Sunday, March 17, 2013

How to mitigate losses in Ecobank on the stock market

It's a beautiful but hot Sunday in Accra and here I am, hiding in my room trying to make the best of my time whiles people crack their brains worrying about their next steps to take in the stock market with respect to ETI (Ecobank Transnational Inc) stock they bought years ago. He was like, 'Hey Talizo, I bought ETI at IPO price (0.29 cents or 0.34p) and it has dropped so low to 0.11p but now at 0.18p (as at today). Would it go higher again? Should I sell now? Chaley what make I do?'.
This gentleman is just one out of many people who bought ETI at IPO price but are after of the losses they have made and don't know whether to sell or hold. This is what works for me with losses.
First, I diversify my portfolio. This is simply because I invest in other stocks or securities other than ETI so the paper losses made by ETI don't have any significant impact on the value of my portfolio. For instance, a Ghc 250 loss made by ETI due to decrease in share price, is covered by a Ghc 300 gain made by Fan Milk (FML) or Tullow oil (TLW) or even my mutual fund. 
The question then is, what if I have only ETI? How can I mitigate loss? My best answer for you is, BUY MORE ETI shares at the lower price. If you bought your shares at the IPO price of about 0.34p and the price is now 0.18p per share, you can buy an additional number of shares or slightly higher number of shares to beat down the cost to an acceptable average (which could be 0.25p or 0.20p per share). By so doing, you have mitigated the initial loss with respect to then to about 0.20p per share. (from the initial cost of 0.34p/share).
I use this strategy to mitigate loss for stocks I have confidence in and then sell later at a higher price based on my set targets and investment goals. You can use it if you think the stock has prospects.

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