27 June 2017

Tanzania: Market Data Review - On Becoming Knowledgeable Investor

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Investing in shares in an educated way will give you a great start and an important foundation on your path to financial literacy, economic empowerment and prosperity that comes by one becoming an integral part of the economic growth and development - by you becoming an owner or a shareholder of companies in sectors whose contribution to the economic growth and development is significant. You may be in the village doing agriculture and rearing domestic animals for commercial benefits. But you may be taking a keen interest of statistics which indicates that agriculture has in recent days not as much contributing to the gross domestic product - GDP (a measure of economic growth) of the country, and that sectors such as telecommunication, financial services, trade, tourism contributes to the GDP significantly.

Then, it occurs to you that in order to become a beneficiary of such growth you have to put your skin in the game, albeit in a small way. You also have learnt that banks, commercial services, and some manufacturing companies are listed in the stock market and there are some people like you who are partly owners of these companies, and that you too have an opportunity to become an owner as well. How do you begin, by educating yourself a bit more about this topic of investing in shares of companies that are listed in the stock market. You then compliment that self-education with more details that can be provided by brokers and investment advisers who are licensed and regulated. You can start like this:

Like most things in life, investing in shares is really quite easy if you are prepared to learn, be disciplined and apply basic common sense to the choices you make. There is no magic formula or quick solutions to becoming well off when buying and selling shares, but education about what a share is and why you would buy shares is very important before you dive further into the share investments.

Before we move further on this, here is a simple, yet inspiring true investment miracle story in Australia that you may need to remember. Note that, there are some listed shares on the Dar es Salaam Stock Exchange that have similar successes but are either relatively smaller in size or their investment horizon has not been long enough for you to witness the necessary cycles.

So, the message from this Australia story is a simple one. An investment of Sh1 million turned into Sh20 billion over a period of 54 years - I understand, this may be someone with some real great investment patience. I however know some family owned businesses in our country that have been there for longer than this period - the difference in here is that you will not be pro-actively be involved in the daily operations of the company. You will actually be pursuing your other interest as other people work on growing your investment.

So, if you had invested the equivalent of Sh1 million in the listing of Westfield Holdings (an Australian group of companies that has stake in real estate and retail undertaking with ownership, development, design, construction, funds/asset management, property management, leasing, and marketing activities, in September 1960 (when Westfield listed in the Australian Stock Exchange), and reinvested every dividend and bonus that Westfield has paid over this period, your investment at the end of 2014, when the company split, would have been valued at about Sh20 billion!

The Westfield experience is the best example of long-term wealth creation of any share. Fifty-four consecutive increases in Westfield's overall profit have gone toward generating this amazing record. The point about this is that no other money was needed besides the initial investment of Sh1 million.

Not every share does what Westfield has done. There are cases where companies' fail and their shares disappear from the market and take their investors' money as well. Plucking one exceptional share out of many may distort what is possible. Sh1 million invested in September 1998 in Tanzania Breweries is worth about Sh25 million today. This is an annual compound growth of about 20 per cent and a total growth of 2000 per cent. A similar case applies to Tanzania Cigarettes Ltd whose current price is Sh10,000 from Sh410 when it was listed in the DSE in year 2000, in a period of 16 years, investors total investment growth of about 2000 per cent - therefore an investment of Tsh. 1 million in TCC shares in year 2000 will now be worth Tsh. 24.3 million (note: in both TBL and TCC cases dividend payments are excluded).

These cases do not fairly compare to the Westfield example, but it is a best result than many other types of investments would return to passive investors.

So, the moral of the above story is that with some basic education and a simple strategy, over the long-term, you can become extremely wealthy.

I say it is matter of basic education - because, culturally, we seem to be a society that can easily educate itself and quickly embrace the workings of pyramid schemes, and such similar speculative schemes - but when it comes to areas of sustainable and meaningful investment where a similar amount of energy (and probably patience) is required, the same do not apply.

The basic education and a simple strategy, over the long-term, can help you to become extremely wealthy by investing in shares. As it is shares represent ownership of a company and its assets and earnings.

Investing in shares in an educated way will give you a great start and an important foundation on your path to financial literacy. Like anything in life, investing in shares is really quite easy if you are prepared to learn, be disciplined and apply basic common sense to the choices you make.

There is no magic formula or quick solutions to becoming well off when buying and selling shares, but education about what a share is and why you would buy shares is very important before you dive further into the share investments.

Mr Marwa is chief executive officer of the Dar es Salaam Stock Exchange.

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