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 Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc kept the NASD Over-the-Counter (OTC) Securities Exchange in the green territory by 0.04 per cent on Friday, July 16.
The securities depository company added N2.50 to its share price to settle at N95.14 per unit from the preceding session’s N92.64 per unit.
However, FrieslandCampina Wamco Nigeria Plc slid during the session by N5.85 to N141.81 per share from N147.66 per share.
But when the bourse closed for the day, the market capitalisation increased by N1.08 billion to N2.593 trillion from N2.592 trillion, while the NASD Security Index (NSI) appreciated by 1.80 points to 4,320.67 points from 4,318.87 points.
During the session, the value of securities slid by 38.9 per cent to N63.5 million from N104.1 million, the volume of securities went down by 34.5 per cent to 1.2 million units from 4.8 million units, and the number of deals declined by 15.4 per cent to 33 deals from 39 deals.
Great Nigeria Insurance (GNI) Plc was the most traded stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units worth N6.5 billion, and CSCS Plc with 75.4 million units traded for N5.3 billion.
GNI Plc also ended the day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units sold for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
By Dipo Olowookere
The bulls regained control of the Nigerian Exchange (NGX) Limited on Friday after surrendering power to the bears a day earlier as a result of mild selling pressure.
Yesterday, the Nigerian bourse rebounded by 0.54 per cent, mainly due to the gains recorded by First Holdco and others.
Data harvested by Business Post indicated that the industrial goods and energy sectors were flat, while the banking index chalked up 3.13 per cent. The insurance space expanded by 1.08 per cent, and the consumer goods counter rose by 0.21 per cent.
Consequently, the All-Share Index (ASI) went up by 1,316.52 points to 243,462.13 points from 242,145.61 points, and the market capitalisation grew by N850 billion to N157.057 trillion from N156.207 trillion.
The market breadth index was bullish during the last trading session of this week, printing 31 appreciating stocks and 23 depreciating stocks, representing strong investor sentiment.
First Holdco led the advancers’ log after it climbed 9.97 per cent to N95.95, Haldane McCall appreciated by 9.94 per cent to N3.65, LivingTrust Mortgage Bank soared by 9.73 per cent to N3.72, LASACO Assurance jumped by 5.26 per cent to N2.00, and Thomas Wyatt gained 5.10 per cent to quote at N3.09.
On the flip side, Red Star Express declined by 9.50 per cent to N20.00, Omatek slipped by 6.08 per cent to N1.70, C&I Leasing shrank by 5.93 per cent to N5.55, Jaiz Bank crashed by 5.03 per cent to N8.50, and Livestock Feed fell by 3.89 per cent to N8.65.
As for the activity chart, market participants bought and sold 685.9 million equities for N42.7 billion in 44,134 deals on Friday versus the 498.5 million equities worth N34.9 billion traded in 39,484 deals on Thursday, implying a rise in the trading volume, value, and number of deals by 37.59 per cent, 22.35 per cent, and 11.78 per cent, respectively.
Investors’ darling for the day was First Holdco, with a turnover of 225.9 billion units valued at N21.0 billion, Guinea Insurance sold 53.4 million units for N45.2 million, Zenith Bank traded 41.5 million units worth N4.7 billion, Access Holdings exchanged 29.1 million units valued at N720.6 million, and UBA exchanged 27.5 million units for N1.2 billion.
By Modupe Gbadeyanka
The Africa Association of Professional Freight Forwarders and Logistics of Nigeria (APFFLON) has appealed to the Nigeria Customs Service (NCS) to deepen its sensitisation on the newly introduced Green Tax Surcharge Policy.
The chairman of APFFLON, Mr Akeem Ayobiojo, made this plea on behalf of his colleagues on Tuesday, July 14, 2026, at the Customs House in Abuja, during a stakeholders’ engagement with the agency.
He also called for improvements in the administration of Pre-Arrival Assessment Reports and Post Clearance Audit and the African Continental Free Trade Area (AfCFTA).
Mr Ayobiojo stated that freight forwarders were happy to work with the customs, commending the organisation for implementing Chapter 99, describing it as a major relief for manufacturers.
He, however, emphasised that a deeper understanding of the new tax was necessary for his members, saying more predictable procedures would reduce delays and unexpected costs for importers and freight forwarders.
In his remarks, the Comptroller-General of Customs, Mr Adewale Adeniyi, assured manufacturers, freight forwarders and other players in the nation’s trade sector that the NCS would continue to engage them on fiscal policies affecting their businesses, saying sustained dialogue remains key to resolving implementation challenges and improving the country’s trading environment.
He also promised them the service’s resolve to enhance and facilitate trade, acknowledging that, “Your feedback is important because it helps us understand what is happening in the field, and where necessary, we will take your concerns to the Federal Ministry of Finance and other relevant government institutions.”
Speaking about Authorised Economic Operator (AEO), Mr Adeniyi further explained that Nigeria would not lower the standards required under the Authorised Economic Operator Programme as the initiative is guided by global benchmarks established by the World Customs Organisation (WCO).
On her part, the Deputy Comptroller-General of Customs for Tariff and Trade, Ms Caroline Niagwan, clarified that electric vehicles can be imported without payment of duty only by holders of Import Duty Exemption Certificate (IDEC) issued by the Federal Ministry of Finance.
She also urged importers facing classification disputes to take advantage of the Advance Ruling system, noting, “Once an Advance Ruling is issued based on genuine documentation, importers have certainty on classification, valuation or origin before the goods arrive, thereby reducing unnecessary disputes during clearance.”
