WHAT'S YOUR DNA - INVESTOR
Tuesday, January 25, 2011 at 4:10PM
What type of Investor are you? Do you consider yourself a "VALUE Investor" or a “GROWTH Investor"? Starting with a simple definition, Value Investing, a strategy, gurus like Warren Buffet and Benjamin Graham lived by, entails finding a way to assess a stocks long-term value other than focusing on recent shifts in market price. Value Investing focuses primarily on numbers...or in other words, fundamentals i.e. earnings, sales, debt, cash flows, which usually provides a clear indication of the strength and performance of a company. I think the best strategy to use in the Nigerian context is value investing. Though,once in a while one might venture into using growth strategy but your homework has to be done very well and also a minimal capital should be invested. @Timi, Thanks for your comment. In a climate like Nigeria, where fundamentals are quite questionable, how can investors successfully develop strategies based on Value Investing? Wouldn't it make sense to incorporate both in varying ratios based on the credibility and availability of financial information? i) NSE has at best 50 stocks that have stable liquidity and anything approaching corporate governance worth investing in. Specialising in such an environment is a waste of time. Investing in african equities, you could probably just about do it. Look for the leading companies in important sectors (banking, telecoms, brewing, media, retail, etc.) that have proven that they can grow their earnings and their free cash flow (i.e. they have very little capital investment requirements - the capex bill for the consolidating Nigerian banks in the 06/07 period should have been a sure warning that these were no growth stocks) and sport very high returns on assets, within what is a challenging business environment) and who have proven their earnings are real by distributing a significant portion as dividends over time.
GROWTH investing, a strategy, people like Martin Zweig focused primarily upon, involves assessing stocks that demonstrate both with historical growth and are equally positioned for future rapid growth.
Both strategies have proven successful over the years within developed countries...As an investor in the Nigerian Capital Market, what would you consider your strategy to be?
Olumuyiwa A AlaoTimiOlumuyiwa A Alao, CEO MonGran Financials
ii) I personally dislike the terms growth or value investor (as though people looking for growth are not also looking for value and those looking for value are not looking for growth.) As both Buffet (supposedly value, though few really understand his strategy) and O'Neil (suposedly growth, but earnings quality, debt levels, and competitive advantage are as important to him as to Buffet) know that growth and value are joined at the hip. In Nigeria saying you are a growth or value investor means you don't know what your doing and probably earn a salary (as opposed to living off your investments.)
iii) The quality of personal ethics and integrity as is the quality of accounting and implementation of standars is quite low. As a results dividend performance (the only thing that people can't lie about) plays an extra special role in Nigeria. In addition, high inflation, unstable government policy and unstable economy make dividends more important to the investor. Possibly also the notoriously low long term perspective of Nigerians. Therefore dividend investing (which can be played for potential dividend growth or for 'value' - current yield) works better than in many markets.
iv) Being a monoline economy (i.e. nothing much seems to be going out or being produced apart from oil) macro economics and politics play a greater role than in other marketsAfamii
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