How Long Should I Hold My Stock As a Short Term Trader
How To Make Real Money Trading Nigerian Stocks – If You Want To Make Real Profit Consistently Here Is a Strategies To Adopt & Apply Today.
One fear you would definitely need to overcome if you want to be a confident trader in the stock market is “selling too quickly to cut your loss” because the market is going faster in an opposite direction. This was a big issue for me. I analyzed a stock, checked all fundamentals about the company but the moment I bought the stock, a new emotion sets in, this emotion eroded all that I stood on to enter the trade, the next fearful question was, oh! this stock is going down, should I sell now, after all, half bread is better than losing all?
Several times. I had picked great stocks with all fundamentals intact but because of impatient, I couldn’t wait to see my expected return materialize, immediately price swings to the south several times and to the north, it becomes an issue.
Let me share an experience in 2016 when I bought Okomu Oil stock. The palm oil stock had a 100% + impressive run in the last 2014/15, the same period the NSE all share index fell more than 10%. a key driver of the company’s profit is the exchange rate gain from palm oil export.
Growth & Valuation
Okomu Oil Plc had positive and increasing top-line revenue growth of 47.51% from 9.74bn to 14.36bn while net income improved 84.62% from 2.66bn to 4.91bn. Its EPS growth was also quite impressive, from N2.7 to N5.15 per share (Over 90% surge, still less than a 1-year change of 71.35%)
Okomu Oil is an agri-processing company that deals in palm oil business – Aside from the economic importance of the product, they also export to countries abroad, a model that lets the stock enjoy more value from forex transactions ( as Naira losses against the greenback, this company benefits from exchange rate gain on palm oil export). The improvement in net income and EPS signified efficiency in managing expenses while rewarding more profit on sales to shareholders. An EPS growth of 90% + compared to the 71.35% growth in share price also earned Okomu Oil a good buy as it had more room to appreciate.
Here, we looked at return on equity and debt to equity – Okomu oil has a healthy equity value driven by improved retained earning. It’s ROE grew by 37.84% while debt to equity was at 0.12 which indicateed less reliance on external debt, hence reduced interest expense and grew net income.
- Cash Position
The cash position of a company was another important factor I looked at; what percentage of profit earned was available as cash at the bank. A great place to look at was the cash flow statement. Okomu Oil cash flow in the latest 2-3 years had been impressive, from 3.2bn to 5.95bn – this was a key reason the company has been consistent in dividend payout to equity holders.
- Share Price Performance :
If you had bought equity shares in Okomu Oil in 2014 at N30-N35 per share, your portfolio should be up by 40% – that’s even an additional unrealized gain – plus the dividend income receivable annually.
This was a typical analysis of Okomu Oil price – one of the best stocks to buy Nigeria then – a stable company with positive operating income, impressing profit, improving cash flow, low debt to equity and top performing stock price year-on-year.
But you know what? after I bought into this company, it was like the whole game changed completely, my emotion took over, anytime the share price dropped, I get scared and ask, should I sell this stock or wait for a rise so I can break-even?. This went on to a point Okomu oil fell by more than 30% in two weeks, I had to sell off so I could protect my portfolio. Someone that was already asking if he could sell or wait had now seen a sharp fall, what did you expect?
Take a look at the region marked “yellow”, that is the period I sold to protect my money.
The following week, Okomu Oil reversed the downtrend and quickly increased from around N40-N41 support level to hit N60 with ease, grew further to N75. Then I ask myself, how long should I hold my stock, irrespective of market news, to become a confident trader?
It was the answers to that question that had helped me hold on to different stocks for 3-6 months without fear of losing out:
Here are take away tips to survive any market sell-off:
- Have a trading strategy like a sniper does for a hit mission- It’s only when you pick your stocks randomly that you will find it difficult to hold on to it when prices fall sharply but for stocks you picked based on a detailed, well-planned and working strategy, sell-offs are always your buy opportunity. As of this writing, a top bank has just released its full-year result which was impressive and great but the market prices didn’t move in the direction people expected, so I started receiving calls on why the bank’s stock went down, I looked at the chart on a medium-term to see what investors’ sentiment was, guess what I discovered? the stock is very bullish and is set to attract new buying volume that could push the price higher, I am already buying more units as it approaches an oversold region, where there will be no more sellers. I had already shared the tool I use for timing my entries in my new video – “Top Gaining Stocks”.
- Make sure the stock is fundamentally sound – When a stock had risen too much, sell-off or profit taking is normal, so I really don’t get frightened when I see a stock, that has good fundamentals, falls, besides, I believe that “if you have done a good job and trust your strategy, why not buy more” at least, when the stock’s value becomes visible via its financial results, fresh buying interest will help you push the price up again.
- What is the latest quarterly result? This is the most important of all I mentioned. A stock had just released its quarterly result which came out impressive and better than the previous quarter in a comparable period, don’t you think the sell-off you are seeing is driven by “profit takers”? That alone should let you know that it’s a normal reaction but in the longer run, the price will definitely reverse to reflect the next earnings expectations.
Back to the main question, how long should I hold onto a stock? My personal answer, at least 3 months, allow your stock to pass through a quarter, if you had done your fundamental analysis before picking the stock, then wait for earnings expectation to drive your stock after the close of the recent quarter before you consider a sell-off and if the result comes out great, you can as well ride it for the next 3 months. Seriously, this is how I trade.
So, when next you see one of your top performer’s stock price falls and the fundamentals remain the same, don’t panic again.
I hope you enjoyed these tips? find a more detailed guide in my video.