Before You Invest!

Ajibola Awolowo

The human mind is very graphic and imaginative. An easy way to pass a message across to many people is to create a picture that sends that message. People will remember that singular image much longer than they will remember the thousands of words you will need to pass that message across verbally. Another very effective way of communicating its to do so via story telling. We all love stories and I bet you can remember the tales your grandparents, parents or siblings told you when you were very young.

The power of storytelling cannot be over emphasized. Our imagination kicks in and we imagine ourselves in the shoes of the protagonist. What would I have done in the same circumstances? we ask ourselves. We might hate to admit it but many decisions that brought us to where we are today have been influenced by the stories we heard at one point or another. Stories about how mean the lecturer of a particular course was, how a certain university course or certification is too difficult for average students or how futile/ unrewarding investing is. Stories are powerful. Unfortunately, there are more negative stories about investing out there than there are positive ones.

I recently came across a post by someone on Twitter lamenting about using the N50,000 gotten as an undergraduate scholarship to buy shares in Union Bank Nigeria in 2005. Fast forward to 2023 and those same shares are now worth a ‘whooping’ N5,000. The lesson he learnt, and so graciously shared, from this experience was for people to spend their money rather than invest it.

The elephant in the room – investing without the prerequisite knowledge or without professional advice, was deemphasized. Rather the risk of investing and immediate gratification of wants were magnified. Whether we admit it or not, stories are being told, listened to and are shaping lives by every narrative we hear.

Recently, there was also a story about a lady who bought shares in Access Bank worth N22,350 in 2007. 15 years later, she sold those same shares for N20,000. In fact, the average middle-aged Nigerian will tell you stories of doom and gloom about how they learnt never to trust the stock market again after losing large sums of money during the bull market of 2007/ 2008 in Nigeria. Unfortunately, the narrative is still building as the average young Nigerian today, who will be telling the tales tomorrow, is already building a repertoire of gory stories following the cryptocurrency debacle.

It should be obvious by now that stories with negative connotations are not limited to investing in equities. Any form of venture where you commit your capital can end up terribly. Real estate, bonds, shares, crypto currency, your friends’ business, multilevel marketing – nothing is exempt.

In all the examples cited above, the common thread seems to be “investing” blindly without professional advice, fear of missing out (FOMO), not understanding what you are getting into amongst many other things. Now, I’m not saying the grass is always green on the other side of this. There are wolves in sheep’s clothing’s even among those that call themselves professionals. My point is that, when investing is done right, you reduce the probability of ending up with ‘stories that touch’ (borrowing the popular Nigerian parlance).

What then is the right approach to investing? I believe all my previous articles address this question, particularly from the perspective of investing in equities. A subject that I do not think I have addressed is what one needs to do before you even start investing. Before you commit one kobo into any venture, there are a few things you must do and questions you must honestly answer.

1. Why am I investing? This question may seem innocuous and simple at the outset but if you go from first level thinking to second level thinking, you’ll discover its depth. First level thinking will say, we invest to make a profit. This is spot on. Nobody wants to heap their capital in a pile and set it ablaze. Second level thinking, however, asks why you want to make that profit. Are you doing it for the thrill and rush? Are you building a better future for you and posterity? Are you doing it because everyone thinks it is cool or because others are making money from it too?

An honest answer to this question immediately begins to make it obvious to you the ‘Investment opportunities’ that align with your “WHY” and those that don’t. A thrill seeker will be happy to invest in a highly speculative venture while someone with posterity at heart will avoid such like the plague. If your “WHY” is motivated by FOMO, being honest with yourself about this forces you to stop and think it through one more time before testing the waters with both feet. I highly recommend the book, “Start with Why” by Simon Sinek. Though directed more towards corporate organisations, the lessons can be adapted to your individual life.

In simple terms, knowing why you are investing helps you define the amount of risk you are be able to bear. So, why are you investing?

2. You must realise that investing is hard work! Yes, you just read that right. Investing is not just filling some forms and paying some money into an account and returning in a few months to reap a bountiful harvest. Whoever tells you it is this simple is doing you a disservice. You must be aware of what you are getting into, what it entails and be ready to pay the price. If this is not you, you might be better off speaking with a credible financial adviser. You will struggle in your investing practice if you are not passionate about it.
   Investing in any venture makes you a part-owner of that thing. It goes beyond the forms you fill or the paper certificate you hold (thankfully, we have gone past this phase in Nigeria). Nobody reading this will open a petrol/ gas station, a poultry or a corner provision shop and put a manager in charge only to return 15 years later and ask them to give account of how the business has fared in your absence. Thinking of it in this way immediately exposes the folly in many of the examples cited above.
   The same skills you will need to run a physical business are the same skill you must be ready to bring to bear when investing. You must be ready to regularly count the cash in the till, check the inventory, check what your competitors are doing, assess profitability and staff productivity, hire and fire managers etc.
   Investing is simple but not easy. If you are not ready for the heat, you better stay out of the kitchen. Everyone will benefit from having their money invested but not everyone should invest their money themselves. That’s why we have professionals in that field. If investing, as I have described it above, sounds like too much work, call an accredited asset manager. There have various instruments such as mutual funds & Exchange Traded Funds (ETFs) that can be deployed to your advantage.

3. Have a clear plan in place: Investing is not an exact science. It’s not like a particular volume of gas that when put into a particular shape/ volume of container will exert an exact and calculatable pressure. Due to this unpredictability in investing, you must always have a fail-safe plan. Ask yourself, what will I do if this investment does not pan out as I hope?

It is advisable to have an emergency fund in place which is enough liquid cash or in an easily accessible investment (money market fund) sufficient to cover 3 – 6 months of your expenses. This stockpile means you do not have to liquidate your investments before they mature should you happen on tough times.

You should also ensure that there is a matchup between the time horizon of your capital and your investment. Don’t use funds earmarked for your rent which will be due in 6 months to invest in a venture that may need more than 6 months before it matures. This puts you under unnecessary pressure Likewise, investing long term capital in a short-term venture is equally as risky. It means you’ll have to make multiple investing decisions within the time frame of your capital which increases your risk and the probability of making a wrong decision.

Investing is a journey along a path that can be lonely and treacherous. It is however one that equally can be fulfilling. As you walk that path, remember you are building a story that you will one day be telling others. Thread carefully, follow the trail blazed by giants before you and build a positive narrative.
Investing is a journey along a path that can be lonely and treacherous. It is however one that equally can be fulfilling. As you walk that path, remember you are building a story that you will, one day, tell others. Thread carefully, follow the trail blazed by giants before you and build a positive narrative.

Dr. Ajibola Awolowo
Value Nigeria Podcast
valuenigeriawithajibola@yahoo.com