshs 15 in five days while CFC Bank gained Kshs 13 over the same period. Diamond Trust was the first to announce its half year results and this saw the prices appreciate by Kshs 10, two days after they appeared in the dailies.

The appetite for the few listed banks’ shares could go on for the coming weeks as most of them are yet to disclose their half year results prior to the September deadline.  Sadly though, attention in the banking industry will gradually shift after reaching its peak to the conventional market movers of whom 90 percent are in the Industrial and Allied investment segment.

Whereas many stand to gain over 30 percent in any given counter that has been active in the past two weeks, others may only make a small fraction. This doesn’t happen out of luck.  Whereas some might have taken positions while the stocks were still at their lows in anticipation of the price appreciation, the majority follow the crowd and don’t make it to execute orders in good time.  Precision is the word. 

Most investors fail because they don't  watch or tell the signs.  It is very wrong to buy a stock for purely speculative reasons.  A firm company with solid fundamentals will rise even after a drop but a weak company (one that is trading purely on market inefficiencies) will drop and stabilize at a newer low.  If your speculative stock starts dropping drastically and chances are it will never recover, would you let it tie up your money?  It would be better to risk by say making a 7 percent loss and make sure that your next bet makes more money than the previous. If the stock drops further and starts making headlines over profit warnings, you could be better off having sold it and taken position in a company with better prospects. 

In every stock market, there will always be climax runs that come with seasons.  For example, banks will always have theirs on a quarterly basis. For a majority of companies, it is usually during half year, on major company announcements of a new product and restructuring among others. Watching the signs can be very misleading.  This is because the market will first react to a rumour and by the time the crowd begins to actively buy the stock, it is already at its climax and the early buyers are selling. You are finally left watching the stock tumble in anticipation of more excitement in the market.  Hedging against losses at this time requires one to put a cap and forgo any excess returns.  For example, if you bought NIC Bank last week for the short run gains at Kshs 71, you could put a sale order at Kshs 105 and forgo any excess returns after that because the stock could end up settling at a new low of Kshs 80-85.

Such exit will require you to master a lot more.  The run comes with high volumes and not laws of demand and supply.  This is because institutional investors will be willing to buy huge volumes at higher prices.  Such volumes enable them get meaningful positions in a stock.  With time, the stock will get to its turning point and this could mean that you don’t make money at all- just because you held on looking for an extra shilling. 

Investors at times match companies that are not in related industries and expect to make similar gains.  I recall the Scanad IPO period when most investors subscribed with the anticipation of selling on the first day of trading.  Institutional investors may be lining up when the stock opens trading at the secondary market.  However irrational the market is, supernormal returns may not be likely.  This is because the factors that steered the climb in KenGen shares may not be eminent in Scanad shares. It is important for a growth investor to take profits when they reach a set target- say 30 percent.  This is an exception where certain factors are likely to contribute to a price run such as the Equity Shares that were very limited and the KenGen one that did not have a reserve allotment of the institutional investors.

Finally, companies have cycles. If a company’s stock starts declining and acquiring new lows. One needs to watch very carefully.  If this is accompanied by internal woes by the management team or the shareholders and the board, then wait for its next rise and weigh your options- selling off at a small gain or wait for the unplanned gains/losses.

The market is not a gamble but a good investment destination. Unlike the conventional business where we plan to make profit, losses, increase income or cut down expenses, you watch for the decisions that a company’s management makes to  see how that works for the stock. You don’t need to be waiting for the crowd to take positions for you to follow.  You too can be the crowd leader- and drop the leadership while at the peak.