How To Always Know Top Sectors Big Investors Are Putting Money
Best Sectors To Buy Shares & Invest In Nigeria – Part 1 – Learn How To Trade Shares Online, Find Top Performing Sector Index – NSE Banking, Industrial, Oil & Gas, Insurance Index.
I always tell small traders who are just entering the stock market not to focus fast rising shares but invest in sectors with most liquidity. This is very vital because liquidity drives price and makes it easy for you to buy and sell your shares faster when the need arises. In my early days of trading, I never knew the importance of liquidity until I offered to sell my shares in an insurance company but was unable to do so; my broker would take my order to the market on opening hours and come back to tell me that there was no bid, only offers (everyone wanted to sell), then I started asking why I couldn’t sell my stock in the market and realised that only a few traders buy and sell the shares daily. I checked the stock market section of BusinessDay Newspaper to see the volume of transactions traded daily and discovered that it would take a while to find buyers because the stock was underperforming; no one was ready to buy into an ailing company.
That one mistake from that made me focus on shares that were heavily traded in millions per day so that when I compare my XX, XXX units orders with what is exchanging hands it will be easy to find buyers.
In this investing guide, I will be sharing my simple steps to uncover sectors investors are currently trading millions of shares week on week. The investors I am referring to are not retail investors but foreign institutional investors, mutual funds, investment managers, pension fund administrators, insurance companies and banks. These guys trade millions of shares and when they buy, you will see the ripple effect on the price of your shares and when it’s time to sell quickly, you really do not have issues liquidating your investments as they are readily available to bid; only if they see that the company had a solid growth record.
So how then will I know where they are putting more money in so that I can capitalize on that, buy into such stocks and sell back to them when it appreciates by 10-15% in 5-10 days of trading? Here is my simple guide to do that:
- Go to Nigeria stock exchange website and look through the weekly report section –
The NSE Weekly Market Report presents a summary of all activities relating to securities trading on The NSE’s market. It includes a detailed summary of securities traded in the week under review, company-specific financials, corporate actions and other announcements.
- Click on the latest report for the week and locate the index movement. The stock market is categorized into different sectors which represent a group of listed equities in similar industries or similar line of businesses. each of the categories is represented under banking, consumer goods, industrial, insurance, and oil & gas.
- Find sectors that are recording best positive performance on a year to date (YTD), quarter to date (QTD) and month to date (MTD). These are the sectors big investors are actively putting their money into. As at when we posted this guide, the NSE banking index (an index that tracks the performance of all listed banks) recorded 21.89% on it’s YTD, QTD, and MTD column, followed by NSE Industrial Index and NSE oil and gas to record 15% and 14% respectively. This means that top investors are putting more money into the banking sector, no wonder the sector has more traded volume. On the other hand, the consumer sector at similar period has the least volume interest.
- The final step is to locate top performing companies in these sectors and buy into them.
You may be wondering, why do I need to pay attention to liquidity in the stock market? The first reason is to avoid being stuck when you need to sell and the second is take advantage of high volume transactions that can drive prices higher in a bullish market. These top investors have invested so much in hiring the best analyst, and trend watchers, so they have more information about every sector than you do. If you see more fund managers, insurance companies, banks, pension managers gradually moving their fund into a particular sector, it will reflect in the shares trading volume and prices (industry index). But, the downside risk is that you could also experience sharp price fall in a bearish market too.
While this is not 100% foolproof, I still believe it will help you find the best sector stocks institutional investors are currently paying more attention to.