Avoid the bandwagon effect when investing – Mujota

Modupe Mujota

Mrs. Modupe Mujota is a Director, Kakawa Asset Management Limited. In this interview, she tells SIMON EJEMBI, why it is important for people to understand the trade they intend to invest in and the major steps individuals can take to properly manage their assets

 What is the relationship between asset management and wealth creation?

Asset Management in itself is a means of creating wealth. It is a broad concept that ranges from the management of assets whether financial or tangible. Most Nigerians view asset management in terms of managing real estate, money and capital market investments but it entails far more than that. Areas such as advisory services, concept and strategy development are all embedded in asset management because these are all steps required for wealth creation.

 How would you rate Nigerians in terms of their awareness of the importance of asset management?

As I mentioned earlier, Nigerians previously had a limited understanding of the concept of asset management. Most people focused only on the management of financial and real assets but that is gradually changing. You find that Nigerians are becoming more knowledgeable about the concept and are starting to demand more from their investment managers. Individual investors want to know what other options are available to them other than the usual real estate, fixed income or stocks while some institutions are starting to seek alternative investments, albeit with higher risks but also higher returns. Governments, agencies and parastatals have also not been left out as they continue to seek ways to boost revenue generation through the professional management of public assets and infrastructure.

 What are the major steps individuals should take to better manage their assets?

In the case of individuals, we would focus more on financial assets. It is always good to get the advice of an asset manager who can assist to determine the best investment outlets for optimal returns. The asset manager will be able to profile the individual based on several parameters such as monthly income, retirement age, family background, risk appetite, and investment objectives on the short, medium and long term. All these will enable the manager to develop an investment portfolio that will best suit the individual per time. You find that a lot of people who try to manage their assets themselves, most times do not get the optimal returns because they lack the required expertise. Most individuals will be surprised to learn of the existence of products with low minimum entry amounts that can provide them with good steady returns over a period of time. For example, at Kakawa Asset Management Limited, we have a flagship fund, the Kakawa Guaranteed Income Fund (KGIF) which offers a rate pegged to MPR (currently 12% p.a.) for as little as N50,000.00.

Also, individuals have to cultivate the habit of separating their investments from personal expenses. There has to be enough discipline to understand that your investments are for your future special projects and/or retirement and should therefore not be liquidated at the slightest whim.

 How can small scale businesses benefit from asset management companies?

Well, asset management companies may render financial and other types of advisory services as well as developing business concepts from an investor perspective. Most small scale business owners usually have an idea of the type of business they want but may not be clear on how to implement. Asset management companies may provide the requisite strategies and assist with the implementation process that will take the business through the various developmental stages with the ultimate destination being wealth creation and transfer.

 What would you say is the best way for an individual to get started as an investor?

Firstly, the individual has to understand the concept of saving. There will be no assets to manage if there are no savings to convert into the assets in the first place. Secondly, the individual may start off by gradually building a portfolio. For example, you may not have enough funds to invest directly in some fixed income securities (bonds, treasury bills, fixed deposits etc.) but you may choose to invest in Mutual Funds and enjoy the access available to different types of investment outlets at specific returns. The stock market also offers an opportunity for investors starting out. Although some may have reservations about the stock market based on the recent past but if investments are made in growth stocks with strong fundamentals and with the counsel from a qualified manager, the individual may gradually build a portfolio over the long term. It is important to mention that these individuals need to avoid the “bandwagon effect” of mimicking trades of others without any understanding of the investor’s motives and stock analytics. Individuals who are new to investing will better appreciate the stock market when they pursue a long term strategy.

 In investing in stock, for instance, how can one qualify stock in categories such as emerging, small-cap and value stock?

The classification of stocks using their market capitalisation (that is the shares available for trading multiplied by the daily market price) will determine whether a stock is high-cap or small-cap. High-cap stocks usually trade at higher prices than majority of the stocks in the market. The likes of Nestle, Nigerian Breweries, Guinness, GT Bank, First Bank, Zenith and Flourmills, to mention a few, are all high-cap stocks. Conversely, investors usually refer to stocks with low market capitalisation as small-cap stocks.

Value stocks may be seen as stocks with current market prices trading below their perceived fair value or book value prices. They are stocks that investors believe still have strong potentials to grow in market price, earnings, dividend pay-outs and so on.

Just as emerging markets refer to countries that are experiencing fast paced growth and industralisation, emerging stocks refer to the stocks of companies that are experiencing rapid developments and their growth is reflecting positively in their earnings.

Stocks may also be classified based on their sectors e.g. Financial Services, Conglomerates, Consumer Goods etc.

 When is the best time for people to sell off assets? Are there dangers in holding onto an asset for a long time?

Well, there is really no specific time that is best to sell off assets. It depends on each asset class, the individual’s investment strategy and horizon amongst others. The key thing is that one should not get greedy so as not to end up with continuously thinning margins or a total loss position. You will find that asset managers usually have investments closely monitored daily to ensure that the investments achieve optimal returns based on specific strategies. It is also necessary for investors to quickly analyse newly available information pertaining to their investments and not panic if they believe the news is not favourable. They may get the views of experienced professionals to guide their decision making process.

Whether or not there are dangers to holding onto an asset for a long time also depends on the type of asset. Generally, most real estate properties appreciate over time and hence a holding period cannot be determined while some are even held in perpetuity. However, in the case of financial assets such as stocks, investors who buy for a short – medium-term horizon need to daily monitor the market and be able to determine whether a stock has reached its peak or not. It basically depends on the strategy, the take on or acquisition cost and return expectations all taking place within the market dynamics.