If you are to get a quick idea of a person’s financial health, look at how they spend their money.
There are only two ways to spend your money, either you
consume/eat it or you invest it. Consumption needs no definition, but investing
means committing money with the hope of a return in the future. The returns on
investment can come as cash-on-cash returns – you earn cash from the investment
or as capital gains – you invest in something and its price rises after you
have invested.
Going by this, your financial health is dictated by the balance of how you spend your money. If you consume more than you invest you are not very healthy financially and the opposite is true. Essentially
your financial health is determined by how much of how much you earn you keep.
Shifting the balance is a process done over time and often
begins with a shift in mindset, unless you are forced to save like many workers
do with the National Social Security Fund (NSSF) in Uganda.
But many of us are at loss on what to invest in. As a result
of this confusion, we follow the bandwagon into farming, real estate or
business. For those who can not muster the monies to go into the above, they
fall back on eating their kamoney, until they get a “big deal”.
Is it any wonder that corruption is in our DNA? In our endevour to hasten the big deal we end
up dipping our fingers in the till.
For the everyday man there is a way to sock away small sums,
which over time can grow into huge investments.
The answer is the Uganda Securities Exchange (USE).
At the USE for as little as sh10,000 – National Insurance
Corporation (NIC) shares are selling for sh6.5, one can begin on their
investment journey, while they wait for the big deal.
They say the best time to start investing was 20 years ago and the next best time is now...
But don’t take my word for it.
If you invested sh10,000 in each of the 11 locally listed
shares on 2 January last year, by year end you would have registered a return
of sh4,400 according to share monitoring firm Simply Wallstreet. This was in
dividends – a share of company profits, and share price increases (capital gains).
While that may not be enough to whet your appetite, the
devil is in the detail.
Of the 11 companies listed on the USE, all but three showed
a positive return last year.
Of the eight winners, five of them showed double digit
returns, with the lowest being Bank of Baroda at about 19 percent by the end of
November and the highest being Stanbic Bank at about 73 percent, according to
investment bankers Crested Capital. And among these winners, three of them their
dividends accounted for between 25 and 50 percent of the gains.
Interestingly for two counters – MTN and Uganda Clays
despite a slide in prices, the dividend payouts more than compensated for that
to show a positive total return at year end.
Basically, that you can still win on the exchange even if the share prices dip, if the company is fundamentally sound and can afford a dividend payout...
In an ideal world if a company is doing well – revenues,
profits and net asset value are growing, the share prices should follow suit.
It doesn’t always work that way especially on the USE where trading is very
thin – up to November turnover was only sh61b, with one counter Umeme
accounting for almost half of this volume.
Trading is thin because most shares are held by
institutional investors, who often buy to hold rather than trade. As a result
price movements across the market are subdued.
So, while you can get some credible dividend yields – how
much dividend you get compared to what you paid, the history of the USE is that
it is rather sleepy in terms of price movements.
But there in lies a huge opportunity for long term players.
If company profitability continues to grow while prices are indifferent, it
means the shares are becoming increasingly good value for money.
Imagine you bought your house at sh100m ten years ago and
were initially charging one million shillings a month in rent but ten years
later rent has doubled to sh2m, the value of your house has gone up, at least
twice, beyond the initial sh100m you bought it at. Even if no one knows until
you decide to sell.
Before telecom company Airtel started trading at the end of
the year, while profitability of the listed companies was up 24 percent, prices
on average had only moved up 6 percent.
Meaning prices had some way to catch up to earnings.
It is a no brainer. As long as companies’ earnings continue to outstrip price movements, it’s a mathematical certainty that somewhere down the line prices will begin to rise to reflect this reality. Next week? Next month? Nest year? Who knows but it will.
Historically the best returns for your money come from
owning businesses. The USE is offering pieces of some of the best run companies
in Uganda and the region – there are seven Kenyan companies selling shares on
the USE, for a few shillings.
And we have not even talked about the treasury bonds and
bills trading on the exchange with double digit returns.
So why isn’t the above not widely known? Wealth is silent.
