Monthly Archives: November 2016

Profiting from bear market – New Telegraph Nigerian Newspaper

image

The current low prices of stocks occasioned by the downturn of the economy present bargain hunters investment opportunities. CHRIS UGWU writes

A bear market refers to a market-wide decline in stock prices of at least 15-20 per cent coupled with a pessimistic sentiment about the market. Clearly, these times are nothing to look forward to and fighting back can be dangerous. However, according to Investopedia, bear markets can provide great opportunities for investors.

“The trick is to know what you are looking for. Beaten up, battered, and underpriced: these are all descriptions of stocks during a bear market. Value investors such as Warren Buffett often view bear markets as buying opportunities because the valuations of good companies get hammered down along with the poor companies and sit at very attractive valuations. Buffett often builds up his position in some of his favorite stocks during lessthan- cheery times in the market because he knows that the market’s nature is to punish even good companies by more than they deserve,” said Investopedia.

Continue reading Profiting from bear market – New Telegraph Nigerian Newspaper

Advertisements

MMM: 7 reasons real entrepreneurs are not interested BY ENYIOMA MADUBUIKE

image

MMM is trending here in Nigeria. Every week, I get an average of five invites across all social media platforms to join the MMM ‘movement’.  In the unlikely event that you have not heard of MMM having just emerged from a cave to miraculously run into this article, MMM is a platform which in summary, claims to operate a mutual aid programme requesting participants to provide money to others and promising returns of 30% of such monies after 30 days. It is a global platform touted as a Ponzi scheme (as it obviously is) and reported to be operated by Sergei Mavrodi, a Russian jailed in his home country in the late 1990’s when his earliest schemes ripped Russians millions of Dollars and led to many suicides. The Nigerian adaptation is an ingenious creation displaying an understanding of the culture, beliefs and thought processes of the typical Nigerian. Its model stands out as a lesson for all entrepreneurs looking to push their products into new markets.

Apart from these lessons however I have had the opportunity to disuss the platform with colleagues and there seems to be no debate on the status of the platform as a Ponzi Scheme as it does tick all  boxes. See http://nairametrics.com/how-to-know-if-its-a-ponzi-scheme/ for hints. Regardless of its status as a Ponzi scheme however, I still get people telling me how it is still a useful source of quick cash before it crashes. For the following reasons, this position as pragmatic as it sounds does not quite resonate with me and I believe with a lot of entrepreneurs out there trying to build a product.

Promise of big money consistently with little work. Entrepreneurs know that there are of course things that you can do to make money without having to work all that hard. But, it’s just not possible for everyone who joins a business to be able to make so much returns without working. Making money takes work. Entrepreneurs also know that NO business on earth can consistently provide such returns. Businesses have ups and downs simple.

The Principle of value. Real entrepreneurs understand that real wealth is generated from the creation of value and not from instantaneous windfalls resulting from concocted trade-offs. They understand the paradox of the lottery winner…money minus value does not equal wealth.

Understanding Money. Real entrepreneurs understand that money is really not valuable in itself. It is valuable because people agree to make it a medium of exchange for REAL value. Its utility lies in its use as current (hence currency) for the movement of value thereby obviating barter. A system running merely on the exchange of money for profit is nothing but a SCAM. Participating in a system like that is lending credence to the scam.

Not an investment: I have heard people liken the MMM system to investing in shares.  The comparison is laughable. When an investor buys shares, he is taking real risks to contribute into an entity that undertakes in the creation of some sort of value. Investing in shares takes careful thought, analysis, and assessment. He does not expect consistent returns. By buying shares, the investor expresses faith in the vision of the company and faith in the management to execute the vision. It takes knowledge to avoid serious burns. So NO, MMM is not comparable to investing in shares.

The issue of focus: Entrepreneurs are busy trying to create and perfect systems, solve problems, devise innovative answers to challenges. They are going to look at a get rich quick scheme as mere distraction in terms of the time and resources to be expended into chasing a venture that provides no ultimate value addition to themselves or the society.

The Moral question: If you are sure that a system is a scam propped up by the resources of naïve but trusting participants being manipulated by experienced “confidence men” with an uncanny understanding of human greed and a history of taking advantage of it, would you still support it with your money?

The understanding of risk: Proponents of the scheme tout the cliché; “Nothing ventured, nothing gained” because it paints the contrarian picture of a daring risk taker. Entrepreneurs however understand the difference between gambling and enlightened risk taking.  A gamble is taken without understanding or control of the variables which are to determine the desired outcome. Investing involves enlightened risk taking which entails an understanding of key variables and a reasonable grasp of possible eventualities. If I commit to give my money to a scheme over which I have no control, because of returns of which I have no sight, I am not investing, I am gambling.

The times are hard. Nigerians are seeing the MMM scheme as some sort of christ which will save us from the harsh realities of the current recession despite the obvious signs that it is not. To all those who cannot resist the temptation of quick easy cash, please proceed with extreme caution. To all those who do not participate in the scheme as a matter of principle, know that you are not alone.

Enyioma Madubuike is a lawyer, writer and entrepreneur. Join him on Twitter where he engages in public interest discussions @philkingenyioma

FMDQ Suspends Spot FX Closing Rate, Confirming Flexible Exchange Rate Is Broken

image

The FMDQ OTC, the official market for bonds, treasury bills and forex trading has approved the suspension of the FMDQ Spot FX Closing Rate with immediate effect.

The FMDQ in a press release signed by Jumola Olaniyan, the Divisional Head Market Development & Regulation, explained the reason for the suspension was due to the “transparency and liquidity challenges, and prevalent disequilibrium currently being faced in the Nigerian Foreign Exchange”.

Rather than publish the daily Spot FX closing rates, the FMDQ will now reference the last available executed trade on the Thomson Reuters NGN=D1 module at 2:00 PM and will be referenced the “CBN Closing Rate”.

This remarkable development is perhaps the first official sign that the flexible exchange rate introduced by the Central Bank of Nigeria is broken. The Managing Director of the FMDQ, Koko Onadele, had rebuked the CBN for fragmenting the exchange rate market with its tight control of forex prices and supply.

This latest press release follows a situation where the country now has about 7 official/unofficial exchange rate making the FMDQ spot quote basically irrelevant.

A New Perspective on the Active–Passive Investing Debate by Paul Smith CFA

image

Here’s a fact that doesn’t get enough attention: By some counts, up to 86 percent of active funds underperform their benchmark, but by definition 100 percent of truly passive funds underperform theirs. Why is this? Because — unless they are taking some type of an active bet or have zero management and administration costs — they have to fall short of their benchmark.

As the debate over active versus passive investing continues, investors and regulators alike are overlooking a key point: Passive investing wouldn’t make anybody any money without active investing. Passive investors are essentially free riders, piggybacking off active managers at a fraction of the expense it takes to research investment positions. No one in the investment press focuses on this moral hazard or on whether or not this is fair to active investors, who effectively subsidize their passive brethren.

The media question the value of active management, but they never bother to acknowledge that without it passive investment wouldn’t exist, let alone thrive. Passive investors only make money if markets move, and active managers are responsible for those movements.

Continue reading A New Perspective on the Active–Passive Investing Debate by Paul Smith CFA

Donald Trump shocks world, wins presidential election in biggest upset in political history

image

Donald Trump overcame all odds Wednesday, riding a wave of an unprecedented populist movement to become the 45th president-elect of the United States.

The Associated Press forecast on Wednesday that the Republican presidential nominee will surpass the 270 electoral vote threshold needed to win the White House. In doing so, he completed the most massive upset in modern political history, beating Democratic challenger and former Secretary of State Hillary Clinton, as well as one of the most promising fields of Republican candidates in a generation.
Almost every major forecasting aggregator, including FiveThirtyEight, RealClearPolitics, the New York Times, and HuffPost Pollster all heavily favored a Clinton victory in the lead-up to Tuesday’s race.

Continue reading Donald Trump shocks world, wins presidential election in biggest upset in political history

Ponzi scheme: Why Nigerians must be sceptical by CHRIS UGWU

image

An average Nigerian investor, especially first-timers unaware of the workings of Ponzi schemes, has suffered considerably. CHRIS UGWU writes that investors should be sceptical of any investment that requires new investors to pay existing investors

Following the rising rate of illegal fund managers in Nigeria, the Securities and Exchange Commission (SEC) and other stakeholders have continued to raise the alarm over the activities of these outfits that have defrauded unsuspecting Nigerian of their hard earned money.

The line of trade of these illegal fund managers, which are known as Ponzi scheme in the developed market, is usually tinted with promises of high returns on investments.

Continue reading Ponzi scheme: Why Nigerians must be sceptical by CHRIS UGWU