Your Currency, Your Poverty: why focusing your thoughts on the Naira might be the reason you are poor…

I was a millionaire in my early 20s. But I quickly recognized even then that a few millions (dollars) did not amount to much. I could not afford my preferred lifestyle on such a small fortune.

– James Dale Davidson, “Affording the Good Life in an Age of Change.”

Exorbitant Exchange


I had this idea few years ago but an event occurred a few weeks ago that has triggered my sharing it with you. I was fortunate to be around a young business man who kept receiving calls from clients, and in a somewhat penitent tone, he insisted that his price of 165 was not exorbitant because the CBN just announce an exchange of 161.5. Apparently he was talking about the dollar. In another call, to a friend probably, he said that Nigerians are in trouble because prices will sky rocket. Pragmatically, his statement seems to possess a good deal of verity, but by the end of this essay, I’ll try to show why it might be an illusion.


The Nigerian Millionaire


Early 2007, I was unfortunate to be within ear-shot of a couple of young men arguing over the millionaire status of the MD of the company in which they worked. The fulcrum of the first man’s argument was that; since the MD drove a N6million Toyota Camry 2007, then the MD is a millionaire. The other man, on the receiving end of this grave assault to the human ear, aptly pointed out that; N6million was just about $45thousand. The first guy ruptured my ear drums by sharply retorting: “a millionaire in America is a millionaire in America and a millionaire in Nigeria is a millionaire in Nigeria.” Hmmm…this led to my postulating the first (and I dare to campaign; only) rule of the millionaire status:

A millionaire has “NO” geographic restriction.

A millionaire in New York is one in Rio de Janeiro, Reykjavik, London, Lagos, Istanbul, Tel Aviv, Dubai, Moscow, Bombay, Tokyo, Bangkok or Sydney.

It’s all in the mind…


My Wallet; My Footstool


Last year, a friend of mine proclaimed on his personal page: “When I stand on my wallet, my head touches the ceiling!” The statement seemed metaphorically ingenious and also hilarious. One could only wonder what standing on a wallet stuffed with lots of money will feel like. But on a closer look, coupled with a little thinking, you’d realize that my friend is not as ambitious as he thinks… If only he could see that if he stuffs his wallet with, say, the old Ghanaian Cedi, his head will probably be scraping the sky, or more ambitiously, with the Zimbabwean Dollar (with inflation in 9digits), he’ll probably be speaking directly to God! Although I doubt God will be very impressed with this fit, judging by my only known historical precedence of such an event; The Tower of Babel.

But what if my friend was gripped with true ambition, and he stuffed his wallet with, say, the US Dollar or the British Pound? I’m sure he wouldn’t make a stack high enough to form the heels of his girlfriend’s latest shoes!

It’s all in the mind…


Who wants to be a Millionaire?


I always imagined myself speaking to a group of students at one of our universities and throwing this question out to them: “Who, in this hall, wants to be a Millionaire?” The response is predictable; most people will thrust their hands up eagerly, save some who, probably, weren’t listening or who think I’m bad looking.

Now, I take my thoughts a little further and imagine speaking with a group of students in an American university, University of Michigan peradventure, and I throw the very same question to them: “Who, in this hall, wants to be a Millionaire?” The result will probably be similar to that of the Nigerian University.

But now, I’m throwing this question at you: “Do you think the Nigerian students and the American students were thinking of the same millions?” The answer is No! There is a Mathematical deception here; while 1000000 in Nigeria is 1000000 in America, 1million US Dollars is NOT 1million Naira, it is now 165,000,000 Naira! The same question, the same result, but not the same mind-set! While we align our ambitions targeting our millions in multiples of ‘1’, our American counterparts align their ambitions targeting their millions in multiples of 165! The difference is high, the economic results are overwhelming.

So it doesn’t surprise me that a student says he is comfortable with N50000 ($310) a month, or that another naively describes a millionaire as one who has accumulated N8million ($50000) or that someone who gets paid; N200,000 a month and drives a 10year old Honda Accord he polished with a few thousands, assumes he has arrived…

It’s all in the mind…

While I admire the “Who Wants to be a Millionaire” show sponsored by MTN for its promotion of knowledge, I’m not a big fan. This is because it fosters the illusion that winning the ultimate prize money (N10million) makes you a millionaire. It doesn’t. That show is supposed to be a Nigerian impression of the original American version, however, it was copied poorly; the American show really makes you a millionaire ($1000000). (By the way, MTN probably makes real millions from the calls you make to get on that show.)


Think in Dollars


So what I’m I driving at, you ask? You should begin to think of achieving your goals with a dollar mind-set. (Consider that a completely untouched salary of N1million a month i.e. N12million a year hits a million dollars in about10years if left unfertilized (assuming an imaginary average exchange rate of N120 to the dollar)).

Remember that guy in the beginning that said Nigerians are in trouble and how I’m supposed to prove/disprove that statement? Here goes: Taking an extremely simplistic situation;

Assume you are in the business of importing quality ball-point pens for retail. Two things to consider:

• i. The currency of international trade is the dollar
• ii. Most goods in Nigeria are imported, giving credence to the guy’s conclusion

(If the goods weren’t imported, the materials to make them probably were).

Now, the exchange rate is N120 to the dollar. The unit price of your pens is $1. So you sell at N150 to pocket a N30 profit. But late one evening, on the evening News, CBN announces a sudden change of rates to N165 to the dollar. To stay in business, you shore up your suddenly depreciated capital to buy more ball-point pens, which are N165 each now and sell to consumers at N195 (or higher) to maintain your profit margin.

To you and to your customers, prices have gone up! Things are expensive! (And they are; like my friend told me yesterday, even artificial eyelashes are affected by the dollar price).

But wait; there are two sides to a sale. What happened to the man who sold the pens to you? He still gets his $1!

Prices will go up because employers do not raise or lower salaries commensurate with the vacillation of the dollar.

How do you beat the system? Make your money in Dollars. How? That, my friend, is your assignment. But first internationalize your thoughts and think in dollars.

The Nigerian Bear Market; is it really a good time to buy?

• The Case of TransCorp
  
• The Case of Nascon
• The Case of Oceanic bank plc

For anyone who will be investing for years to come, falling stock prices are good news, not bad, since they enable you to buy more for less money. The longer and further stocks fall, and the more steadily you keep buying as they drop, the more money you will make in the end if you remain steadfast to the end. Instead of fearing a bear market you should embrace it… Jason Zweig.


In recent times, I’ve had people walk up to me to ask what I think of the present market situation and what I think they should do with their money. The little more enlightened ones ask the confirmatory question; is it really a good time to buy? My answer is usually ignored for the more deafening advice of fear and more effective pounding of their quickened heart beat.

A few months ago, just before the market slipped into recession, when stock prices where high with a corresponding high-spirited followership, there where IPOs, POs, stock seminars, investing gurus sprung up from desert grounds of nothingness; we had penny stock gurus, blue chip gurus or just plain gurus, stock newspapers sold like lozenges in the raining season, all saying the same thing: BUY! And boy, did people buy!
Fast forward a few months to the present; IPOs are announced in near shy-ness, POs have receded to a trickle, stock seminars have vanished, stock newspapers are cooling their feet at the stands, and the gurus, well, they are still there, only they are whispering now: “it is the best time to buy…” But no one is listening, no one is willing, no one is buying.

So is it really a good time to buy? I’ll try to answer this question by putting things in perspective. Like Robert Greene says; ideas are best communicated in metaphors.

The Case of TransCorp

The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he should refrain from buying and probably would be wise to sell. --Benjamin Graham, the Intelligent Investor.

A very good friend of mine, Kehinde, was sharing an anecdote with me in his usual delightful exaggeration. He was telling of his father’s bitterness towards the performance of TransCorp. He said if one wanted to discuss say, transport, with his father and begins the conversation by saying, trans… There will be a visible transformation of his father’s visage, complete with pulse racing at the neck region and eyes narrowing in apparent anger, only after the word is completed with, “port”, will his father’s psychological and mental balance return to normal saving the person confabulatory anguish. (He didn’t tell of the consequences if the word was actually completed with “corp”, my guess is that would have being a more delightful story).

As humorous as this story is, many of us are very much like my friend’s father. We sunk thousands or millions on TransCorp based on promises; promises of a better future, and now we want dividends (actual and metaphorical) even in the face of contrary evidence. The prospectus of TransCorp’s IPO clearly stated that it expects to make an N8billion (8,166,433,000) loss for the year 2007, another N1.9billion loss for 2008. TransCorp expects to pay its first dividend of 5kobo by 2010 and 2nd dividend of 8kobo by 2011. And so far TransCorp has done its best to keep its promise.

My point is, doesn’t it defy logic that we bought TransCorp at that time for N7.50 per share and now, with almost nothing changing (except for bad press and a little more enlightenment on the ever present trouble at NITEL), we refuse to buy TransCorp at N1.50?
This is not to say to buy or not to buy TransCorp but to point out the hitherto obnubilated illogicality of buying at N7.50 and not buying at N1.50.

The Case of Nascon

The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. -- Benjamin Graham, The Intelligent Investor

It is still very fresh in my memory billionaire Aliko Dangote’s “Largesse” and the public applause that went with it. I remember vividly how people stepped over each other and nearly wiped out Nascon’s availability from the stock market. They purchased Nascon stocks at the “discounted” price of N22 per share. This is 159% of the present price of N9. If Dangote’s magnanimity scrapped bottom at N22 and caused a stampede, what would you expect with Mr. Market’s (link) price of N9? An avalanche, a Tsunami, or even hurricane “Buy-Nascon”? (For all our lack of natural disasters). But no, we have none of these. Instead, by stock market mathematics, many of those who bought at N22 are selling their shares faster than a salesman with an impossible deadline. Is this logical? What part of Nascon’s business is worse than it was then? If anything, it’s better, way better than I expected. Not that I think N9 is a good price or that Nascon is a good investment, but if you bought it then, why are you refusing to buy now? Or worse why are you selling now? How come you don’t consider it "cheap and heavily discounted"? Doesn’t this defy logicality?

The Case of Oceanic Bank Plc

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. -- Benjamin Graham, the Intelligent Investor.

On Monday, 5th March, 2007, the Oceanic Bank International Plc share offer opened. By the time it closed sometime in April, 2007, all shares offered had been bought with a whooping 215percent oversubscription easily making the bank Nigeria’s largest bank by shareholder’s funds at the time. Oceanic had offered 3.357billion shares at N16.50 per share, with a 215percent oversubscription… you do the math.

What, possibly, could have been the reason for such massive response? A quick look at the prospectus reveals that Oceanic had projected a profit after tax of N16.3billion by the end of 2007, N24.24billion by the end of 2008 and N29.32billion by the end of 2009. Could this be the reason people lined up in queues for hours to get this stock? I don’t know, but the figures looked good to many stock market pundits at the time. So, has Oceanic met its projections? No, it has SURPASSED its projections. By the end of 2007, the bank recorded a profit after tax of N17.5billion. A marginal increase, but when we consider the 4th quarter unaudited results released recently (Guardian, Thursday, October 9, 2008), things seem a little different. With a profit after tax of N41.2billion, it is hard to ignore Oceanic’s present price of N17.

So, do we have digital telephone call queues at stock broking offices begging to buy Oceanic? As the price suggests, this is not the case. Is this logical? Why did so many people buy this stock at the time based on relatively mediocre projections and would not buy it now based on Actual results?

Stocks should be bought like any other commodity, say, oranges. If you find a good orange for N10 and buy it, what would you do if you find oranges of the same quality (or better) for N2 each some time down the line? You either buy more or fight the person that sold the former one for N10. One thing you certainly wouldn’t do is; try (in some cases, very hard) to sell the orange you have for N2.

But then the question arises, how do you know good oranges from bad? At this point, I recommend you read the essays  and more importantly buy “the Intelligent Investor by Benjamin Graham”.

On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well established standards of value. –Benjamin Graham, the Intelligent Investor

Conclusively, study the words that are italicized,
Look closely and open your eyes,
They say not to buy when prices are high,
So is it really a good time to buy?
Your guess is definitely as good as mine…