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Secrets of success in investing as a group |
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Written by Wanjiru Waithaka As a commitment, this means you show up at every group meeting and take it seriously; it’s not a social event. We are talking about your future here, which for many of us means retirement money.
 Cartoons by: Barasa
On Kenyan investors:
A lot of people wait for share prices to rise and get into the stock market at the top of the market. Then when the share price starts to fall they panic and start selling, losing money in the process only to regret it when the share starts to rise again.
To make money on the stock market buy low and sell high. But many investors buy shares because others are buying without trying to understand the company or its business. This ‘herd mentality’ is because people do not invest for the long term.
At Transcentury one of our core values is never to go for easy investments where you sit back and wait for returns – that’s gambling. We never make an investment unless we can add value.
Where can you get good opportunities for investment?
You don’t have to look far to get good investment opportunities. Look for companies that are undervalued but have potential.
East African Cables marked the start of the most successful part of investing for TCL. Cables are not very exciting but they are used everywhere and will continue to be part of our lives even with wireless technology.
We felt that by revamping the management of the company there was a good opportunity to scale up the profitability of the company. At the end of the day management is everything in a company no matter how small your investment is. EAC was only operating in Kenya and we saw opportunities in the regional market.
At the time the company was only producing aluminium and copper cable and we saw an opportunity to diversify the product portfolio. With a new, young management team we acquired a manufacturing site in Tanzania and opened depots in Uganda and Rwanda.
After the acquisition (TCL owns 75 per cent of EAC) profit after tax has increased 30 times from Sh9.3 million in 2003 to Sh284 million in 2006. Sales have increased five times from Sh428 million to Sh2 billion.
Expand your horizons by looking for investment opportunities outside Kenya. Africa has numerous good opportunities but which are undervalued because foreigners are put off by the problems in the continent such as war and poor infrastructure.
But now is the time for investment groups to get in while these opportunities are still undervalued. TCL has invested in Zambia, Nigeria (indirectly) and South Africa.
Key drivers of group investment:
Commitment – this means you show up at every group meeting and take it seriously; it’s not a social event. We are talking about your future here which for many of us means retirement money. Trust – Members should not blame each other when the group loses money. It also means integrity and not running off with the group’s money.
Have a well thought out and documented vision. For TCL the vision is Sub-Saharan Africa. Remember that every investment has an element of risk; it’s how you evaluate the risk that counts. For instance Zimbabwe right now seems too risky but it’s not always going to be like this. The upside can be huge.
Governance – Put structures in place and have management that is accountable. Ensure that no one individual is the one calling all the shots and avoid group think. If you have a feeling that something is not right then speak out.
Bring ideas to the group no matter how ridiculous because you never know where it may lead. It is also important to have strong leadership and think long-term.
Key pitfalls of investment groups:
Procrastination so that the group fails to grow and achieve its goals. Having no goals and vision and poor leadership are the reasons why so many groups disintegrate.
Success factors:
Look for diversity of skills in the group’s membership. Have entrepreneurs who can see opportunities and are not afraid to take risks. They may not be the most educated but they have “street smarts.”
Also have people with a background in finance to do the numbers and advise you when to get in and out. Members with a legal background can do due diligence and develop shareholder agreements defining the obligations and responsibilities of each member.
Members with public sector experience will be very useful because over 50 per cent of services are provided by the government and eventually you will have to deal with it. You may also get involved with deals involving privatisations.
All members should be like-minded, that is, driven by a common purpose. Separate business from friendship especially as your investments grow. Be committed in your capital contributions. Put it in on the same level as paying rent or school fees.
Formalise and legalise the relationship. Get an auditor, make tax returns, and issue share certificates regularly to show what your shareholding in the company is. Keep records up to date and run your group like a company – have quarterly accounts, record and keep minutes of meetings.
Don’t fear failure. Investment decisions can go either way, it doesn’t matter who you are. With TCL it was the investment in what was formerly Castle Brewing. With a global company it’s easy not to dig as much as you should.
But we were not expecting East African Breweries to put up such a huge challenge that within a few years Castle had closed shop and left. It was a sobering experience and we were lucky not to come out with losses.
You also have to know when to get out and have an exit mechanism before you invest so that you don’t get stuck.
Borrow Leveraging the capital you have accumulated is really the only way to develop scale and size like what TCL did with East Africa Cables. Banks in Kenya need to wake up in this area because there are opportunities. Think big, defy convention, step outside your comfort zone but do it sensibly. Source: Business Daily Africa | |
