Economy
Are Stop Losses for Wimps?
By Steve Brice
When I started out in banking, I was based in a dealing room advising traders on potential positions to take. The positions were focused and generally very short-term in nature. Therefore, risk management was not a ‘nice-to-have’, it was vital to job security. When entering a trade, a stop-loss – a level at which the position taken would be unwound if it was losing money – was a must.
It was against this backdrop that a former colleague quipped that ‘stop-losses are for wimps’. He was of course referring to certain stocks in his portfolio which had fallen dramatically – he was probably justifying to himself why he should keep it! However, it raises an interesting question: Should we employ stop-losses when we invest?
While many people will be very passionate about this topic, as with most things in life, context is key. If you think about it, the existence of the stop-loss is a hedge against the fact that nobody knows what is going to happen and therefore you need to build in a circuit-breaker to avoid the behavioural biases that come with a loss-making position – the ostrich, or ‘head in the sand’, syndrome.
So, how does this translate for an average investor? I would argue that there are two dimensions to consider: the nature of investments being discussed and your time horizon. Let’s take each in turn.
I have a much greater conviction level that a diversified ‘foundation’ allocation (which includes exposure to different asset classes such as stocks, bonds, gold and private assets), or even a diversified equity portfolio, is more likely to rise over a given period of time than any individual stock.
The reason is simple. Different asset classes have different drivers and hence are usually uncorrelated in their moves. Therefore, just combining them into a portfolio smooths out the bumps and increases the probability of positive returns for the portfolio as a whole.
When it comes to the stock market, there are also different drivers that determine equity market or individual stock returns, but let’s simplify them into broad market drivers and idiosyncratic drivers. If the economy enters a recession, then most stocks will fall sharply in value. However, a company’s failed product launch will largely hit one stock, and those of a few of its suppliers. Its impact on the overall market will be much less severe.
This brings me to Principle Number 1: The broader the investment, the less likely a stop-loss is warranted and that a buy on dips approach makes sense.
A very good friend of mine recently questioned how applicable this ‘buy on dips’ approach was to stock markets outside of the US. So, we ran the numbers for some major global and Asian markets in terms of probability of positive returns over different time horizons and the potential size of returns for investors. The results are pretty interesting.
First, the historical probability of positive equity market returns across any given 12-month period, at around a two-thirds probability, is generally similar across major global or Asian indices – China is an outlier at just 55%. If you extend your time horizon to 5 years, this probability generally increases to around 80% – the outliers are Japan’s TOPIX (66%) and India’s Sensex (92%).
Second, we looked at what has happened after a 10% or 15% market pullback. Focusing on the 1-year time horizon, we can break the countries into 3 groups:
1) either the probability of positive returns or size of average return or both have increased significantly after a market sell-off. Markets that fall into this group include the US, Germany, UK, India.
2) there is no material change in either variable. This includes Hong Kong, Malaysia and Korea. Once you lengthen your time horizon to 5 years though, they all move into the first group.
3) the probability of positive returns or their average quantum actually declines after a sell-off. Japan and onshore China markets fit into this group. On a 5-year time horizon, China also moves into the first group but, interestingly, Japan stays firmly in group 3.
Hence the conclusion is: outside of Japan, the ‘buy on dips’ mantra has made sense, especially when held by long-term investors.
The above analysis highlights the importance of the last factor: time horizon. The dealing room environment generally takes narrow exposures over a very short time horizon. Thus, stop-losses are crucial. However, I believe the message for the average investor is the reverse as long as they are focused on a diversified foundation allocation with a long-term focus.
Structural thematic investments also potentially fall into this category. The longer your time horizon, the more likely your investment is to generate positive returns as long as the structural fundamentals remain supportive. Here, again, instead of a stop-loss being appropriate, market declines offer an opportunity to add to longer-term thematic positions given the likelihood that declines will prove temporary.
Principle number 2: The longer your time horizon, the less desirable a stop-loss is, especially for diversified allocations or long-term structural themes.
Thus, for investors who are trying to trade the market and pick stocks, we believe a strict risk management framework including the use of stop-losses is absolutely critical to returns. However, we believe the majority of investors would be much better served by building a foundation allocation with a ‘buy on dips’ approach. Investors can systematise this ‘buy on dips’ approach through regular portfolio rebalancing – say at least once or twice a year and especially after major market dislocations to bring their allocations back to their desired risk tolerance. Such rebalancing is akin to an investor systematically “buying low and selling high” – a win-win proposition. For these investors, stop-losses are likely to get in the way of wealth accumulation.
Steve Brice is Chief Investment Officer at Standard Chartered Bank’s Wealth Management division
By Dipo Olowookere
The first trading session of this week at Customs Street ended with a marginal 0.03 per cent loss on Monday following profit-taking in financial and energy sectors.
The counters closed lower during the session as investors re-caliberated their portfolios due to the instability in the global financial markets.
The All-Share Index (ASI) of the Nigerian Exchange (NGX) Limited was down yesterday by 33.72 points to 104,529.62 points from 104,563.34 points and the market capitalisation depleted by N22 billion to N65.685 trillion from N65.707 trillion.
Business Post reports that the banking index crumbled by 1.99 per cent, the insurance sector depreciated by 0.36 per cent, and the energy counter lost 0.19 per cent, while the consumer goods space improved by 0.08 per cent, with the industrial goods and commodity indices closing flat.
It was observed that despite the disappointing outcome, the market breadth index was positive after the bourse ended with 28 price gainers and 24 price losers, representing a strong investor sentiment.
International Energy Insurance lost 9.76 per cent to trade at N1.48, Consolidated Hallmark shed 8.33 per cent to N2.75, Japaul went down by 7.46 per cent to N1.86, Chams dropped 6.98 per cent to N2.00, and Neimeth eased by 6.94 per cent to N2.68.
Conversely, Abbey Mortgage Bank rose by 9.95 per cent to N6.74, UPDC gained 9.82 per cent to sell for N3.13, Guinea Insurance increased by 9.52 per cent to 69 Kobo, VFD Group jumped by 9.46 per cent to N96.00, and Sovereign Trust Insurance soared by 9.41 per cent to 93 Kobo.
Yesterday, a total of 428.2 million shares worth N10.5 billion exchanged hands in 14,583 deals versus the 380.0 million shares worth N10.1 billion traded in 10,791 deals last Friday, implying a rise in the trading volume, value, and number of deals by 12.68 per cent, 3.96 per cent and 35.14 per cent, respectively.
The activity chart was topped by Access Holdings with 56.0 million equities sold for N1.2 billion, Zenith Bank traded 55.4 million stocks valued at N2.8 billion, Fidelity Bank transacted 39.0 million shares worth N725.9 million, UBA exchanged 33.2 million equities valued at N1.0 billion, and GTCO traded 31.0 million stocks for N2.1 billion.
By Adedapo Adesanya
The oil market was slightly up on Monday on the back of exemptions for some electronics from US tariffs and data showing a sharp rebound in China’s crude imports in March.
During the trading session, Brent crude futures improved by 12 cents or 0.2 per cent to $64.88 per barrel and the US West Texas Intermediate (WTI) crude futures grew by 3 cents to trade at $61.53 a barrel.
The President of the United States, Mr Donald Trump, last Friday granted exclusions from steep tariffs on smartphones, computers, and some other electronic goods imported largely from China.
It was the latest in a series of policy announcements that imposed tariffs and then walked them back, spurring uncertainty for investors and businesses.
President Trump later said on Sunday he would announce the tariff rate on imported semiconductors in the coming days.
For the Chinese imports, the exclusion of the tech products applies only to President Trump’s reciprocal tariffs, which climbed to 125 per cent this week as the prior 20 per cent duties on all Chinese imports that he said were related to the US fentanyl crisis remain in place.
China increased its tariffs on US imports to 125 per cent last Friday, hitting back against the American president’s decision to further raise duties on Chinese goods and increasing the stakes in a trade war that threatens to upend global supply chains.
These developments raise concerns that the trade war could weaken global economic growth and dent fuel demand.
China’s crude oil imports in March rebounded sharply from the previous two months and were up nearly 5 per cent from a year earlier boosted by Iranian oil and a rebound in Russian deliveries.
The Organisation of the Petroleum Exporting Countries (OPEC) said in a monthly report on Monday that global oil demand will rise by 1.3 million barrels per day in 2025, down by 150,000 barrels per day from last month’s forecast, citing trade tariffs among the reasons.
Top market analysts like Goldman Sachs and UBS have also cut their forecast.
Goldman Sachs expects Brent to average $63 and WTI to average $59 for the remainder of 2025, with Brent averaging $58 and WTI $55 in 2026 while UBS reduced its Brent forecasts by $12 a barrel to $68.
The US could stop Iranian oil exports as part of President Trump’s plan to pressure Iran over its nuclear programme.
However, Iran and the US held talks in Oman on Saturday and agreed to reconvene next week.
By Adedapo Adesanya
Nigeria’s oil output decreased by 4.1 per cent to 1.40 million barrels per day in March from 1.46 million bpd in the previous month, according to the Organisation of the Petroleum Exporting Countries (OPEC).
This drop means Nigeria has now produced below its OPEC target for the second consecutive month and far below its 2.06 million targets contained in the 2025 national budget.
This decline could be attributed to attacks on pipelines in Rivers State that led to the declaration of state of emergency and the suspension of democracy in the oil-rich state by President Bola Tinubu.
Last month, Mr Tinubu announced the suspension of Governor Siminilayi Fubara and the State House of Assembly over political crisis in the state. This occurred after an oil facility in the state was attacked. He then appointed a retired military officer, Mr Ibokette Ibas as the sole administrator of Rivers State.
Despite the decline, Nigeria remains the largest oil producer in Africa, surpassing Algeria and Congo, which produce 909,000 barrels per day and 263,000 barrels per day, respectively.
However, according to data sourced from secondary sources, OPEC said Nigeria produced 1.51 million barrels per day in March as against 1.54 million barrels per day in February.
OPEC’s report also showed that crude production by the wider OPEC+ fell in March by 37,000 barrels per day to 41.02 million barrels per day due in part to reductions by Nigeria and Iraq.
“Total DoC crude oil production averaged 41.02 mb/d in March 2025, which is 37 tb/d lower, m-o-m,” OPEC said.
On April 12, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said the country’s oil production decreased to 1,400,783 barrels per day in March.
Although oil output dropped in March, NUPRC said the average crude oil production is 93 per cent of the 1.5 million barrels per day quota set for Nigeria by OPEC.
NUPRC adds condensates to its estimates, which are exempted by OPEC in its calculations.
On April 4, the OPEC and its allies decided to increase oil production by 411,000 barrels per day in May — amid declining oil prices.
OPEC also cut its 2025 global oil demand growth forecast on Monday for the first time since December, citing the impact of data received for the first quarter and trade tariffs announced by the United States.
OPEC forecasts that world oil demand would rise by 1.30 million barrels per day in 2025 and by 1.28 million barrels per day in 2026. Both forecasts are down 150,000 barrels per day from last month’s figures.
US President Donald Trump’s trade tariffs as well as a plan for higher output by OPEC+ have put downward pressure on oil prices this month and raised concern about economic growth.
In its monthly report report, OPEC lowered its world economic growth forecast this year to 3.0 per cent from 3.1 per cent and reduced next year’s to 3.1 per cent from 3.2 per cent.
Last month, OPEC said trade concerns would contribute to volatility but had kept forecasts steady, saying the global economy would adjust. However, that appears to have changed with recent developments.
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