PRACTICES OF POSITIONAL INVESTMENT

If you have been following my articles, there is an article on the uncertainties of the market I covered some time back. There, I gave insight on how everyday wisdom may be used to foresee the market changes and position oneself accordingly. 

The wisdom based on analysis of information relative to the future is something that is accessible to any logic. It does not require any specialized professional skill or sophisticated data analysis skills, but rather, it begs us to put ourselves in our fellow investors’ shoes, and try to think like them under a given set of circumstances. The article is still in our site and you can check it out under the title “the secret behind positional investment.”

Now, yesterday, a reader questioned me about a promise I had made in that article through my Email account. It is good to keep promises you know. I had to go through it again and I discovered I had left the title hanging. I was to give a practical example of the application of this reasoning of positional investment in my next article. Here today, I intent to give a practical example of how people have reaped better than others in Kenya’s vegetable market using this logic.

As is apparent to every Kenyan, the market for vegetables in Kenya goes in a pattern of low and peak periods in terms of supply. When supply is at its peak, there is surplus in the market, and the price hits a bottom low while a lot of product goes to waste. During the lows, there is scarcity in the market that rockets the prices to the highest.  Funny enough, most of the vegetable product is not rainfall dependent. We therefore don’t expect their prices to fluctuate like those of rain dependent ones. Yet in reality this seasonality is observed in the movement of prices of vegetables. Basically, this is because of how different individuals analyze market information of surplus and scarcity. Think of that investor who sells during this period of scarcity; compare the profits they get with those of one who bring their product unknowingly to find a surplus.

The difference between the “lucky investor” and the unfortunate victim of circumstances, who sells during a surplus period, is rooted in how the two interpret the information of a present surplus or scarcity relative to the future. One prefers to go in the opposite direction of the others. For one, the lucky one in this case, a scarcity in the market means that other investors are still seeing this scarcity and will try to fill the gap by investing in the scarce product. To him/her, a scarcity does not imply we should invest in that product, but rather, in one which is in surplus as soon many will abandon its produce. As time elapses, he/she will be moving in the opposite direction of the other investors. They will enlarge their profit margin double wise. One, during surplus when they are planting, the market prices for material will be relatively cheaper, while, on the other hand, the time to sell prices will have moved higher.

What then do you think will happen when all of the investors have this information? Is there not a risk of a prolonged scarcity or surplus? Only when you are able to foresee this can you boast of having the capabilities of a positional investor.