I am currently rereading my investment bible, Security Analysis written by Benjamin Graham and David Dodd. The book is still as relevant as it was in 1933 when it was first written.
What stands out in the book is the need to buy stocks at discounted prices, or those which are undervalued. Such stocks are usually difficult to get these days as investors have more information today than they had in 1933. However, I took a good look at the Nairobi Securities Exchange (NSE) and noted that there is more than meets the eye.
The fact is; we are experiencing a bear run.
This year has been a difficult one at the market. The NSE All Share Index (NASI) began the year at 162.9. By the time of writing, it had dropped to 147.6. This was a reprieve considering that, by August 27, the NASI had fallen to 137.5. To date, the market has shed off 9.39% in one of the longest bear runs.
This is in contrast to the 2014 performance where the NASI closed the year with a 19.9% gain, coming second only to Dar es Salaam on the continent.
There are many reasons why the NSE is shedding value. Firstly, the government introduced an unpopular capital gains tax which worked against the market from day one. The tax has since been abolished.
Secondly, and more importantly, the international investment climate is still recovering from the 2009 recession. Investors are still very jittery and, at the slightest provocation, they move their money to safe havens. Internationally, most investors believe the United States (US) is the safest place for their money and so, at the slightest tension, there will be a capital flight to the US.
This year began with uncertainty around the Greek problem and a subdued Chinese economy. These two factors drove foreign investors to believe that they should be cautious and most of them sold their holdings and took their money to the US. This strengthened the dollar, driving the forex rates of other currencies through the roof, the Kenyan shilling included.
If there is bad news in the market, to the effect that a considerable number of investors are selling, other investors will also sell without knowing why. It has a ripple effect. The international pressures caused only half the paper loss, the other half was due to fear and panic by other investors.
Nevertheless, prices of many counters have gone down. It is naturally a loss to many, but is there a silver lining in this dark cloud?
To understand this, one needs to check the best performing industries of last year. The champions of 2014 were the insurance industry and the agricultural sector. In 2015, the major gainers of 2014 are in the red. Britam has shed off 41.5% since January. CIC Insurance, the best price gainer in the sector in 2014, has shed off 26.04% this year. Pan Africa Insurance suffered the most, having lost 45.42% in the year.
There is no doubt that the insurance industry is expanding in Kenya, with the growing middle class requiring a wide array of insurance services. Furthermore, actions by companies like Britam create an investment appetite as the adjustments herald a growing stock. Yet these companies have lost significant value and present a great opportunity to a long-term investor looking for discounted stock.
But the attraction is not only in insurance. Housing Finance, ARM Cement and Total Kenya are all in the red, presenting opportunities for growth.
The end of the year is approaching and many investors are looking for value investments that will make 2015 worthwhile. If Security Analysis is anything to go by, then there is a real opportunity in the Nairobi bear run.
Tellingly, bear runs present investors with a great opportunity to buy choice stocks at prices much lower than the actual value. So while many are making a flight from the bear, embrace it and give it a bear hug, it might make you rich.
Cryptocurrency for Africans
George Gordon is on a quest to revolutionize the financial system. The director of Africa Master Blockchain Company talks digital currencies, blind risks and board games.
What is this new African cryptocurrency you are offering?
Where the majority of current digital currencies are based on speculative models, AfriUnion Coin (AUC) and the AfriNational Tokens (ANT)are designed for a transactional purpose allowing international payments, remittances, foreign direct investment as well as day-to-day transactions at local retail stores and other outlets. While the option for speculative trade is available with AUC, the focus is not around that.
Each African country will have a specially-designed ANT which will allow users to pay for goods and services and bills easily through completely digital means without requiring any bank account. AUC and ANT will be fully interchangeable to one another and there will be no fees for the user.
It’s the natural next step for digital finance from mobile banking which most Africans are accustomed to. The ability to freely have the power to send and receive money locally and internationally will allow the freedom of choice and spending power many Africans don’t have currently.
What is your own investment philosophy?
I am a gambler! I believe in taking risks and putting things on the line. That being said, blind risk or whimsical guesses don’t get you very far. Always acquire enough information to understand to a reasonable level what the thing you are planning on investing is or how it works and then trust your instinct and gut feel.
What advice would you give entrepreneurs wanting to invest in blockchain?
First, do some research in terms of what the blockchain technology is being applied for or created in terms of its application to an industry or project. Thereafter, check the white paper for the design of the platform as well as its functionality and applicability to what it is trying to achieve. If it aligns with your personal investment rules, then go for it,however, remember that blockchain is continuously evolving and thus you need to explore outside the usual and standard.
First cash-less, now card-less. What is the future of online banking?
If we are looking into what is currently science fiction, I would say the future is digital contact lenses that will be able to connect you to all your social media accounts, internet, news as well as make payments by just looking at QR codes or specialized barcodes to approve and accept payments.
Now, realistically we are not far off from such innovation and technology, but for the time being, I think the next step is scanning of QR codes at retailers and having the transaction automated from your wallet to the retailers digitally.
What is your most prized investment and why?
My mind. I believe that the work I have put into developing my mind, and continue to do so every day, is the number one investment that I have ever done. It allows me to look at things in a unique perspective as well as provides me with the tools to push boundaries and create new opportunities.
Money, success, fame? Which is most important to you?
I would have to say success… because it is most likely going to bring the other two as well, right? But success in the form of starting something and letting it grow and succeed and knowing that something new exists because of your efforts.
What do you spend your money on mostly?
Board games. I love board games and believe it’s a fantastic way to expand your mind as well as have fun with friends.
King Price CEO On Why He Invested On Insurance
King Price Insurance’s CEO Gideon Galloway, who built an insurance company in South Africa worth over $226 million in six years, talks investments, industry trends and how self-driving cars will change the entire car insurance landscape.
Offering The American Dream
Gar Lippincott and Daniel Ryan of Atlantic American Partners were in South Africa recently looking for high-net-worth individuals wanting to invest in the US.
It’s a warm spring day in September, and Gar Lippincott and Daniel Ryan have just arrived in South Africa. It is Lippincott’s first time in the country, and he is jet-lagged.
A little over two months ago, he was booked to fly here from the United States (US) but was turned back at immigration.
“At Atlanta airport, the lady looked at Daniel’s visa and let him through and she looked at my visa and she said ‘I am afraid you can’t get on the plane because you have to have a blank page on your passport’. I said ‘I have three blank pages’ and she said ‘no, it’s supposed to be the one that says visa on it’. She said it’s the rules in South Africa so I had to sadly go back home… now when I was coming, I was told that’s not an issue anymore so I am happy they have made traveling into the country easier,” says Lippincott.
With a brand-new passport, he’s here with Ryan looking for people who want to invest in the US in exchange for a green card.
Lippincott, the Managing Partner of Atlantic American Partners, says he has always been keen on South Africa for its growth opportunities and prospects.
“From what I understand, the things that are causing short-term decline in the economy in South Africa are set up to provide long-term growth and hopefully people will understand this,” he says. Ryan, the company’s Managing Director of Emerging Markets – Africa, agrees: “I lived in Malawi for 12 years and South Africa is still considered the shining one throughout the continent. Even with all the problems, everyone still wants to come here because of the opportunities.”
According to an AfrAsia Bank report, South Africa comes second to Mauritius in boasting the highest number of high-net-worth individuals.
These are the kind of people Ryan and Lippincott target through their work at Atlantic American Partners. The company has real estate investors and professional private equity fund managers that manage money for banks, insurance companies, and pension funds. In addition, they help people get US green cards and ultimately US citizenship through the US government’s EB-5 Immigrant Investor Visa Program.
“Basically we look for people who want to move to the United States and we help them do so legally by investing and the nice thing is, with our program, they are also able to get a nice return on investment,” he says.
According to Lippincott, for a $500,000 investment that creates 10 jobs for American workers, you could get a green card in about two years and be a US citizen in about six or seven years. “Twenty seven countries have an investor visa program but with most of them, it’s essentially a fee you pay, or you need to be actively engaged in the day-to-day operation of a business. For example, you invest $1.5 million in Australia, but you need to hire employees and generate a certain amount of revenue. One of the biggest advantages with our program is you actually invest the $500,000 into a fund. We act as a trustee of that money and within five to seven years, they get that money back with a bit of return on investment and you are a permanent citizen in the US.”
Atlantic American Partners invests the money in real estate developments like hotels, apartments and student accommodation.
“What’s nice about the program is it doesn’t only cover the investor; it covers the spouse and children under 21. Our biggest family was a Hungarian family with seven children so they got nine green cards for $500,000,” says Lippincott.
The company says it has had positive response in South Africa. “Two months ago, we were here and we had scheduled six presentations for 100 people and we ended up speaking to 450 people. Most were business people, people worried about the economy, people worried about the political future of South Africa and people concerned about the education future of their children,” says Ryan.
According to Lippincott, despite the news of the clampdown on immigration, the US economy is booming and will perish without immigration. In the era of Donald Trump and his anti-immigrant views, that’s heartening news indeed.
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