“An investment operation is one which, upon thorough analysis, promises safety
of principal and a satisfactory return. Operations not meeting those
requirements are speculative.”
- Benjamin Graham
Getting Rid of African Trophies
I have always had something for computers so when programming happened to come up on my “learning-radar”, I just delved into it. Actually, it wasn’t so easy. But there was something important about the way I began studying programming that is related to our topic of discussion today; instead of looking locally, for the best and easiest language to begin with, I looked globally by searching the Internet and soliciting international help from the very best in that field. I ended up beginning with Python.
I won’t be surprised if you haven’t heard about the Python programming language but you see; that is precisely my point. Nigerians, like most Africans, have the habit of creating comparisons with those in their immediate environment. The result is a persistent celebration of mediocrity. So you hear such clichés as; “We are the giants of Africa”, or “We have the biggest economy in West-Africa”, or “We have 25 “mega” banks”, or “Our football team is the best in Africa” et cetera. The problem with all these African trophies is that, Africa as a continent has had a history of below average performance for most everything from politics to sports and has persevered with this till present. So the comparisons stand on the same rank as the proverbial one-eyed king in the land of the blind. It is thus not far fetched to say that this has occurred as a result of our continuous competition with ourselves without considering the broader horizon of the international community where people with visions of infinity exist and outwit each other. And yet we complain about our not getting anywhere in anything. We NEED to raise our targets.
Applying the Global Perspective to Stock Investing
Having said that, we could simulate a subtle application of this concept (i.e. viewing things globally) in our investing endeavors. Well you don’t have to do it, I have done it already. Let me give it to you straight; if you intend to make real money from the Nigerian Stock Exchange, you’ll need a lot more knowledge than Technical Investing can offer you. There is a more involving concept called “Value Investing” that has been used by the most successful Investors and is still in use today.
Investing Conventions Utilized Today
“…in speculation when to buy –and sell – is more important than what to by, and also that almost by mathematical law more speculators must lose than can profit.”
-Benjamin Graham.
On the introduction of the new capital base by the Central Bank of Nigeria, the Nigerian Stock Market enjoyed a deepening, an unprecedented awareness and an enhanced liquidity than has ever been in its history. In clearer terms; there is more money changing hands, a lot more people have an idea of what the stock market represents and there are more shares to buy and sell. These have introduced a new niche into the society, of which this web-log is an offshoot; those who want to know about investing in stocks and those who want to teach about investing in stocks. I have already advised that, to know more about anything you should look on to a broader horizon by considering the global perspective. But what about those who teach?
“I have long felt that the only value of stock forecasters is to make fortune tellers look good.” -- Warren Buffett
The media today is rife with “investment gurus” suggesting what you should buy or sell. In fact Meristem Securities has a double page infomercial in the Sunday Punch which sometimes contains a list of buy or sell stocks. Various “financial analysts” tell you to buy a certain stock for reasons such as; bonus issue by the company in question, good earning per share (EPS), good news that might impact the price of a stock etc. In essence they ask you to buy a particular stock based on technical analysis.
All these advices actually do work, But for how long? Technical analysis works relatively well in bull markets, which is what we have today in the Nigeria Stock Market, but it leaves regret and finger biting in its wake in bear markets, which is to come in a not too distant future. I have treated Technical analysis is two of my previous web logs
i. Examples of Technical Analysis on the NSE
ii. Further Examples of Technical Analysis on the NSE
And I must confess that I have made some money by this concept. However, I am aware that this cannot last for very long, the question is are you?
A Brief Overview of the Value Philosophy
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.” – Benjamin Graham
I will like to iterate that some of the most successful stock investors such as Benjamin Graham, Peter Lynch, Joel Greenblatt, and of cause the richest stock investor, Warren Buffett, attained their success altitude by Value Investing. Another important point is that they are totally opposed to investing technically at least in carrying out their own Investments. I guess it only makes sense to emulate the real gurus, what do you think?
The peculiar thing about value investors is that their language is different. While the technical investor talks about bonus issues, the value investor talks about the company buying back its shares, while the technical investor buy the shares of a company, the value investor buys into the business of a company, while the speculator tries to profit from the day to day fluctuations of the stock market, the value investor NEVER follows the movement of the price of a stock on the market etc.
So what is value investing? Value investing generically involves paying less than the value of the assets in place of a firm. It is the act of investing in companies with low price-book values. Though this definition seems straight forward enough, putting this into practice requires the habitual exercise of inculcating a few new concepts into your usual investing convention. Some of the more popular concepts are given below
Never follow the day to day fluctuations of the stock market
“As far as I am concerned the stock market doesn’t exist. It is there only as a reference to see if anybody is offering to do anything foolish.” – Warren Buffett
The market only exists to make it easier to buy and sell, not to set values. Keep an eye on the market only for someone who is willing to sell a stock at a not-to-be-missed price.
Buy a business, not its stock.
“In our view, what makes sense in business also makes sense in stocks. An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all the business”
- Warren Buffett
Treat a stock purchase as if you were buying the entire business.
I will be introducing a lot more of the concepts of Value Investing in greater detail in the following weeks. Let’s enter a new phase of investing in the Nigerian Stock Market. Let’s embrace Value Investing. You can start by reading the references on the side bar or by googling the term “Value Investing”.
Happy researching.
I have nothing against Meristem Securities. They actually have a very fantastic site that is good for research, complete with financial statements and company analysis. Though they have a value approach to evaluating companies which is very useful, their stock suggestion is anti-value investing.
Visit www.meristem.com.ng
Value Investing: A concept for true stock market millionaires.
