What investors need to do in uncertain market conditions, economic downturn
Most economies of the world experience cycles when growth slows, market conditions become uncertain and investments totter, eroding return prospects and creating fear and panic in the minds of both existing and intending investors.
It is common knowledge that an average investor tends to panic during an economic downturn, forgetting that all markets have cycles. But it needs to be pointed out that these cycles happen more in emerging markets such as those in Sub-saharan Africa.
Investment analysts and advisors, however, have words of advice and encouragement. In times of market uncertainty, they say, the most important quality an investor needs is the ability to “stay focused and confident”.
Warren Buffet is known globally as a trusted investment guru with many investment successes. He believes that one of the easiest ways to gain confidence is to have accurate information, which emerging investors can develop by watching how tried and tested investors approach different market cycles.
Until the first quarter of 2019, real estate sector in Nigeria had been in a long-drawn recession during which the property market became frustrating
and most investors counted losses or, at best, had slowdown in their activities. Even at that, it is still early days to determine whether the heat is over.
Buffet says times such as these are not when to bulk-in but to “be recession-proof and befriend the market”,meaning that an investor should look at market fluctuations as his friend rather than enemy and profit from folly rather than participate in it.
Udo Okonjo, CEO, Fine and Country West Africa, also advises that when market conditions become uncertain, instead of worrying, investors should look for opportunities to create value for their portfolio and profit while others are frozen into inaction or making wrong moves, stressing that market conditions are irrelevant if an investment strategy is right.
“Understand the market, know what the cycles represent, understand the opportunity in your particular target real estate segment, become an expert in a particular area, understand what needs to be done, and do it without second guessing yourself. Stay focused. Stay strong. Keep an eye on your facts and figures, not on anecdotes,” Okonjo emphasized.
Another vital thing investors need to do in an economic downturn is to learn to walk away, bearing in mind that desperation is not a good investment strategy. Buffet provides a guide in this connection, saying, “we will reject interesting opportunities rather than over-leverage our balance.”
An astute investor needs to understand that not every great deal is great for him. There will be times that his best investment is the one he decides not to make and, according to Okonjo, “it takes discipline to stay balanced; like some say, great estate deals are like buses, there’s always one coming up”.
“While I don’t necessarily agree that all great deals can be easily replicated, I do believe that there will be times to pass up on a great deal rather than implode your existing portfolio. Always stay in control of your investments by knowing your numbers. Know clearly how far you can and cannot go, especially if using leverage”, she added.
Essentially, an investor should understand his personal risk appetite and should also know that undue stress leads to health challenges and defeats the purpose of investing.
Another great advice from Buffet is the need for investors to understand that real estate is about return on investment, not ego, pointing out that the most important quality for an investor is temperament, not intellect, because the investor needs a temperament that neither derives great pleasure from being with the crowd or against the crowd.
Okonjo affirms, adding, “never swim with the masses; the masses are always wrong. Learn from astute investors who have track records of making real profit through investing in real estate. Investment is not a game. You have no point to prove,” she noted.