Sunday, August 12, 2012

Investing in the Nairobi Securities Exchange lessons

As Warren Buffet, arguably the greatest investor in history said, “Never invest in a business you can’t understand.” Investor Education is what novice investors in the world and Kenya in particular are missing.
Over the years, Kenyans have fallen victim to Pyramid schemes (fraudulent ‘investment clubs’) leaving stockbrokers, brokerage firms, and other stock market experts to blame unmitigated gratuitous speculation and inept investment strategies. However, the problem lies deep on overlooking of basic literacy in investing and finance as a whole.  
A stockbroker whose roles may range from determining market values to giving investment advice to their clients will rarely educate you on the much-needed basics, which is the only safeguard for any investor and especially those wishing to start investing in the stock market.

As stated by Ben White in Top 5 mistakes made by investors Africa; Lack of Knowledge has been identified as one of the biggest challenges to African investors.
Uganda is quite different from Kenya. Ethiopia is a world apart from Nigeria. Each of the continent’s 55 countries has a unique regulatory environment and tax regime. Investing in one country come with different terms, possibilities, and restrictions than another.
Too often, there is a lack of planning in advance. Research needs to be conducted on the target market before investment s can be made into particular ventures. Is there a minimum capital requirement in country, is this legislation up for renewal, how can capital eventually be exited, how does the tax system historically deal with the sector? Many questions and areas need to be considered in order for an investment to make sense long term.

An alternative to the consensus opinion or what may be considered mainstream investing is contrarian investing. In finance, a contrarian is an investor who seizes the opportunity to buy shares of stock when other investors are busy selling and sells when others are buying.
A good example from Wikipedia, widespread pessimism about a stock can drive a price so low that it overstates the company’s risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers can lead to above-average gains.
Conversely, widespread optimism can result in unjustifiably high valuations that will finally lead to drops, when those high expectations don’t pan out.   
Amazingly, the world’s third-richest person Warren Buffett is a contrarian, who believes that the best time to invest in a stock is when shortsightedness of the market has beaten down the price.

Kenyans who are new or want to start investing at the Nairobi Stock Exchange visit this resourceful site for more about investing in NSE. The investor education section starts with the elementary Price to Earnings multiple (PE), and how to apply the PE ratio. 


  1. Thanks for that last link to the Contrarian Kenyan site. I have been looking for info on the KEnyan markets, specifically from source that has been trading and investing there for a while. This should help.

  2. We need a kind of a series on those topic make it part of your business category


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