Welcome to a new week and to my Muslim brothers and sisters – Eid Mubarak, may all our prayers be answered.

This week, we continue our quest of discussing stories that have caught our attention:
My name is Toyin Oguntuyi and weekly, I bring interesting news in the world of Investing your way.
 We can’t continue to play the Ostrich…the Minister of Finance’s warning about recession:The Nigerian Minister of Finance, Budget and National Planning, Zainab Ahmed, confirmed the obvious by warning that the economy would likely go into recession this year due to falling oil prices and the impact of the coronavirus pandemic.

She explained that the economy could contract by -8.9% under worst case scenario and -4.4% in the best-case scenario this year but expects growth in 2021.

As a Yoruba adage goes, “A disabled person will not perish in a war which has been predicted”; however, some people have added a clause and have changed the saying to: “A smart disabled person will not perish in a war which has been predicted”.

Here are some steps that can help “recession proof” us and our businesses:

Pay down debts (or as much as possible especially the ones with high interest rates).
Shrink/cut down as much expenses as possible.
Don’t forget to spring clean your subscriptions.
Taking packed meals to the office sounds like a wonderful idea at this time.
Delay capital expenditure till later – that renovation or new machinery/appliance can wait. If it isn’t broken or spoilt, it probably doesn’t need replacing.
Keep building up emergency fund – there is no maximum, only a minimum limit.
Increase streams of income (monetize as many talents as possible; pivot or adapt as a business). Remember, there is no shame in hustling.
Diversify your portfolio – as we all know, currency diversification is now top priority given the devaluation of the Naira and growing inflation rate.
Pay attention to financial and economic news.

Knowledge is key at times like this. Even when it comes to personal finance and investing, time and chance happens to all:

The wisest man ever, Solomon was the one who popularized the saying “time and chance”.

As it applies to life circumstances, so does it apply in wealth generation and investing and there are numerous examples to buttress this fact:

Yahoo refusing to pay $5 billion for Google in 2002 only for it to be sold for pittance years down the line.
The businessmen and women at Shark Tank refused to invest in Ring Inc (then called Doorbot) in 2013, only for Amazon to buy that same business for over $1 billion in 2018.
Warren Buffet becoming a billionaire at age 56 after several decades of consistent investing whilst Mark Zuckerberg reached that landmark at age 23.
Timothy Springer’s billion came after a decade and pandemic. (last week’s story)

Land speculators who buy parcels of land or properties in seemingly remote areas only to sell them for millions of Naira or Dollars when gentrification/urbanization occur.

One thing is clear from these examples, wealth generation isn’t a “one size fits all” approach.

Actually, it is a marathon and not a sprint; overnight success happens but is not the norm.

However, successful investors typically have some common attributes:

They understand the virtue of patience and are in it for the long haul.

One good example is Warren Buffet as he rarely exits his stock positions. In fact, the bulk of his wealth come from shares he bought in his 20s and 30s.Successful investors are long term in nature. This attribute whilst similar to patience is different. This is more speculative in nature and is similar to angel investing.

It is investing for the future.

The Nahmad brothers built a formidable collection of art (worth $3 billion) by buying paintings of both famous painters and the relatively unknown ones and keeping these paintings for decades before selling at auctions.
They understand the principle of consistency.

Despite failures, successful investors keep at it. Whether stock markets or real estate prices crash, the major players in these markets do not exit – they either pause or reevaluate.

Even for investors who focus on wealth building through fixed income portfolio, they are not deterred by low prices – they focus on the “dollar cost averaging” principle.

This is simply investing a fixed amount of money in the same asset type over a period of time.
 
What’s your portfolio type? Tell me!

In finance, a portfolio can be described as a collection of assets/investments held by a or belonging to a company or individual.
These investments can either be financial assets (cash, commodities, shares, bonds, treasury bills, mutual fund) and non-financial assets (real estate, jewelry, art amongst others).

Typically, it is advisable that portfolios are constructed according to risk tolerance, time horizon and investment objectives.

Below are some examples:

Growth Portfolio – aims to grow wealth by taking higher risk by seeking outsized gains. A speculative portfolio also has similar attributes.Here the focus will be on high yielding but riskier investments such as LPO financing, angel investing and Agritech lending amongst others.

Income Portfolio – is focused on securing regular income than on capital gain. The aim here is guaranteeing cashflow and will be focused more on dividend paying shares, rental income and coupon payments from bonds and treasury bills amongst others.

Value Portfolio – the investor here takes advantage of buying assets cheaply or at bargain prices. The aim is to invest when prices are low like during a recession or market crash. Here, capital gain is the main attraction. An example will be to buy foreclosed properties for resale, buying shares of blue-chip companies at rock bottom prices or distressed businesses for sale when the economy improves.

Hybrid Portfolio – this portfolio type combines the attributes of the other portfolios (growth, value and income) to create flexibility and balance. A hybrid portfolio will consist of high-risk assets, fixed income assets and real estate amongst others and is more focused on balancing risk and return. 

Interesting facts:€100 – the cost of the raffle ticket given to an Italian woman as Christmas present and winner of a Pablo Picasso painting valued at €1 million.The painting was donated by a billionaire art investor to a charity raising funds to provide water in some African villages. A total of 51,140 tickets were sold to the public for this purpose.

The interesting thing here is that the billionaire – David Nahmad, whose net worth is valued at $1.9 billion by Forbes; made his money primarily from his art collection.
He and his brother Ezra, own an art collection valued at $3 billion (which they split equally).
Clearly, shares and real estate aren’t the only routes to wealth accumulation.$560,000 – amount a pair of Nike sneakers worn by Michael Jordan during his playing days sold for at an auction; 4 times the estimated price.Sneakers are increasingly becoming collectors’ items and over time, they have been gaining higher resale value.

Increasingly, investors are diversifying their portfolio with alternative forms of assets.12.34% – April Inflation (year on year) rate, a 0.08% increase from March 2020. This is the highest increase since April 2018. This was as a result of increased prices in food stuff, clothing, footwear, transport amongst others which was primarily caused by the corona virus pandemic.80% – of global corona virus cases were caused by 9% of infected persons.On this note, till next week, continue to stay safe and do have a profitable week!

Talk to you soon.

Best Regards,

Toyin Oguntuyi
Research Lead,
The Smart Investment Club

 

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