Benefits of Long-Term Investment Strategy in Stock Market

By FSDH Research

FSDH Research recommends that investors should maintain long-term investment strategy in the equity market. This will help to hedge against portfolio losses associated with short-term stock price volatility.

Our analysis of historical returns shows that investors make good returns in the equity market if they invest in stocks that have strong fundamentals and maintain a long-term view.

An investor who maintains a long-term strategy will earn capital appreciation, cash dividend and/or bonus over the investment horizon.

Our analysis of the yearly returns of the equity market as measured by The Nigerian Stock Exchange All-Share Index (NSE ASI) between 2008 and 07 February 2018 shows that the market recorded both losses and gains during the period.

Although the equity market depreciated in more years than it appreciated, some stocks recorded returns in excess of 1,000%.

An analysis of the total return of an initial investment of N100,000 each in the 10 highest capitalized stocks (except Dangote Cement and Seplat) between December 2008 and 07 February 2018 shows that GTBank recorded the highest return of 1,100% and FBN Holdings recorded the lowest return of 45%.

We excluded Dangote Cement and Seplat from our analysis because the two companies were not listed on the floors of the NSE in 2008.

The breakdown of the total return in the GTBank stock shows that capital appreciation, cash dividend and bonus issue contributed 33%, 20% and 47% respectively.

FBN Holdings recorded the lowest performance because of a capital depreciation. The breakdown of the total return on the selected stocks shows that capital appreciation contributed the highest return, accounting for 54% of the return. Bonus and cash dividend contributed 26% and 20% respectively.

FSDH Research advises investors to engage their investment manager before they invest in the equity market. The investment manager will create an equity portfolio for the investor based on his investment objectives. The client will also benefit from the experience of the investment manager.

Investors use alpha and beta technical metrics to analyze the performance of different securities and assess risk. What does alpha and beta mean in the stock market?

Financial advisors and investment managers utilize alpha and beta ratios to calculate and analyze mutual fund results. Alpha is a financial performance metric. It is the return on an investment that is used to compare the performance of any asset class against a certain benchmark.

The alpha of an investment is the difference between the return on the investment and the return on the benchmark. The term “alpha” is used to describe a fund’s underperformance or outperformance.
A fund with a positive alpha has outperformed its benchmark index. A negative alpha, on the other hand, indicates that the fund has underperformed. Please keep in mind that two funds with identical returns can have different alphas.