An odyssey with bulls and bears: 10 years of fluke, funk and fortune at the Nairobi bourse

A staffer monitors trading on a board at the Nairobi Securities Exchange. FILE PHOTO | NMG 

In Summary

• The once glorious, now infamous, US Federal Reserve chairman, Alan Greenspan, could have been wrong about a number of things but I believe he was right on one: When it comes to markets, certainty is a fallacy; even the best forecasts are just educated guesses.

By JULIANS AMBOKO
More by this Author

This year marks a decade since my debut as an investor at the Nairobi Securities Exchange. When I first started, it seemed to be the most inauspicious moment to be taking a plunge into something whose intricacies I didn’t quite understand.

Locally, not only was the economy reeling from the effects of the 2007/08 post-election violence, but the sugar high following the much hyped May 2008 Safaricom initial public offering was also waning fast and the telco’s share price was falling and dragging the market with it.

Newsrooms ran out of adjectives with which to describe each new low at the end of the day’s trading.

As if this were not enough, it was a time when pyramid schemes scammers had taken the country by storm, preying on gullible but well-meaning, poorly informed Kenyans out to make a quick buck.

It was therefore not the right time to be telling people about stocks lest it turns out to be another scam.

The toxicity from the pyramid schemes had hit the financial markets hard, and was made worse by the fact that between 2007 and October 2008, the Capital Markets Authority was compelled to intervene in three stock brokerage firms following cashflow hiccups. It was a perfect storm.

Internationally, investment banking giant, Lehman Brothers, had just filed for bankruptcy protection and sent global markets tumbling. By this time I had been an apprentice at a boutique stock brokerage firm for six months, the better part of which I spent devouring books at the chief executive’s library.

Three books formed lasting impression on me Edwin Lefevre’s Reminiscence of a Stock Operator, George Clason’s The Richest Man in Babylon and Robert Kiyosaki’s Investment Quadrant.

So on October 28, 2008 with a deposit of Ksh500 ($5) and against a tide of skepticism, I purchased 100 shares of Safaricom Ltd at Ksh3.6 ($0.036) per share.

Ksh500 was 10 per cent of my salary, a percentage I arrived at after reading George Clason’s famed Five Laws of Gold, in the earlier mentioned book The Richest Man in Babylon, the first of which stated that

“Gold cometh gladly and in increasing quantity to any man who will put by no less than one-tenth of his earnings to create an estate for his future and that of his family.”

It also helped that I worked at a firm that believed in its mission of inculcating an ethic of personal financial planning almost to a fault and worked under a CEO who preached the need for financial literacy and the relentless pursuit of financial freedom.

I left Safaricom nine years later. With an average purchase price of Ksh12.0 ($0.12), I sold my holding at Ksh24.75 ($0.25) at the end of July 2017.

At 106.3 per cent gain (11.8 per cent gain per annum and if you brush off for inflation, it whittles down to 6.0 per cent), I was content with the proceeds and felt recurrently haunted by the oft cited saying in the market – only a fool waits for the top dollar.

Before I exited Safaricom, two close friends cautioned that the sale would be tantamount to leaving money on the table. They were right.

The share has since soared to a high of Ksh31.0 ($0.31) and is now trending in the Ksh28.0-Ksh29.0 ($0 0.28-0.29) band. But I have no regrets.

The once glorious, now infamous, US Federal Reserve chairman, Alan Greenspan, could have been wrong about a number of things but I believe he was right on one: When it comes to markets, certainty is a fallacy; even the best forecasts are just educated guesses.

Further, Edwin Lefevre says one thing that needs reiteration: "That is all about I have learned - study general conditions, take a position and stick to it."

My choice of investing in Safaricom may seem well calculated but in truth, in my decade at the bourse, it has been my biggest fluke.

For a long time, I purchased the shares for no more substantial reason than that the company’s share price looked like a sweet bargain. They say time is everything, I guess I was just on time for Safaricom.

Flukes are, however, few and far in between and often one burns their fingers with flunks.

In mid-2014, shares of the National Bank fetched Ksh29.0 ($0.29) and I bought some. At the time, the bank had just emerged from an aggressive rebranding exercise whose bullish rhetoric blinded me to a number of red flags.

Above industry average non-performing loan ratios and relatively high cost-to-income ratios (signalling inefficiency) didn’t augur well for the bank.

Four years later, the share is trading at Ksh6.4 (a little more than 1/5 of what I bought it at). I also purchased shares of Mumias Sugar Company at Ksh5.6 in May 2012, a company which half a decade later would be neck deep in Ksh3.2 billion ($31.8 million) of bailout funds.

Finally, to what I consider my fortune. The most treasured position for a stock market investor to find themselves in, is to be ahead of the market curve, whether bearish or bullish. Nothing quite beats it.

Julians Amboko is a senior research analyst at StratLink Africa.