Warren Buffet, the world’s greatest investor, once said: “Be greedy when others are fearful and be fearful when others are greedy”.
The Ritesh Anand Column
This investment axiom has served Buffet well over the last 50 years with shares in Berkshire Hathaway growing by a staggering 1 826 163% or 21,6% per annum.
Over the same period the S&P 500 grew by 11 196% or 9,9% per annum. Buffet has clearly demonstrated his ability to generate significant returns over the long-term by following a very focussed, disciplined and yet simple investment strategy.
Risk is positively correlated with return. That means, the greater the risk the higher the potential of return. Zimbabwe could be considered to be a high-risk investment with potential to deliver significant returns over the long-term. There are a number of uncertainties and the market clearly reflects this.
Last year, Zimbabwe’s industrial index fell 20% and performance is up less than 25% over the last five years since dollarisation. During this period, a number of companies have delisted and there has been no new listings. If the market is a barometer of investor sentiment, then it’s clearly evident that sentiment is at a low ebb.
Since 2013, economic growth has stagnated and so has the stock market.
The slowdown in the economy has negatively impacted on the performance of a number of listed companies. Post-dollarisation, many companies experienced strong growth in earnings as the economy recovered off a very low base. However, growth stagnated in 2013, depressing earnings and thus negatively affecting stock prices.
Is it time to be greedy when others are fearful? The news media are full of stories of company closures, bank closures and retrenchments.
Sentiment is at an all-time low with many investors wondering what will happen next. Consensus estimates for growth are negative; the market continues to drift lower with many stocks now trading at attractive valuations.
Market capitalisation to GDP has declined from over 80% in 2008 to less than 30% today. This means that while the economy has recovered, the market has not followed suit. In most Western economies, the market capitalisation to GDP ratio is close to 100% and in some cases market capitalisation sometimes exceeds GDP.
The market is expected to recover strongly over the next 2-3 years and the ratio to move closer to 70%-80%. For this to happen, investor sentiment needs to improve. Factors affecting sentiment are clearly apparent and linked closely to those affecting the economy.
We need to kick-start our economy and boost investment. I have written about this on numerous occasions, so I will spare you the lecture.
I do believe that this is the time to be bold and decisive. This is the right time to take action and follow a disciplined, focussed and simple investment strategy. The stock market offers attractive opportunities for the long-term investor. For businesses, this is a good time to consolidate your share in the market and rationalise costs while growing revenue.
For young Zimbabweans this is a great opportunity for you to think about a business idea or plan and develop a robust business plan and model.
Zimbabwe offers tremendous business opportunities, but they are not for the faint-hearted. You need to be bold and brave, you need to be willing to take risk and, most importantly, you need to be patient. Success does not come overnight. It takes time and requires grit.
It is interesting to note that foreign investors see opportunity in our market. Over the last four years, foreign participation in our market has increased from 36% in 2011 to over 53% in 2014. Clearly, they see something in our market that many of us are missing?
Buffet did not become one of the richest men in the world without vision, discipline and a strong belief in himself.
In fact, his initial investment in the textile sector was a complete disaster.
You should be prepared to fail, but use those as stepping stones to success. They say that fortune favours the brave. It’s time for Zimbabweans to be brave and face up to the challenges bedevilling the economy.
Where you see chaos, we see opportunity. Where you see risk, we see reward. Over the next five years, I do believe that Zimbabwe could have one of the best performing markets in Africa.
The market has remained depressed for sometime and like many other African countries, it is well positioned to take off as the economy grows. It’s time to be greedy, not fearful. It’s time to be bold and decisive. It’s time to take risk. You will be rewarded.