Stock market not an ideal investment
WE have talked about sexy investments before and how they help us increase our financial freedom. Remember at the very beginning the column was entitled “Are investments Sexy’’ before it changed to Explore. Dream. Discover. Financial Freedom. These sexy investments help us improve our passive income streams.
Due to stocks being considered hot or not we decided to be naughty and measure these investments on the scale of how sexy they can be.
In our quest to be practical and relevant we have decided to critically look at the Zimbabwe Stock Exchange as at current without being emotional and theorising this investment vehicle.
We know you have been told “us learned people we don’t believe in keeping our wealth in cattle/inkomo/mombe but on the virtual markets like stock markets”. Guess what, as at current probably your herd of cattle (if insured and well fed) is the source of your wealth and peace of mind. Learned and knowledgeable could be different. This financial ignorance or lack of financial knowledge is costly.
Why is stock market bad for you as a small investor or small local player?
You invest for share appreciation Due to the low capital inflows, lack of foreign buyers, lack of industry capacity utilisation (excess incomes) demand for shares has dwindled. This has caused share prizes to be on the downhill for a while.
And due to these challenges the prices of respective shares on the local bourse doesn’t seem to be on a positive trajectory in a long time. Thus investment there will take longer for the prices to start going up. For smaller players that is tying up your capital too long and you miss out on opportunities. Such dead capital to individuals or small players is dangerous to their operations. It is not sustainable as resources are always minimal for small players. So the stock market isn’t appealing in the least.
You invest for dividend payments Due to numerous challenges as listed above companies are not making any significant profits thus can’t pay out dividends to shareholders. Those that are making little profits it’s going towards recapitalisation as it is cost effective or just putting into reserves for the rainy day .
Both ways dividend payments are being foregone and that isn’t good news to a smaller player who needs that income to sustain their personal needs or business requirements of their concerns.
You invest for some form of income but if that isn’t coming your way then why get into that investment. Those that are paying minimal dividends to shareholders when you compare to shareholding that small players hold it becomes a meagre payout of no consequence at all.
You invest for future cash flows The idea is such that companies will generate cash flows and then that translates into share appreciation for the respective stock. If in the immediate and middle horizon it doesn’t look like such companies will generate any cash flows then you can’t invest in such companies and it would be difficult to realise a return on your funds invested. The time it will take to break even and realise a return on share appreciation from performance looks like it’s going to take ages. If it takes longer then for a smaller player that isn’t healthy at all.
You invest for power Some players invest for strategic power for their respective interests.
For a smaller player to seek that it will be nonsensical as their shareholding is insignificant to wield any power in favour of their concerns. Minimal investment doesn’t give that smaller player the power to safeguard their interests in whatever avenue that could be.
You invest for control & influence The concept of control and influence is appealing to stock market players. It is this appeal that at times has pushed prices up and sustained them. This appeal isn’t what a smaller player is looking for as she/he hasn’t self actualised in his personal or business life. It would not appeal to smaller players who are still chasing liquidity and survival and parking their capital to stroke their ego could be suicidal.
In any case control and influence is about major shareholding, which our dear smaller players will be ill advised to pursue.
From previous performance given a perfect 20/20 vision of hindsight we hypothetically compare the performance since dollarisation in 2009.
Example. If, for instance, you had invested $1 000 000,00 at the onset of dollarisation (with a reputable solid bank) at 10 -25 percent per annum you would have doubled your money by now. That is impressive. Thus hot and sexy. This money would still be available to you whenever the need arise. What more would one want.
If you had invested in a good sound business by now it would have given you a couple of millions in cash and assets.
The same amount of money if it had been put on the stock market in 2009 it could be worth $150 000,00 on some counters excluding transaction costs. The biggest challenge would be you will still remain illiquid and liquidating/ exiting will be costly. That is so unsexy. Not hot stocks.
As at current the individual or small company has no business on the stock market, get involved in other investment vehicles. As a reference for future market enthusiasts who would like to explore this avenue it’s advisable for them to read about Warren Buffet’s rise in this game as it is an interesting and calculative approach to stock management. It is playing monopoly with real cash.
If you live in Bulawayo please conserve water. If you live in Zimbabwe please use electricity sparingly: SOS (switch off switches). If you live on planet earth please preserve the environment.
Morris Mpala is the managing director of MoB Capital, a Bulawayo headquartered micro-finance institution with footprint across the country.