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Finding Pokémon and seeking Alpha

It is fascinating that much of what humans do in life is searching for something. Life requires one to find a good education, a job or income-generating activity and most importantly a life partner. Those who are lucky enough, also find happiness. “Ask and it will be given to you; seek and you will find; knock and the door will be opened to you”.

Piggy’s Trading & Investing Tips:Batanai Matsika

Much of our activities tend to revolve around this verse and this could be the reason behind the success of Pokémon Go, a 2016 augmented reality (AR) mobile game developed and published by Niantic. Pokémon Go is perhaps the biggest augmented reality game to date. It is estimated that in 2019 alone, Pokémon Go earned US$1,4 billion, while Pokémon Go live events earned US$249 million in tourism revenue.

Pokémon Go is a game that uses your phone’s GPS to detect where and when you are in the game and make Pokémon (virtual creatures) “appear” around you (on your phone screen) so you can go and catch them.

As you move around, different and more types of Pokémon will appear depending on where you are and what time it is. The idea is to encourage you to travel around the real world to catch Pokémon in the game. You may have heard stories of people hunting down Pokémon on their office desks, in hospital rooms, and even in bathrooms. One teenage girl even found a dead body while looking for Pokémon.

Many people out there have the misconception that stock trading is a mysterious endeavour that is governed by a set of laws different from those for an ordinary business. The fact is that the stock market is all about making money.

Quite simply, if you buy stock in a company that is doing well and making profits, then the stock you own should go up in price. You make money in the stock market by buying a stock at one price and selling it at a higher price. It is that simple! While predicting future success is certainly not foolproof, a steady track record is a relatively reliable indicator. When a company has demonstrated consistent results year after year, it is not unreasonable to assume that those results will continue.

In the same way as gamers search for Pokémon, the focus for investors on a stock market is getting alpha returns. Alpha, one of the most quoted indicators of investment performance, is defined as the excess return on an investment relative to the return on a benchmark index.

For example, if you invest in a stock on the Zimbabwe Stock Exchange (ZSE), and it returns 20% while the ZSE ASI earned 5%, the alpha is 15. An alpha of -15 would indicate that the investment underperformed by 20%. An alpha of zero suggests that an investment has earned a return commensurate with the risk. Alpha of greater than zero means an investment outperformed. So, when hedge fund managers talk about high alpha, they are saying that their managers are good enough to outperform the market.

But that raises another important question: how can one beat the market and achieve alpha returns?

Piggy’s approach involves a combination of fundamental analysis techniques and market intelligence. Market sentiment analysis is also critical. In the long run, valuations tend to drive stock prices, but in the short term it is market sentiment that moves prices.

News analysis is also another technique or method that is used to trade shares and other instruments on the financial markets. It is essentially an attempt to profit from price movements emanating from immediate market reactions to major news and economic data announcements.

Generally, economic as well political news reports often spur strong short-term movements in the markets, which may create trading opportunities. For example, company results releases, M&A (mergers and acquisitions) activity, announcements about interest rates, unemployment or the central bank’s policy shifts, can affect exchange rates and share prices. Similarly, news relating to corporate profits or a change in management can affect the share price.

Based on Piggy’s analysis, stocks on the ZSE where possible M&A activity could present significant trading opportunities include Dairibord Holdings and Seed Co Limited. Another stock that stands out is ZB Financial Holdings (ZBFH). Having attained the “Buy Zimbabwe” Bank of the Year award in 2019, the group remains focused on taking advantage of new opportunities in the market. Here are the four strong reasons why investors on the ZSE should be buying ZBFH:

Firstly, ZBFH is trading at discount to Net Asset Value (NAV). We note that this is largely a result of value preservation through inflation-hedging investments on the balance sheet. Land bank acquisition has remained a focal strategy in order to harden the asset base;

Secondly, ZBFH owns c33% of Masholdings. ZBFH has continued to strategically hedge itself from inflation and maintain profitability through extensive exposure to property. Masholdings is diversified across five sub-sectors in the real estate sector that covers CBD, suburban retail, industrial, residential and health;

Thirdly, the new restrictions on mobile money services by the Reserve Bank of Zimbabwe (RBZ) are expected to divert transaction volumes back into traditional banking institutions. ZBFH has been diversifying its revenue streams by leveraging on technologies. Some of the initiatives include (i) Kesto Diaspora Banking (ii) Visa debit and prepaid cards (iii) WhatsApp banking (iv) SME banking and (v) foreign currency generating business lines (money transfer business and bureaux de change). Piggy expects real growth in banking commissions and fees in the outlook period; and

Finally, ZBFH has intensified efforts to establish a regional presence with the registration of a reinsurance operation in Botswana (ZB Reinsurance) having progressed well. This will provide geographical diversification and a platform to expand in regional markets.

Overall, when playing Pokémon Go, to catch them all (and earn the medals attached to catching Pokémon), you are going to have to explore far and wide and be engaged during the day and night. That is the only way to become the very best, like no one ever was. The same can be said of the stock market.

Piggy expects another round of liquidity injections on the stock market before year-end to trigger a Santa Claus rally.

Matsika is the head of research at Morgan & Co and founder of piggybankadvisor.com. He can be reached on +263 783 584 745 or batanai@morganzim.com/ batanai@piggybankadvisor.com

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