The 2008 Nigerian Stock Exchange Meltdown: Why Retail Investors Lost Money

Most Nigerians who purchase the stock exchange today are institutional traders and internet worth individuals. The institutional participants comprise mainly of pension funds, fund managers and also the large cooperatives. Retail investors have pretty much abandoned the marketplace also it seems that they’re not in almost any hurry to return. Not really some policies which have been set up through the Registration and many enlightenment campaigns happen to be persuasive enough to draw in the standard Nigerian investor towards the local stock exchange.

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The main reason Nigerian retail investors have a lot indifference for the stock exchange is definitely understood considering the truth that a great deal of people lost their existence savings to the stock exchange because of the truly amazing crash. Nigerians haven’t possessed a market collapse from the magnitude which was observed in 2008. Driven by improved domestic economic conditions which characterised Nigeria’s go back to democratic governance in 1999 and also the reforms from the banking sector which encouraged banks to appear towards the capital sell to source for funds to meet up with a brand new minimum capital requirement, there is a brand new wave of awareness about purchase of stocks among Nigerians. Stock values sky rocketed, reaching unparalleled high as more people over the investment divide contacted the stock exchange to produce wealth on their own.

In March 2008, the marketplace capital of quoted equities around the Nigeria Stock Market peaked at NGN13 trillion as the All Share Index was up to 66,121.93 points emphasizing ten years of unparalleled growth. Unknown to a lot of, stock values have been overtly manipulated and overvalued to hoodwink unsuspecting investors who have been driven through the profit objective. These unwholesome practices festered because of weak regulation and poor investor understanding. However, most individuals who had invested on the market didn’t comprehend the dynamics they rode within the tide and finally sustained heavy losses once the market collapsed later around.

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Regrettably this majority who lost money, a number of them their existence savings were retail investors. These were individuals who abandoned their small companies to participate the fray of speculators a number of them invested the entire of the severance benefits and pensions while a lot of others lent money in the banks under loads of margin loan schemes that pervaded the landscape at that time. Regrettably, once the Asset Management Corporation started to assist resolve the issue of toxic assets within the economic climate, this group of investors were excluded since the volume related to this segment from the market wasn’t considered very impactful around the bigger economy. However the truth remains that lots of individuals this category were made poor, many family ties got damaged as well as their children’s education interrupted due to the losses they sustained in the capital market.

Why did they generate losses? And may it happen to be prevented? Four reasons may be easily identified.

1. The very first reason, In my opinion many Nigerian retail investors burnt their fingers was the possible lack of sufficient understanding about how exactly the stock exchange works. Lots of people arrived to the marketplace with the concept that money might be made inside a short time, for many, as little as two days. This temporary mentality influenced a lot of people’s decision to take a position without caution and research.

2. Another excuse people lost money was avarice. People grew to become so greedy that even if their investment had appreciated reasonably, they hold unto it waiting to create triple their investment. It’s pathetic to understand that almost all individuals who were caught within the web were individuals who didn’t exit from certain stocks when they need to do simply because they were expecting greater capital gains. Expert investors realize that avarice is really a harmful emotion to handle effectively if you want to be effective being an investor in the stock exchange. The drive for above than usual returns drove many investors to visit unlike their investment goals where one existed and therefore invested on highly speculative equities.

3. Bandwagon effect: Since several people didn’t even realise why they’re playing on the market, nor had the fundamental understanding of methods the marketplace works, they just move using the tide from the market. Where investor A had made 50% capital grow in a regular inside a short time, others simply gravitated towards the investment without shown to timing or asking the appropriate fundamental and technical questions. Crowd mentality only work fairly where a trader has the capacity to study and interpret prevailing market mood as well as abide by it track of exit and entry strategy which will make sure that his investment isn’t taken away through the tide.