Sometimes I give a serious thought to market crashes and bear runs, which have almost the same effect on the market, market crashes takes a shorter time and leaves a more devastating result. It also comes suddenly, maybe even too sudden for you to take any action, bear runs on the other hand lasts a bit longer but will also wipe some profit from earlier gains, and I have come to the conclusion that sometimes these are necessary market correction tools to consider in pricing stocks.
By this I mean we are all supposed to look at prices when they start to become unsustainable, an outrageous P/E ratio, a too low EPS and other indicators are meant to serve as guides but what we see at the moment is a crowd, hardly educated about market dynamics, making oversized orders, and buying stock simply because they want to invest in the stock market, check out the penny stocks section, some are trading way above their earnings, but investors still bid the prices up on a daily basis.
And as Gengen said earlier, the crowd is growing, I think only about 5- 7 % of Nigerians invest in the markets, but now the awareness is growing, more people are rushing in daily, go to cscs and see all the unopened accouts that are waiting for weeks and you see the market still has room for growth, and as people are dumping, freshers are packing the stock to hold, thereby creating scarcities, which will make it difficult for crashes to occur.
But the
NSE seems to have thought this out, they put some measures to hold our market from a sudden heavy crash. The 5 % maximum gain or loss is a nice way to protect innocent newbies in the market from getting their money wiped out.