Lately I’ve been wondering whether my decision to invest into the stock market was a mistake. I was having a conversation with my mom on a prospective land investment, where I had to tell her that I wasn’t as liquid as she thought I was. She was mildly shocked when I revealed to her what amount I had in the stock market. Long story short, about 80% of my net worth, as of today, is in the stock market. This brought back some of the fears that I’ve been battling with over the last couple of months. Was I making a mistake committing so much money to investing? Was I making the right investments? Would it be worth it? Could I lose all my money. These worries are greatly amplified by the fact that the markets have been in a downturn basically from the moment I got in. But then we touched on an investment they had made, and forgotten, a long time ago. and honestly, it served to reaffirm my conviction.
Safaricom
My parents bought into Safaricom shares when it had its IPO back in 2007-2008. They bought in at around KES 5 at the time. Safaricom’s IPO was a big thing back then. But without the knowledge and time to keep up with this investment, it went to the back burner. Whenever they talk about it, it is with slight disgust and disappointment. The dividends are measly - my guess is that they expected huge dividends from their investments. They almost never bother with the shareholder meetings. Its basically wasn’t a very good investment. But the numbers tell an entirely different story. I’ll try and keep this simple - hopefully this won’t be too boring.
The Numbers
Safaricom shares, as I’m writing this article, are trading at around KES 27 (they hit an all time high of KES 44 before the election period came up). This represents a profit of KES 22 for a single share bought. That, in percentage terms, is a growth of 440% (a return of 4.4 times the initial investment). That represents an annual return of 29.33% in simple interest, and about 11.8% compounded (speaking to the power of compounding). Forgive me if I’m wrong, but that is a pretty good return on investment. As an example, banks offer, at best 3% interest, and none at worst. Money market funds, offer between 8% - 10% return, before management fees (which run around 2% - real returns being 6%-10%). The conclusion being, that five shillings invested in Safaricom is probably the best five shillings they have ever spend, barring one other investment to be mentioned below.
The Time Factor
You have to consider the fact that this investment only makes sense when considered over the long term. In the short term, there were plenty of reasons to sell. And I mean plenty. From February to June 2009, the stock was selling in the KES 2 range. This represented a investment loss of about 60%. Sixty percent! Also consider the fact that form September 2008 to January 2010, the stock was below the price they had bought it for. For a period of one 15-16 months, they were negative. But two arguably good things happened during this period. First, they got disheartened enough to stop following the stock. They simply stopped caring. This led, in a funny way, to the second good thing. Their indifference resulted in them forgetting about the stock. And by forgetting about it, they were able to ride the highs and lows - albeit unaware - of the stock, to the present day. The bad with this is that there might have been opportunities to sell, such as when it was trading above KES 40. This would have represented a profit of a 46.66% in simple interest (14.8% compounded). But opportunities to sell exist anywhere above their initial price, and would have meant selling for a way lower profit.
Land
The one better investment I mentioned above was land. And the return on this are pretty astronomical. The gains sit at around 1,233% (12.3 times their initial investment; 68.5% in annual simple interest; 15.5% compounded). That just blows my mind. Now there are disadvantages to land - it takes time to close a deal whether you are buying or selling, making it very illiquid - but for someone in their twenties, with no immediate need for cash, it makes for a pretty compelling investment choice. We’re at a point in Kenya where more and more people want to have a title deed. Something in their name. The demand - and prices - for land will only go up with time. If you can, buy land. Don’t wait for a market crash. The market can remain irrational longer than you can remain solvent.
So…
What I realized is that I may be a little too focused on the short term. I’ve been investing in the stock market for about 11 months now. And while it has been a pretty bad 11 months, maybe I need to employ the same mentality as my parents. Buy and forget. In 20 years time, who knows what those investments will be worth. This dip may look completely inconsequential in 2042 - provided I’m still around then. But one thing’s for sure. I have time on my side. So I’m going to use it. The only difference in strategy is that I’m going to continue dollar cost averaging in, instead of one time buying. Hopefully I’m good at identifying long-living companies from the vast haystack of companies out there. But only time will tell.
As always, the tools I use are as follows: Interactive Brokers is my broker of choice as at present; Wise is my tool of choice for moving money internationally; Coinbase is my crypto exchange of choice. These are referral links, tied to my accounts, but are based on my personal, albeit unexperienced beliefs. See you on the next one.