How Can Someone Buy a Company’s Shares and Make a Loss Even After 15 Years?
Good Morning 😃
How are you doing?
Friday letters are usually dedicated to taking questions from our community. Do you have a question for us? Please feel free to send an e-mail to info@themoneyafrica.com or a DM to any of our social media channels.
Question
I saw the tweet about someone who bought Access Bank shares in 2007 for ₦22,300 and 15 years later, sold it for ₦20,000. This is very discouraging, and I’m curious as to how this is even possible.
Answer
The possible reason for this is that the person in question bought the shares during a period of boom. Between 2004 to 2007, the Nigerian stock market experienced a boom.
In 2008, the stock market crashed due to a couple of reasons. First, there was a global economic crisis. Foreign investors pulled their funds to developed markets.
Banks gave out loans for people to invest in the stock market. These loans are known as margin loans. Margin lending is a type of loan that allows you to borrow money to invest by using your existing shares, managed funds and/or cash as security.
When stock prices started to drop, investors had to sell their shares in order to pay back those loans. This further worsened the sell-off.
Between 2004 to 2007, the Nigerian All-Share index, which measures the average performance of stocks in Nigeria, had gained over 150%.
The graph above shows the price movements of the Nigerian Stock Exchange (NSE) between 2000 till date. The peak shows the height of the boom, early 2008.
By 2008, the stock market as measured by the Nigerian All-Share Index, had declined by more than 50%. Till date, many stocks are yet to recover to those price levels.
There was no mention in the tweet of the dividends that must have been received from then till date. The bank has however paid dividends over the period as well. It is also worth mentioning that there were a few other companies that have done much better than the stock in question within that period. Okomu Oil, for example, has gained over 600% from 2007 till date.
This is why we not only preach investing at MoneyAfrica, we also preach keeping a diversified portfolio—one that spreads across the stock market, fixed income market, real estate, and so on. This way, your portfolio is insulated against drastic price movements.
***
Question
I am a Nigerian student with no source of income apart from the meagre allowance I get from my parents and other family members sometimes. Being a medical student also leaves me with very little time to do any other thing apart from studying.
How do I go about saving and investing for my future?
Answer
We know that gaining access to funds as a student might be sometimes difficult. Some students are in a position to create some time to pursue a side hustle that may earn them some more money. However, other students with bulky curricula such as yours may be unable to do this.
Considering keeping a budget, saving and investing as a student, is more about building healthy financial habits. This way, when you are out of school and you start to earn income, you are well positioned to manage your funds properly, and can then begin to build wealth.
Usually, when students are unable to save and invest, any of these two cases poses as the underlying issue:
They are not budgeting their income well enough such that they are spending a large proportion of their income on wants. Wants are a portion of your expenses that you can survive without. An example of a want is a cinema ticket to go see a movie or something of that nature. With a proper budget, these wants can be cut down on to save and invest.
They actually have an income problem. Here, you probably have a budget that you work with. However, you have an income constraint that barely covers your needs, talk less of having wants. Hence, you are unable to save or invest.
You would need to conduct a self-assessment in order to understand the underlying issues that are peculiar to you. If you fall in the first category, the solution is clear.
However, if you fall in the second category, you might need to be more patient till you can actually afford to save and invest. In the meantime, you could join a community of like-minded people who are eager to build healthy financial habits. The MoneyAfrica Student Community is one like this. You could tune in to our 3-day free virtual personal finance workshop (May 15–18) to give you more insights on how the MoneyAfrica Student community can help you build healthy finances.Tap here to sign up.
Should you have any questions regarding your personal finances, simply fill the form below. Don’t worry, your responses are kept anonymous.
https://forms.gle/jxGkG24kMBYc6wVh8
Don’t forget to:
Join our community, if you are interested in smashing your 2022 financial goals. Yes, 2022 may have just started, but it takes at least 30 days to build great habits that will last you a lifetime. So why not start now? There is a lot you can achieve.
If you would like to document your financial journey in 2022, then our journal would be a great fit for you. It costs ₦7,500 (excluding delivery).
Get a budget sheet to track your monthly expenses. Click here
Get an investment tracker to be on top of all your investment. Click here
