Lessons on the stock market from Safaricom share price appreciation

People queue to open CDS accounts ahead of Safaricom’s initial public offering. The company’s stock is currently trading at an all-time high. Photo/FILE  NATION MEDIA GROUP

By Boniface Ngahu

In Summary

• The lesson here is that, to avoid the risk of being lost in the dust caused by the crowd ahead choose the road less travelled.
  After the stock was listed it appreciated for some time and then started trading below the IPO price
• When it was trading at almost half the listing price most people were selling the stock while only patient and savvy investors were accumulating it
• Recently the stock has been trading at all-time high price, more than double the IPO price

I always wondered why the Safaricom share price stayed for a long time below the Initial Public Offering (IPO) price.

Some of the ideas floated were that maybe it was overvalued or that some of the anchor shareholders sold their stake immediately after the IPO.

Still the massive number of shares and shareholders meant there has always been someone willing to sell in return for a small profit.

It seemed that most of the positive information about Safaricom was not in the stock price. There was M-Pesa’s phenomenal success.

There were the huge customer numbers and market leadership. Then there was the great reputation as indicated by the PwC East African Most Respected Company awards.

Year after year, the Kenya Revenue Authority has also rewarded Safaricom as the best and biggest taxpayer.

We have also heard Kenyans in need calling for Safaricom to help, a call that would normally be addressed to the government.

The company’s presence in all walks of lives also suggests that it is more than a mobile phone company.

All this commands a premium on the stock price.

Market talk has in the past told the story of one old man who had about Sh100 million to invest in the stock market at the time of the Safaricom IPO.

His broker advised him to buy the stock, to which he asked who else was buying.

His broker informed him that everyone, including the houseboy was buying the shares. The old man then told the broker to wait until a time when only rich people would be buying the stock.

He mentioned that opportunities that are obvious to the majority yield low returns due to high competition and mob thinking.

The lesson here is that, to avoid the risk of being lost in the dust caused by the crowd ahead choose the road less travelled.




After the stock was listed it appreciated for some time and then started trading below the IPO price.

When it was trading at almost half the listing price the broker returned to the investor and informed him that most people were selling the stock while only patient and savvy investors were accumulating the stock.