Nigerian stocks will burn your fingers! See reasons..

Whenever the word investment is mentioned, the first thing that comes to mind is the stock market. Stocks simply refer to ownership stake in a company expressed in units known as shares. In ideal situation, it is the choice destination for capital meant for investment. There are three major ways through which people earn in shares. They are dividends, capital appreciation and short selling. If you've been putting down your money in the Nigerian stock market, you'd agree with me that the stock market (in the Nigerian context) is a legalized casino. Yes, thats what it is! Here are my reasons for giving the Nigerian stock market a casino tag:

Moribund economy
Everyone can agree with me that the Nigerian economy has been on a consistent downward spiral over the years. Economically, things has been going from bad to worse in the past two decades. The stock market mirrors the economy. Whenever you see a thriving stock market in the midst of a cascading economy, be rest assured that a bubble is building, and sooner than later, a catastrophic burst is on its way. That was exactly what happened in the 2007/2008 market crash. The stock market is as resilient as the economy. So a comatose macroeconomic environment must birth a comatose stock market. 

Hot money from foreign portfolio investors
Stocks rely heavily on foreign portfolio investors to drive demand up. Since former CBN Governor, Sanusi Lamido Sanusi allowed foreign investors to repatriate any portfolio investment into the country without restrictions, stocks have become heavily reliant on hot money to keep valuations high. Thus, when foreign investors exit, stocks suffer. They create a bubble when they enter our markets and leave bears to dominate when they exit, until they are ready to get back in again.

Recurring currency devaluation
Our economy is inextricably tied to oil exports. Consequently, the fluctuations in international oil price sends the Nigerian economy to a rollercoaster. What I mean here is that whenever the international oil price is high, there tend to be an upsurge in economic activity owing to the increase in fx revenue. But whenever oil price falls to an all time low, economic activity grinds to a halt. Due to forex scarcity to pay for our ever increasing imports, the CBN usually comes up with some drastic policies some of which includes currency devaluation. Once this happens, the market capitalization of all companies drop (in real value).

Liquidity crisis 
Simply put, liquidity refers to the presence of so many buyers and sellers with varieties of products in a market. This situation guarantees the buyer of a product that there's an available market whenever there's need to sell the product. In the stock market, this situation encourages many people to participate. The Nigerian stock market is far from being liquid.  We have relatively few participants in our capital market. (The market capitalization of the entire Nigerian stock market is less than 10% of the market capitalization of Apple Inc). This situation has made it very difficult to sell a stock profitably. Moreover, the availability of financial products is grossly inadequate. Though there's been promises to introduce financial derivatives into the market, it has remained promises till now. Short selling of shares is practically impossible at the moment. 

Absence of corporate governance
A considerable number of quoted companies in Nigeria lack the culture of corporate governance. Some of them engage in insider trading of their shares and other unscrupulous activities. Moreover they're poorly regulated. Some of the sharp practices that contributed to the market crash in 2008 has been swept under the carpet. Nobody was held accountable.

Conclusion
These are some of the reasons why the Nigerian stock market cannot be considered as a viable investment. However, there are possibilities of these situations improving as time goes on. But for now, the Nigerian stock market is not so different from a grand casino.  

Don't take this for investment advice. Always consult a registered financial advisor.  

Read More

Don't put your money in Crowd1 without reading this!

 

There has been a number of multilevel marketing ventures springing up almost on a daily basis since the beginning of this year. I don't know whether to attribute this to the global economic drawback resulting from COVID-19 pandemic. Though I know a few of these MLM ventures were existing before now, but they picked momentum this year.  Some of them are Crowd1, Norland, Daily income stores, Superlife, NRI, just to mention a few. As I'm typing this, more are still springing up.
Don't get me wrong, multilevel marketing is a viable business model, but there's a thin line between multilevel marketing and pyramid scheme. And in the Nigerian context, many people engage in pyramid scheme in the guise of multilevel marketing. Times are hard, things are tough.  This is the reason why it is very important to do your due diligence before committing your hard earned money into any money making venture. In the following series of write up, I'll do a quick review of these MLMs mentioned above so that those of us throwing our money into these ventures will get a broad understanding of what we're doing. Let's start with Crowd1.

Crowd1
According to the promoters, Crowd1 is essentially an online opportunity that offers shares that you can purchase and earn from building a network of investing members shares as well (though they don't call it shares, they call it "owners right"). 

Location
It is not clear. According to the promoters, Crowd1 started in Sweden, but have their headquarters in Madrid Spain. However, a check on their website proved otherwise. They have their headquarters in the United Arab Emirates.

Ownership (shareholders) structure:
It is mired in secrecy( or rather confusion ). Depending on the promoter you ask, you'll get different answers. Some of them refer to Johan Stael von Holstein as the leader. Others regard Stelios Piskopianos as the leader. Some still refer to Jonas Werner as the leader. However, a check on their website didn't disclose anything about the shareholders of crowd1.

What products are they offering:
The question of whether crowd1 sells products to customers other than its members is important. If a company has a direct sale of a product as its main purpose, it is in most countries, considered legal MLM. If the company's main business is the recruitment of new members that sends money up the chain, it is considered a pyramid scheme - something that is illegal in most countries. In Crowd1,they give very scanty information about their products. They're in the business of selling "educational packages. They're also affiliated to some online gaming and social media firms. According to the promoters, as these firms are making money, Crowd1 is making money too. However, I've never seen the promoters encouraging members to promote the games of their affiliated companies or play those games. All they do is to encourage members to bring in other people into the network, with promises of mouth watering benefits. If you ask me, they make money as long as others are joining the network, who must fork out at least €100 (50,000 naira).

Countries where Crowd1 has been banned or under investigation
Crowd1 was banned in Namibia in February 2020, and countries including Burundi, Paraguay, the Philippines and New Zealand have cautioned against it. In South Africa, it is under investigation by the South Africa Reserve Bank's prudential authority. The Reserve Bank said that it never issued a license to the scheme for any financial product, financial service or market infrastructure. The bank also warned customers against investing with unregulated entities and to remain vigilant through conducting due diligent assessments.
In Namibia, the Central Bank authority stated thus " Crowd1 does not sell material products and does not provide any service of significant value. The primary source of income of crowd1 is the sale of membership packages to new members. It is clear that the concept is not sustainable and will result in people, especially those at the bottom of the scheme, loosing their money".
In Burundi, authorities launched an investigation against crowd1 in January this year after arresting 17 people involved and affiliated with the network, the African News Agency reports. However, it is unclear how this investigation went.
In Paraguay, the country's financial supervisory authority has issued a warning regarding crowd1. In addition, the company's offer has been defined as an unregistered security, which means that people who market the company's services can be fined or receive up to three years in prison. 

Conclusion
From the foregoing, it is obvious that Crowd1 bears all the hallmarks of a pyramid scheme. I'm not saying that it's bad, but please be careful while dealing with them, especially as we're getting close to December ( remember MMM during December 2017). I know most people already in the scheme will say " but we're making money". That's true. MMM equally made people millionaires. However, it ended with sour taste in their mouth. Any business model that prides itself with making people millionaires without solving a problem is not worth your time.  A word is enough for the wise!  Let me know your thoughts.... 

Read More

How to remain illiterate after graduation

As a little child, you’re a curious being, you’re an experimental scientist. You wanted to learn, you wanted to research, you wanted to know. You love education. But one day, you were taken to school and a teacher started telling you that what education means is for you to cram what a teacher teaches you and write it back to her during a test or exam. By the time you’re done with schooling, you honestly think that you’re educated. SCAM!!
Sometime ago, I watched a TV show where Americans were asked to recall any books they read, just any book. Out of about 10 persons surveyed on the street, I think only one of them was able to remember the name of a book he read. Americans really tried. Here in Nigeria, only one out of a thousand ever read a book once they leave school. Somehow, when people go to the university and graduate with a degree, something in them tell them that they are educated, so if you’re educated why bother reading books any longer.
Certificates can really deceive you.
At some point, I started wondering; why do we judge people by the decorated paper they are carrying. Why do we think someone is smart or educated simply because he has a degree which is a mere paper. I believe so strongly that the number one evil in our educational system is the certificate or degree. Because people are given this decorated paper, they somehow believe that education is in the paper. The implication of this is that students in school study not because thay want to learn but because they want the paper, and immediately after they get the paper, that’s the end of education. If you think this isn’t true answer this; why is it that most people stop reading immediatetly after they leave school? The reason is that they think they’re already educated since they have the degree.
The true education.
For more than one decade now, I believe that school doesn’t give education. Instead school indoctrinates. School teaches you what the industrialists want you to know. School teaches you what the politicians want you to be. Let me explain; there was no public school in the world for the most of human existence. What we know as public school today is less than 2000 years and the foundation is greatly questionable. What we know as public education was greatly influenced by 3 powers; the spiritual leaders, the industrialists and the politicians. And as you may guess, the industrialists had the last laugh because they have a lot of money to influence the system. Do you wonder why you are programmed to be an employee? Do you wonder why you are only encouraged to be like everyone and do what everyone does? Well, your education was never important to the founding fathers of the school system. What they want to achieve was to make you a labourer, and as a labourer, you don’t need to be creative or even educated. Just know how to obey orders.
Degree and the jobs
Until recent time, the university degree is required by every employer on the planet. But that’s changing so fast.  For example, I’ve been in a company where nobody was ever employed because of their degree. Education to me is about self development. Education is all about skills. Education is all about what you know and what you can do with what you know. Education has nothing to do with the degree or certificate. I believe so strongly that one of the ways we can have a better education system is by destroying every certificates in our schools. If students know that the employers would judge them by what they know and by the solution they can provide, they’ll get the true education, and even after they get the job, they will continue getting education because they know that they must increase their value before an employer promotes them. I think that trend has started already.
According to Glassdoor, most fortune 500 companies like Google, Apple, Starbucks, Microsoft etc no longer employ on the basis of certification. This trend is gaining momentum worldwide. Come to think of it, does the degree of anyone solve problems in the workplace? Hell no! What solve the problem are people’s brains and this requires constant education.
Education is not the degree, neither is it the university you attended. Education is learning and knowing. It is what you know and the problems you can solve with what you know. You can’t stop getting education because you can’t know all you have to know about life. If you stop learning after school, you’re an illiterate! If the last time you read a book was the time you had exam, you’re a stark illiterate!
Education outside the walls
Don’t be decieved that education lives inside the four walls of the school. The real education is outside the wall. Your observation of the world around you, your curiosity to question things and find answer, your eagerness to know about money, marriage, relationships, humans, leadership and life in general , that’s education.
Which book are you reading now? Which book did you read last month? Which audio book do you have on your phone? How many educative blogs do you visit? The school programmed you to believe that once you have a degree, you’re educated. But the truth is that the day you stop getting education is the day your brain cells start shrinking. You ought to be improving your mind everyday. Education is a constant learning and improvement of your mind.

Read More

School na scam! How true?

The above mentioned statement has taken a cliche status and is very popular among young people nowadays. A lot of people think that being studious is a waste of time and effort. Is that true?
In my opinion what I consider as a waste of time and effort is going to school without purpose. Most young people go to school because they major in certain subjects or because their parents or friends told them the course to study. Sometimes they make choices based on where they believe the jobs are. One thing they fail to do is to know who they're and what they want as individual. They have this illusion that a university degree is a golden ticket to success. That is totally wrong.
Sometime ago I read on the social media that a number of S&P 500 companies no longer hire exclusively on the basis of university certification. Why is that?  It is because they know that they need talents and good people. Certificates don't guarantee these qualities. Having a certificate does not make one a great employee, it doesn't make one a high performance individual. There are so many other factors involved.
For those that would like to venture into business, I think having a firm grasp of these areas of study is essential
Accounting - the ability to read and interpret financial statements
Economics - knowing supply and demand factors and market trends both at national level and global scale.
Marketing, even though a lot of marketing texts out there are outdated, but it won't hurt to have the basic knowledge.
Communication - how to effectively transmit your ideas to others and get the desired response.
It is equally important to learn how to work on different projects with different class mates, learn how to coordinate and be a good team player.
It is not degree that makes people successful but the knowledge and skills accumulated through school. Equally, there's need to have a plan to develop and continuously hone your skills that would provide the capacity to become better individuals and more competent persons. Thinking that a degree is all you need and that after school, there's no need to learn anymore, that's a big problem. That's the wrong expectation.
Finally, if you want to be successful, have it in mind that schooling may stop but learning is a continuous process.

Read More

Emotional side of investing

There are two parts to the decisions we make. The first part relies on knowledge, fact, logic, and what we would call common sense. The other, relies on other intangible things like emotions, intuition, fear, worry, hope, and feelings generally.

Whenever we are torn between making a decision that splits us between our ‘brain’ and our heart, one has to give way – and logic isn’t always right. Investing is an emotional business. It requires setting asides our hard-earned funds, and the emotions that come with possible losses can lead us to making biased decisions.

An active investor has to deal with a myriad of different emotions as he follows the market and watches the rise and fall (volatility) of his investments. These emotions range from fear/anxiety, investor expectation, overreaction on pieces of information and even stress.

They can be so pronounced that even an experienced investor with a well laid out investment strategy can still fall prey to emotions overriding rational thinking or logic. Here are some elements that propel emotional investing.

Information

Investors typically get information from many sources. They could be mainstream sources like the news or could be entirely based on public speculation. Investors can get lost in the multiple sources of information and make biased decisions.

In fact, because no market has perfect information, the information received would almost always not be credible and will ultimately not matter. Acting on such information and seeing it go wrong would force yet another emotion that can ultimately make the investor completely uninterested in investing altogether – regret.

Another way information can go wrong is when investors try out new investment areas because their friends or family members have tried it and it worked. Great opportunities might be too good to be true as they would ultimately carry more risk than the investor can handle as the basis of their exceptional returns.

Risk

No investor wants to lose money; as such, where an investor notices a downward trend, he or she is sent into a frenzy of panic. Investors need to have risk and their level of risk tolerance in mind before buying into stocks or investing in securities altogether.

Investors who are conscious of the risk factor from the onset can curb the effect of emotional investing by remaining within a comfortable risk threshold. A great way to mitigate the possibility of emotional investing or making biased investment decisions because of the emotions attached to risk, is to seek out ways to mitigate risk.

A properly hedged investment strategy would keep the investor generally relaxed and open to carefully assessing market volatility. Another great idea is to invest only funds you can afford to do without for the longest period.

The moment your investment becomes an important source of personal income, chances are that you would react emotionally to changes in the market.

Investor Expectation

Another reason the investor begins to function emotionally is that his or her expectations do not match the flow of activities in the market. Every investor wants to make money from his or her investment by way of investment growth.

The challenge comes when the investor is fixated on a certain degree of growth based on market indices, timing strategies, trend analysis and other forms of analysis. When things seem to go awry, the investor loses track of the goal and becomes impulsive.

While these are just some of the reasons investors bring emotions into the investing game, emotions cannot be eliminated form investing. In our next post, we would explore specific ways of managing emotions while investing.

Read More

If you're at these 5 critical points in your life, then you need a financial advisor.

It is common that people seek professional attention when confronted with problems beyond their managerial capacity. When we feel sick, we seek the attention of a medical doctor. When the car changes sound, we look for a car mechanic. When arrested by law enforcement agents, we reach for a lawyer.  When the furniture is not standing upright, we look for a carpenter. The list is exhaustive. But when confronted with financial issues, most people think it's personal and they can figure it out. It's difficult, especially in this part of the world to seek the assistance of financial advisors. But statistics shows that most of the challenges faced by people in the world today is rooted in money or money related issue. Most failed marriages today are consequences of money issues gone bad. Companies are folding up on a daily basis. Individuals and businesses are running into debt owing to bad investments. Most crimes committed today are because of financial pressure. There can't be a better time to seek professional advice.
Who then is a financial advisor?
According to Investopedia, a financial advisor (or adviser) is a professional who provides financial guidance to clients based on their needs and goals. Typically, they provide clients with financial products, services, planning or advice related to investing, retirement, insurance, mortgages, college savings, estate planning, taxes and more. Below is the best time to engage one.

You just got a job: Getting a job marks the beginning of a steady cash flow for many. But one thing about this cash flow is that it is not permanent. It must surely end either through resignation, retrenchment or retirement. This cash flow should be properly channelled in order to make something reasonable out of it. Poor financial decisions are inevitable if you don't get sound financial advice. The proper thing to do is to have a plan and meet a financial advisor to assist you draw a road map on how to actualize those plans. Nothing works successfully without a detailed plan and an unwavering commitment to stick to the plan.

You just inherited an asset: If a loved one has passed and you're expecting to receive an inheritance, you may have a number of questions about the process; such as is the inheritance taxable and what to do after receiving the inheritance. Depending on your goals and what type of asset you inherited, your options may vary. At this point, you need the assistance of seasoned financial advisor. Transferring wealth from one generation to the other is difficult in this part of the world. Most people that inherited some form of investment end up mismanaging it. This is a consequence of lack of guidance by a financial advisor.

You just got married: Getting married is an exciting time in life but it can also be a time of significant financial change and stress. First there is the cost of the wedding itself- and the budget you'll have to tie yourself to so you can have exactly the wedding you want. Then, when the honeymoon is over, there's life ahead with all the financial decisions you'll make together as a newly married couple. Also bear in mind that sooner or later, you'll become parents. Raising children places financial obligation on parents. There's no better time to see a financial advisor.

You want to raise capital for your business: Have you ever tried to get a loan from Financial institution for your business without success? Have you tried to get equity capital for your business only to be turned down by investors? There may be something you're doing wrong. You see there are some critical information these capital providers are looking for in your books that'll determine if they're going to provide the much needed capital or not. Financial advisors understand this better than you and the earlier you engage them to assist you, the better.

When you want to make big investment: Most persons find themselves in a quandary when it comes to investment. Some start to ask; do I buy shares, funds, piece of real estate, commodities etc. If you're thinking of investing in the above-mentioned products, you may feel confident to buy them directly from a broker or fund without taking advice. However, these products are harder to understand than cash savings products, and by not taking advice, you may not be considering all of the options available to you. There's also a risk that you may buy a product that's not suitable for you because you don't understand it. Advice can help you buy a better product than the one you choose yourself. An advisor will also have the expertise and knowledge to find better options, as some products are only available if you go through an advisor.

Read More

Can you earn in your sleep? Absolutely yes! Here's how..

You work hard for your money, yet your paychecks won’t cover your costs forever. Whether you’re looking to retire or simply to start having some of that hard-earned money do the heavy lifting for you, you probably want to start looking for ways to earn passive income.

Passive income -- or money you earn while you sleep -- can become a tool you can use to cover your costs. That will allow you to focus more of your time on things you want to do rather than on earning money just to assure you have a roof over your head, clothes on your back, and food in your belly. These seven approaches will let your money do much of the work of earning more money for you.

1. Own dividend paying stocks.
When you buy a typical share of stock, you become a partial owner of that business. As a partial owner, you get your portion of the rewards of that ownership. That includes any dividends the company declares and pays based on its earnings.
The company’s employees do the hard work of earning the money for you. As a shareholder in a successful dividend paying company, you simply sit back and collect the cold, hard, cash rewards from the financial risk you’re taking with your money

2. Own rental real estate.
Land lording is a time-honored approach to generating cash. Particularly once you’ve owned a property for a while or if you have the ability to invest in real estate with multiple tenants, it’s quite possible for your rents to well exceed your costs of owning the property.
That said, direct real estate ownership isn’t entirely a passive business. You need to find tenants, take care of maintenance and repairs, sometimes be a bit assertive in collecting the rent, and be able to manage through periods of vacancies.
If that sounds too much like work for your idea of passive income, you can either farm out operations of your real estate to an external partner or you can invest in publicly traded real estate companies. Real Estate Investment Trusts (REITs) are businesses that specialize in owning or financing real estate investments. They are required to pay at least 90% of their income as dividends to maintain their pass-through tax status, which typically leads to higher yields than ordinary stocks offer.

3. Be the silent partner in a business.
Many businesses -- particularly in the energy sector -- are structured as limited partnerships. In such a business, the limited partner shares in the profits of the business but generally has no actual responsibility for its operations. In effect, the limited partner provides financial support, while the other side of the partnership -- the general partner -- runs the day to day operations while also sharing in the profits.
The thing to remember with limited partnerships is that they are pass through entities. The partners are responsible for paying taxes on the income the partnership earns, whether or not they actually receive a dime of that income in the form of a distribution. As a result, most publicly traded limited partnerships tend to pay high distributions, to encourage investors to become partners despite that tax situation.

4. Loan money to a company or government
If you want an investment that’s lower risk than owning part of a business, consider lending money to that same company instead, and receive interest income in return. A company’s bonds take a higher priority in the capital structure than its stock does. Indeed, defaulting on a bond interest or principal payment will typically trigger a default, which could cede control of the company from its stockholders to its bondholders. That makes it incredibly likely that if a company can pay its bonds that it will pay its bonds.
If even that seems too risky, you can also loan money to governments, including the Nigeria Federal government (through FGN bond) which has the ability to print money to pay its bonds if it needs to do so. Note, though, that whether you’re loaning to a company or to a government, the tradeoff is that for the lower risk associated with lending vs. ownership usually comes a lower overall expected rate of return.
Of course you can't be quite successful in this regard without the assistance of a reputable asset manager that understands your situation and knows exactly the financial instruments that can take you from where you are to where you wanna be. Moreover as a beginner, it's important to start with what your risk level can accommodate. Mutual funds may be the best place to start. The mutual funds with competitive rates can be a bit difficult to get. I'll recommend Abacus money market funds managed by Investment One Financial Services. Contact me on nnamdinkemakolam@yahoo.com for more information on mutual funds, though I'll make a write-up on that.

5. Write options for premium income
On the flip side, if you’re willing to partake in high risk investing, you can write (sell) options to collect the premiums as income. Option buyers pay an additional premium -- known as the time value -- for the right to either buy or sell a stock at a given price on or before a given date. The option writer collects that premium and gets to keep it regardless of whether that person has to make good on delivering or accepting the underlying stock.
Note that collecting that premium is far from a free money investment, however. Options are a leveraged investment, and it’s entirely possible to lose more money than you invested in some option strategies if the market moves against you.

6. Pay off your debts
If you’re in debt -- any kind of debt -- paying that debt off may give you the biggest effective raise of all. Remember that when you’re paying on your debt, you typically pay both interest and principal. The interest is money you’re paying above and beyond what the item would have cost you in the first place had you paid cash up front. The principal payment represents cash flow out of your pocket that you free up to put towards another use once it’s no longer tied to that debt.
While paying off your debt isn’t technically the same as earning money, at the end of the day, it has the same effect on your wallet. After all, money you’re no longer putting towards debt service is money you no longer have to have coming in to cover your costs of living. That gives you more breathing room with your available cash or frees you up to not have to work that much harder to cover your remaining costs. Either way, it represents money doing the hard work for you, giving you more control over your life.

7. Find a fun side hustle that pays you to do what you’d do anyway
Ok, for this one, you’ll actually have to technically do a little bit of "work." Still, if you can find a way to get paid to do something you love doing anyway, you can earn money without it feeling too much like work. For instance, if helping others get in control of their money is a passion area for you, this role as a personal finance writer may be a great opportunity to get paid to do what you’d willingly do for free anyway.
Likewise, sites like Twitch offer you the opportunity to build an audience that will get you paid to play video games. While only a (very) small percentage of those on the site will make enough at it to make a living, if you can legally pick up some spending cash for doing something you’d be doing for free, why wouldn’t you?

More money in your pocket, more time in your day
When all is said and done, you work to cover your costs of living and hopefully have a little something left over to enjoy the rest of your time. The more you earn when compared to your expenses, the greater your opportunity to enjoy more of those 24 hours we all get in a day.
Whether you’re putting your money to work for you, getting rid of the debt service costs that take away the money you’re earning, or figuring out how to get paid to have fun, the end result is largely the same. You get more control over your time and better financial flexibility in your life, and you can put that much less effort into the drudgery of a job you’re doing just to pick up that paycheck. Sounds like a win, no matter how you get there.

Read More