Do not let the current carry you away

The huge interest shown by our readers to the blog "Why I am still a Confident Investor" this Thursday has prompted me to write a bit more to generate debate and comments, which could go a long way in helping the youth of our dear country in building their future. 

My own dream and hope is that we will wipe out the levels of poverty that exist in our country today.

If we are capable of creating an ‘Obama’ who can go to America and almost single-handedly find the solution to turning back the American Economy onto a growth path, why can’t the rest of us turn this small economy around?

A wise investor once said that "All hard work brings a profit, but mere talk only leads to poverty."  And I would say that a sleeping lobster is carried away by the water current.  If some of the greatest investors and/or billionaires in the world believe in the stock market, why not you?  Why do you want to allow this current to carry you away?

Your fathers and mothers put funds together and bought shambas.  But now we have no more shambas to buy.  Instead, we can now buy into all our key companies, banks and other investments in our country.

Do the youth of Kenya want outsiders to come here, take over and own all our wealth?  Where does our independence come in?  Believe me, political independence without economic power is nothing.  Let the youth of this country learn the culture of working and saving together in groups to invest in our stock market.  In 10 years to come you will all be really wealthy.  You might even remember that I inspired you and buy me a drink.

So, despite all the doom and gloom that has characterised the stock market, I continue to be enthusiastic.  Why you may ask?  Because the global crisis and ensuing panic has created a rare window of opportunity for investors to make high returns.

Investing is a basic and simple business, it is about buying low and selling high.  A return is obtained when an investor buys an instrument for a certain fixed price today and in return earns cash flows into the future.

It is easy to see why I am confident. As a businessman I am in the business of buying low, and share prices are today more than 50 percent cheaper than the levels they were 15 months ago.  I also believe that in the long term, the cash flow generating potential of most stocks on the NSE has not changed.

I am confident too because the history of the financial markets has proven that the highest returns are made when prices relative to earnings are low.  An analysis of the long term returns of shares for the period between 1881 and 1989 shows that the highest returns recorded were preceded by periods when the price relative to earnings was low.

I am also confident because my risk levels have reduced.  As a businessman, one must consider investment risk i.e. when you pay more than an asset proves to be worth.  Shares are down 50 percent; the probability of paying more than a share is worth has also been greatly reduced.

Contrary to what the local dailies had to say this week, I am not worried that my wealth has been eroded by the decline in share prices.  What matters to me is not what Mr Market thinks as his moods change day-by-day but rather whether the fundamental drivers of value in the company I own are improving.

My focus, in any of the companies I own, is how well positioned they are to generate cash flows into the future.  And like Warren Buffet recommends, I also invest in companies which in his words, I would be happy to own even if the stock market closed for 10 years.

I am who I am not because I rob banks, but because I invest wisely and have always believed in the power of our economy while others take their money out of the country and invest in the Western World.  This is our country and together we will make it to be a highly prosperous nation.  God bless our Country, Long live Kenya!

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