One day I bumped into a writer's journal on the web that "How a man bought Seplat shares for N350, sold them for N750 and then was stunned to watch the security escalate past N5,000" one of the captivating stories about the stock market." This story gives us lessons that an investor can learn from.
Such a plot is the one of several that are the investor’s life in the share market, where emotional and strategic decisions interact with the market trends. I will show here the major points that can be learned, with the help of concrete arguments, to make the concepts of this story more clear.
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The Power of Patience in Long Term Investing Patience is the foundation of successful investments. A year later, the price had skyrocketed beyond N5,000 and the reason was not only the good performance of the company but also its listing on the London Stock Exchange. The nature of the stock market is such that there are ups and downs in the prices, and Nigeria being one of the emerging markets, volatility is bound to happen. Pulling out one's money before the big rise can result in losing enormous returns. By holding the shares for a long time investors can make money on company earnings, market trends, or strategic moves such as an international listing that made Seplat more visible and more valuable.
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**Emotional Driven Decision Making: ** A satisfied feeling of the investor after locking in the gains at N750 suggests an emotional reaction where he decided to take immediate profit to his pocket. One of the most rewarding parts of investing is reaping a profit, but emotions such as that and fear of stagnation can prompt early selling. Behavioral studies in finance reveal that the habit of selling winners too soon is fueled by emotional biases. The investor in this case could have been scared that the best was over and so he pulled out having seen the price stagnating. Using data such as Seplat’s performance and the market conditions to base off decisions instead of feelings could have made the difference. Having a disciplined approach to investing keeps one's emotions in check.
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The Importance of Research and Fundamentals
Seplat’s sudden upward price move highlights the necessity of an in depth investigation of the company's basic conditions and its potential for growth. The rise of this stock probably came as a result of that company's outstanding operational performance, the increasing worldwide oil prices or the London Stock Exchange listing which enhanced Seplat's appeal to the world market. Investors should examine such details as income increase, good leadership, and economic trends. If the investor had studied Seplat's future capabilities, for instance, the expansion of Nigeria's energy sector or the effect of a dual listing, then the stock, most probably, would still have been in his portfolio. Being knowledgeable of the industry evolutions is a way to be ahead of the game.
- **Diversification vs. Concentration Risk **
If the decision to sell was motivated by the desire to reduce risk, then it might have been appropriate to sell at N750. Nonetheless, if the sale was only meant to realize profits without a subsequent plan of how to allocate, this shows the danger of withdrawing prematurely from stocks with high potential. By spreading his investments, the investor is guarded against losses, but at the same time, the gains can be weakened if he sells off too early. The concept of risk and reward can be managed by the investor if he decides to leave a certain part of Seplat for his portfolio and at the same time, he diversifies into other assets. One of the strategies to make the decision of selling easier is knowing the level of risk you are comfortable with and following your portfolio strategy.
- The Impact of Market Timing
Determining the exact time to enter or leave the market is very difficult. The investor might have been thinking that the stock's upward potential was exhausted when he chose to sell at N750. On the other hand, the fact that Seplat ascended steeply after the sale to more than N5,000 is a good example of the difficulty of market timing. Instead of speculating when the highs and lows will come, investors are better off paying attention to the fundamental value of the company and the general market trends. Following a strict policy, such as exercising the right to sell only when there has been a drop in fundamentals, can give better results than predicting price peaks.
Conclusion
The Seplat stock experience teaches that effective investing demands the qualities of patience and disciplined decision making as well as thorough research. One of the emotional impulses, such as selling for instant gratification which was demonstrated with the Seplat story from N750 to over N5,000, can be that of missing out on opportunities. Hence, the investors who focus on fundamentals, resist market timing temptations, and combine diversification with confidence in high potential stocks, are better placed to create wealth in the long run. This tale reminds one of the necessity to combine one's choices with explicit strategies as well as an advanced level of knowledge about the market and company dynamics.
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