Something To Learn from Elon Musk

Welcome to week 2 of our new normal.

Unfortunately, for those of us in Lagos it does not include traffic free roads. As individuals and companies alike continue to adapt and adopt new ways of living; we will be looking at the following stories this week:

  • Don’t worry, there seems to be a method behind Elon Musk’s rants:

Most of us are aware of the recent erratic behavior of billionaire tech maverick and investor, Elon Musk. From giving his newborn son an unpronounceable name, sending tweets that caused the shares of his company tank by over 10% and selling all his physical assets; he has been very busy lately.

Just last week, he also insisted on reopening his California Tesla factory against the governor’s wishes and openly stated that he was prepared to go to jail for doing so.
All this should not distract from the fact that we can learn a few things from Elon Musk:

  •  He has always thought outside the box – the 3 major businesses he founded or co-founded were established to disrupt or operate against industry norms. Paypal (alternative payment method), Space X (private space travel) and Tesla Motors (electric car production amongst others).

In disrupting these industries, Elon Musk created alternative ways of doing regular things.
Anyone who has driven a Tesla will tell you that the experience is second to none and this is reflected in the market value of the company.

  • He is a risk taker – as the saying goes “no risk, no gain”. As stated above, Elon Musk is not one to shy away from controversy or outlandish business moves.

In 2017, he promised to build a battery large enough to solve the electricity problem in South Australia within 100 days or forfeit payment. The battery was delivered on day 60. Since then, the company has gone ahead to build and deliver similar batteries globally.
In fact, he was once considering Nigeria as a market for the batteries (if you ask me, there is a huge market for it)

  • His investment portfolio mirrors his personal philosophy – his portfolio is largely skewed towards scientific and technological ventures. Elon Musk’s portfolio consists of shares in Tesla Motors, Solar City, Space X, Boring Company and bitcoin.

All major investors tend to put their money where their hearts are. We all can learn from that.

  • Nigerians sure like food! That N23 trillion food bill in 2019

According to the NBS Consumption Expenditure Pattern in Nigeria 2019 report, Nigerians spent a total of N22.7 trillion on all categories of food.

The tables below show the breakdown per food category and geographical region:

Zone Food Expenditure % of Total Food Exp
 South West       6,181,278,565,763.00                                      27.14
 South South       4,568,263,076,262.00                                      20.06
North West       4,341,837,734,225.00                                      19.06
North Central       3,484,988,423,566.00                                      15.30
 South East       2,615,164,225,199.00                                      11.48
 North East       1,585,717,617,356.00                                        6.96
Total     22,777,249,642,371.00

Source – National Bureau of Statistics

  • Nigerians spent an average of N315 daily (N115,000 annual) on food.
  • The largest amount – N4 trillion was spent on eating outside the house – restaurants, bars, bukas amongst others.
  • Rice is no match for cassava, yam and plantain combined.
  • More money was spent on meat and fish products than on poultry items.
  • People spent the least on Beverages, Confectioneries, Bottled and canned alcoholic drinks at N296.6 billion, N205.5 billion and N150.2 billion respectively
  • The South Western region (Lagos, Ogun, Oyo, Osun, Ondo and Ekiti States) spent the most on food.
  • More money was spent in the rural area on food than in the urban area (which is surprising given that more farming was done there than in the urban areas).

My Takeways:

  • There is a huge market for outdoor food consumption – bukas, mama puts, catering services etc.
  • The market for vegetables is huge and surprising. It was 3rd right after the usual suspects – cassava, yam & plantain, rice.
  • We spent more on Milo, Bournvita, Lipton etc than beer!
  • Nigerians love fizzy/carbonated drinks. More money was spent in this category than the beverages and alcoholic drink categories combined.
  • We still consume more of unprocessed food items than the processed one.
  • Distributive trade focused on Fast Moving Consumer Goods (FMCGs) remains a viable business.
  • The market for food items in the South West is huge and this is understandable as most of the states have low poverty rates.
  • Nigerians spend more on transportation than on health and education! N17.4 trillion was spent on nonfood 2019

In the same Consumption Expenditure report, an analysis was made of the amount of money spent on nonfood items in 2019.

Group Expenditure Share_in_ non food expenditure
TRANSPORT 2,588,901,034,916                                                          14.85
HEALTH 2,460,266,138,597                                                          14.12
EDUCATION 2,428,993,052,871                                                          13.94
SERVICES inc Telecoms 2,222,067,290,758                                                          12.75
RENT 2,122,889,646,502                                                          12.18
FUEL/LIGHT 2,016,183,780,851                                                          11.57
CLOTHING AND FOOTWEAR 1,822,511,258,144                                                          10.46
HOUSEHOLD GOODS 1,142,507,512,895                                                            6.55
ENTERTAINMENT 428,217,151,903                                                            2.46
WATER 197,601,949,559                                                            1.13
TOTAL NON- FOOD CONSUMPTION EXPENDITURE 17,430,138,816,995                                                        100.00
Zone Non-Food Expenditure % of Total Non-Food Exp
South West       5,862,128,353,206.00                                      33.63
South South       3,850,676,095,161.00                                      22.09
North West       2,501,792,373,928.00                                      14.35
North Central       2,173,274,796,790.00                                      12.47
South East       2,158,004,475,990.00                                      12.38
 North East           884,262,721,921.00                                        5.07
Total     17,430,138,816,996.00

Source – National Bureau of Statistics

  • The South West leads the pack in spending again. The region spent the most in transport and education.
  • The South East spent the most in health and the South West the least
  • The more advanced the region, the more was spent in education and health.
  • Entertainment ranks low in expenditure across all regions.
  • The Nigerian business terrain may be extremely difficult, but opportunities still exist.
  • Personal ratios we all should all monitor

The term “personal finance” says it all. It is personal and specific to each one of us. There are basic principles but at the end, it depends on the person.
Below are some of the ratios we should monitor on our personal finance journey:

  1. Budgeting Ratio: The 50-30-20 ratio.

50% to be spent on needs (groceries, fuel, food etc)
30% on wants (entertainment, grooming etc)
20% to be saved/invested

  1. Emergency Fund Ratio: 6 times monthly expenses and should be kept separate from investable funds
  1. Rent/Mortgage Ratio: 2.5 times of annual income

This is just a guide and is dependent on where you live and income level. The aim is to spend lower and save more.

  1. Investing Ratio: 120 minus your age

This guide helps determine asset allocation.
A younger person would allocate more funds to shares than an older person would do.The aim is to allocate funds based on risk appetite and age

  1. Retirement Savings Ratio: 25 times of current income (minimum)

The aim is to have an idea of how much we would require to spend our retirement comfortably.
Nigerian employees, this calculation should factor both our Retirement Savings Account (RSA) and funds being invested personally.

Interesting Facts:

  • 22% – value of Nigeria’s non-oil exports in 2019. Clearly, there is a lot of export opportunity to be explored especially in this era of low oil prices.
  • 57%:43% – Nigerian consumption pattern of food and non-food items. This ratio mirrors the trend in developing countries. More developed countries tend to spend less on food.

Lagos and Imo States are the only 2 states who spend more on non-food items.

  • >10 years – Timothy Springer, a 72-year-old Harvard professor became a billionaire last week due to an investment made in a biotech company (Moderna) over 10 years ago.

Moderna’s shares rose 12% in value last week when it was announced that it had a coronavirus vaccine currently undergoing human clinical trial.

According to the professor, he invested in the company because it was in line with his philosophy of investing in what businesses he understood. Makes great sense, if you ask me.

Talk to you soon.

Best Regards,

Toyin Oguntuyi
Research Lead,
The Smart Investment Club

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