HOW TO INVEST FOR THE LONG TERM

Emmanuel Ewumi

(Over 20 years investing experience in Nigeria’s financial markets)

Most of the new investors in the capital market or real estate have this notion that investments ought to be for a short term. Because of this they invest in ventures, assets or businesses that they are not conversant with, nor take the pains to become knowledgeable about what they invest in.

It is possible for short term investors or speculators to make money, but it is the informed long term investors that build lasting wealth for themselves and their children.

Just last week on Nairaland, I gave a breakdown of how an investment of N350,000 in one of the banks in Nigeria grew to over N85 million within 20 years. Some of us might talk about inflation or time value of money, but after taking all these into consideration it was still observed that the investment did not do badly at all.

The major difference between successful investors or businesspeople and average investors or businesspeople is the time horizon of their investment plans or business plans. The main difference between rich countries and poor countries is the time frame of their economic development plans.

Investing for the long term does not mean the investor invests and goes to sleep without monitoring the performances of their companies. As matter of fact successful long term investors know what they own and why they own them, they are also very knowledgeable about their companies and the management.

Whenever you see an average Nigerian who has legitimately done well for himself via the stock market, that person must be a long term investor.

There is nothing bad in being a short term investor, but the risk is high compared to a long term investor. A short term investor can be likened to a farmer who bought chickens to rear, he reared them to maturity and sold at a profit, while the long term investor can be likened to a farmer who bought chickens to rear, he reared them to maturity the chickens produced eggs and more chickens which he sold regularly to generate cash-flow.

These are the performances of some stocks over the last ten to fourteen years.

……………………………………………………………………………………………………………………………………………………….

CAP sold for N2.00 in 2001, I bought some units of the stock around Easter in 2001. Let us see the performance of CAP from 2001 to date, as per capital appreciation. N100,000 will buy 50,000 units. Year Bonus units 2001 50,000 2002 1 for 3 66665 2004 1 for 4 83331 2010 1 for 3 111105 2011 1 for 1 222210 50,000 units in 2001 have grown to 222210 units in 2013. CAP now sells at N37.00 per share. The investment of 100k in 2001 is now worth N8.2 million in 2013. NB: I did not buy 50,000 units in 2001, I used my leave bonus and savings to buy 10,000 units in 2001.

……………………………………………………………………………………………………………………………………………………………..

UAC was a rejected stone in 2000 that was a time when the company was undergoing serious turn around. The MD/CEO in person of Mr. Ajayi in 2000 shifted the focus of the company to food, logistics and the real estate subsidiaries. The price of UAC fluctuated between N2.00 and N2.50 in 2001/2002. @ N2.50k, 100k will buy 40,000 units of UACN. UACN is a bit stingy with bonus, but this is the stock performance as per capital appreciation since 2001. Year Bonus Units Feb 2000 —– 40,000 Aug 2000 1 for 1 80,000 June 2010 1 for 4 100,000 40,000 units in 2000 have grown to 100,000 units in 2013. UACN sold for N53.00 yesterday. The 100k invested in UACN in 2000 is now worth N5.3 million in 2013.

………………………………………………………………………………………………………………………………………………………

Nestle and AP sold for N20.00 for a better part of 2001. 100k will buy 5000 units of Nestle shares. Year Bonus Units 2001 —– 5000 2003 1 for 4 6250 2007 1 for 4 7812 2011 1 for 5 9374 The current price of Nestle is around N850, the 9374 units of nestle is worth almost N8 million . Not bad for an investment of 100k in 2001.

……………………………………………………………………………………………………………………………………………………..

One should not buy a hot stock, or an overvalued stock. When the O and O guys emerged as the core investors in UNIPETROL in 2000, the market expected so much from those guys. The market capitalization of the stock exchange in 2000 was about 600 billion Naira. The PE of UNIPETROL i.e. OANDO was over 50 when I bought more units of the stock in 2002. The stock sold for between N35.00 and N40.00 in 2002. 100k will buy 2800 units in 2002. Year Bonus Units 2002 2800 2003 1 for 10 3080 2004 1 for 4 3850 2008 1 for 5 4620 2010 1 for 3 6158 2010 1 for 2 9237 ( bonus was declared twice in 2010) 2011 1 for 4 11546 11546 units at N17.5 per share will be worth N202,055 too bad for an investment of 100k in 2002.

………………………………………………………………………………………………………………………………………………………………

This is the performance of First Bank from 2000 to date. 100k will buy 20,000 units of FBN shares in 2000. Year Bonus Units 2000 20,000 2001 1 for 4 25,000 2002 1 for 5 30,000 2003 1 for 6 35,000 2004 1 for 8 39,375 2005 1 for 4 49,218 2006 1 for 25 51,186 ( Special distribution) 2006 1 for 1 102,372 2007 1 for 6 119,433 2008 1 for 4 149,291 2009 1 for 6 174,171 2010 1 for 8 195,000 units Valued at over N3.8 million Naira

……………………………………………………………………………………………………………………………………………

NB, this piece was contributed by the writer in the investment section of Nairaland on 22^nd March 2013. The values of all the investments had changed between March 20013 and June 2014.