Change Agent

Restoring Confidence to the Banking System

2009-08-16T04:04:00.000-07:00

A few months ago, i wrote an article pleading with the then Governor of the Central Bank of Nigeria (CBN) to allay our fears about the state of our banks. Alas Professor Soludo did not do much to calm my nerves. Since my plea, a new Governor, Sanusi Lamido has taken over the leadership of the CBN from Soludo whose term expired in May.

On 14th August, less than 3 months after taking over, Sanusi Lamido acted decisively to deal with the uncertainty hanging over the banks by sacking the Managing Directors of Afribank, Finbank, Intercontinental, Oceanic and Union Bank. In his view these 5 banks pose a serious threat to the financial system and the management of the banks have acted in a manner detrimental to the interest of their depositors and creditors. The CBN was forced to act to save depositors and restore confidence to the banking system.

In my view, this is a welcome development. In a time of crisis, there is often a need to show leadership and act decisively. For almost a year, the 5 banks have been suffering from illiquidity, surviving on the Expanded Discount Window and interbank borrowings. As the Governor said, three of the banks were very important to the banking system and something needed to be done before they lead to a collapse of the financial system.

The Governor’s actions required courage. For there are vested interests that would have done everything possible to stop this decisive action. However, the actions of the CBN are in order and are in the interest of depositors and long suffering investors. Some of the actions of the banks were shocking. Take Intercontinental bank for example. The bank loaned out more than thirty four billion Naira to three companies they themselves called “fringe” players in the downstream sector of Oil and Gas. It is shocking that such huge sums will be loaned out to three companies that have no significant record of success to speak of. Where was the risk management?

Then there are the billions loaned out to speculators on the Nigerian Stock Exchange (NSE) in the form of margin loans. The value of the securities have since collapsed by more than 70% in some cases. In the process trillions of Naira vanished.

The management of these banks have shown themselves not capable of managing the growth experienced by the banks. Within three years the five banks have frittered away more than three hundred billion Naira in fresh capital. The CBN did the right thing by sacking the managers. Something needed to be done to save what is left of the banks.

Depositors should remain calm. The CBN has injected over 400 billion Naira to save these banks in an unprecedented move backing its words that no bank will be allowed to fail.

It is my hope that these actions by the CBN will restore confidence to the system, reduce the cost of funds and lead to recovery of the economy in general.

Redemption

2009-08-03T17:28:00.000-07:00

We are in the summer and it is meant to be quite but the NSE has been simmering in the last couple of trading days. The NSE All share Index has gone up for 8 straight days and is on the brink of a possible gain on day 9.

In the last 18 months i have come to realise that a lot of things are very possible on the NSE. The expectation is that with the common year end, the last qtr will be tight. But then the CBN cut the Monetary Policy Rate. Oil price has stabilized above $55 for some time reducing the federal deficit. In the last 1 week the Naira has fallen in the official market to N150.25 to the $ further reducing the deficit. So despite the collapse of power and security concerns, the economy is looking like it may finally get some life. Furthermore world markets are looking up with the Dow crossing 9,000.

Looking at the NSE Index it has now gone up for 8 trading days. It faltered on 30th July but did not go down and then it went up on 3rd August when it looked like it might be on its way down. The last time this sort of resistance happened was between 16th April and 24th. It had earlier happened between 1st to 7th April. It was thus in April that the Index resisted a fall and then burst up in May. It then went on that remarkable run that saw it come within whiskers of the year opening value.

However, a not very common occurrence is that the value of transactions went up gradually for 6 trading days starting on 24th July and reaching a climax on 31st July. Value fell today. Is that the sign of a reversal? Or are we about to see another remarkable run? Possibly. Will i be happy if the Index continues to go up carrying us towards another remarkable gain? Yes off course! It will offer me another opportunity to quietly take some gains. I have already realigned my portfolio to my satisfaction but i have learnt it pays to graciously accept unreasonable gains.

For those considering buying into the market, i will say exercise due care and do not get caught out in what might be a suckers rally. Ensure you have tight stops for any speculative buy.

Perhaps this is the chance for some smart banks to quietly and slowly get rid of the toxic assets in their books and in the process get much needed liquidity boost and offer beleaguered shareholders some redemption.

Beyond the Write Offs

2009-08-01T15:53:00.000-07:00

It is no longer news that our banks will need to make provisions against losses from margin and downstream oil sector loans. ETI set the ball rolling by releasing a very disappointing full year result. This was followed by FBN writing off N26 billion to everyone’s surprise. However, not many were surprised when Oceanic bank set a record by writing off N42 billion in one swoop.

Since then Zenith, Oceanic and UBA have released their quarterly results and all 3 have written off billions. I expect all the other banks to follow suit with write offs in their quarterly announcements. I am glad the banks have decided to come clean after being helped along by the new CBN governor. As an insider the Governor was very aware of the extent of the problem at least in FBN.

While i welcome the write offs so that we can move forward, i believe the management of the banks need to show some accountability. It is not just enough to write off billions and pretend all is well. We as shareholders need to know what management has put in place to avoid a future recurrence of almost complete breakdown in risk management. We need to know whether the key parties in the debacle have been sanctioned appropriately. As a minimum no one should get a performance bonus after such disastrous results. For many years bank executives have been handsomely compensated on the back of good results. Now that the tide has changed we expect to see some restraint on executive compensation.

I therefore call on all shareholders to attend the Annual General Meeting and voice their concerns. We need to see some remorse from management for such wealth destruction. We also need to hear what they are doing to avoid recurrence. Hopefully the end of the era of praise singing at AGM’s is in sight.

Round 2

2009-07-18T14:52:00.000-07:00

Someone once said “the ability to anticipate the market instead of reacting to it is the most important attribute that separates the consummate investor from the rest of the investing crowd”. Can we anticipate the market? Perhaps. Attempting to predict the direction of the market is usually a fools errand, but there is no harm in trying.

There is no doubt we are in bear territory. The NSE All Share Index has lost 23.5% since it peaked for the year at 30,925 on 2nd June. On June 2nd , the market had by then been on a spectacular run and was up a stunning 56% since its low of 19,804 established on 26th March. It was an incredible reward for those who went in during the dismal first quarter. Therefore the current bear run is not shocking when considered alongside the remarkable gains.

So how can we recognise the signs of a recovery from the current bear run? Can we anticipate the next bull and jump in at close to the bottom? Back in late January when i decided to jump back in big time it was because i felt stocks were cheap using various valuation methods. Using Price to Earnings (PE), Price to Book and Dividend Yield, stocks were selling at 4 year lows. The average Yield at the end of January was 6% while the PE was 14.3. That compared favourably with the average of 16.3 and Yield of 4.75% on 30th December 2005. The market did not bottom out until March after a suckers rally in February. At the bottom of the market on 26th March 2009 the yield was 6% and PE 12.5%. However, all the stocks i bought in late January and early February did not breach their lows in the March sell off. What i did not anticipate then was that i will be rewarded so quickly.

I used mainly two criteria to decide what to buy: the dividend yield and the PE. I placed more emphasis on the dividend yield. Deciding that at worst i will get a dividend. Most of the banks stood out. I selected those i was familiar with and those that have taken the worst beating. A number of non bank stocks also stood out. I bought those with the largest yields and a reasonable dividend paying record. I avoided Insurance companies. Having just taken a course on Risk management, the faith of Insurance companies in the UK during the stock market collapse in the early 2000’s kept ringing in my ears. Despite their “attractive” valuations i stayed away.

Within two weeks of my entry the February suckers rally was in full swing. I sold a few to reduce my losses from the previous year but mercifully held on most until May/June. I guessed correctly that the stocks had more to run and that they were still fundamentally attractive. Anticipating a selloff in the 3rd quarter i decided to bank some of my gains, I took out all the cash i put in during the first quarter plus more in May and June. I rebalanced my portfolio keeping a few banks and buying more non banks that i hope will act as stabilizers. I kept a nice amount of cash to take advantage of any opportunities that might arise. So far so good.

July has so far been testing. The Index has gained only 3 times in 13 trading days shedding 11.9% in the process. The average PE as at July 17th was 13 and the Yield 5%. The PE is now more attractive than in January but the Yield has dropped probably reflecting some of the poor dividends announced by some Insurance companies. A few stocks are definitely becoming more attractive. My eyes are firmly on non banks stocks for now. The banks need to fall further to compensate for the more uncertainty hanging over them. Insurance stocks are still a no go.

Another positive development that might affect the faith of the market is the reduction in Monetary Policy Rate by the Central Bank. Lower interest rates are generally good for the economy and the market.

I still believe the last half of the year will be tough due to the common year end for banks and the painful write downs some banks need to make. However, if one has a thick skin and some cash to last a long bear run, it will also present an opportunity.

The strategy is to try hard not to exhaust cash before the bear is finally slaughtered. Buy in bits and avoid needless risk like buying IAA or Transcorp for instance. And above all be patient and prepared for a long, bumpy and exhausting ride.

Ray of Hope

2009-07-12T06:34:00.000-07:00

May provided further respite and ray of hope to beleaguered investors on NSE. The Index gained a stunning 38% , surely a record gain in any one month. It was a month in which investors who took the risk in the first quarter were rewarded beyond their imagination. Value of transaction at just over N56 billion was the highest for the year which is consistent with a rising market which generates more interest.

June on the other hand was a reality check. Value of transactions at over N94 billion was the highest in 9 months. The Index reached a year high on June 2nd at 30,925 and came within whiskers of the year opening. However, by the end of the month the Index had dropped to 26,862 a 9.6% decline from May closing. This was certainly not a surprise after the record setting gains in May.

As we enter the summer the dullest time of the year, it is likely that the index will drop further from its June closing before the summer is out. Already the first few days in July indicate a declining interest in the market. Value of transactions are declining daily albeit slowly. But the signs of a bear market are there: lower lows and lower highs combined with shrinking volume.

With the new Central Bank Governor talking tough and uncertainty still hanging over the faith of some banks this is the time for caution. A time to perhaps sit still. Except for some investors still holding on to dead wood. This might be another opportunity to exit with modest losses before another round of meltdown.

April

2009-04-30T18:37:00.000-07:00

April brought welcome relief after the destruction in March when the All Share Index lost 15.1% closing at 19.852. This was the first time it closed for the month below 20,000 since November 2003.

Mercifully April was much better, in fact better than February as the Index gained 8.7% closing at 21,491. The full year result for GTB contributed to the positive performance of the Index. The Index gained 8.3% in 7 days following the release of the result. Without the positive impact of GTB, the month would have closed almost flat.

The full year result of GTB restored some confidence to the beleaguered market. The level of disclosure was impressive and the performance above expectations in the light of the gloom. The result lifted some of the clouds hovering over the banks.

The value of transactions in April was also encouraging. Although just under N43 billion was exchanged a far cry from the N250 billion that was exchanged in April last year, it was the highest for the year. Indicating investors are becoming more interested in the market.

May will be pivotal. Will the gains made in April be reversed just as we saw in March? Or would the flurry of full year results (Oceanic, Ecobank, Dangote Sugar etc) and quarterly results (Zenith, UBA, Skye etc) lift the market?

That said, the feeling is that the worst is over. The Index might commence mild fluctuations till the last quarter of the year. In general the faith of the market, just like its capitalization rests on the performance of the banks. As the banks perform so will the Index. Let’s hope the result released by GTB is an indication of positive news to come.

Capping of Interest Rates

2009-03-26T06:26:00.001-07:00

The Central Bank of Nigeria (CBN) issued a circular on 23rd March 2009 on bank interest rates. The CBN was concerned that interest rates have gone out of hand and something needs to be done. To address this, the Bankers Committee met on 21st March (a Saturday) to discuss. The circular was to communicate the decisions taken. The key ones were:

1) Henceforth, banks will not seek deposit at rates exceeding 15%
2) The lending rate of banks will not exceed 22% plus a maximum of 2% in fees
3) The CBN will lend to banks at a rate that is not higher than 5% above the Monetary Policy Rate (MPR).

The question is why are interest rates high in both the retail and interbank markets? Probably because there is a liquidity crisis and the banks don’t trust each other. Hence require higher rates to compensate them for the risk they are taking by lending to each other. The next question then is how will fixing rates solve the liquidity crisis?

In my view, fixing the rates will not solve the underlying crisis, which is lack of cash by banks. We have seen the effect of trying to force the market with the 1% downward rule of Nigeria Stock Exchange (NSE) and the recent closure of the Interbank Foreign Exchange market. Both measures ended up eroding confidence and had the reverse effect.

I would have thought the first thing CBN will do is to reduce the MPR. With the MPR at 9.75% the CBN is in an enviable position as it can cut rates. Some central banks have lost this option long ago. Why not drop the rate to say 7.75% and the maximum spread for lending to banks to be 3% above MPR? This should help reduce cost of funds as some banks will decide it makes financial sense to access the expanded discount window rather than access the interbank market.

Perhaps another thing that can be done is to inject more money into the economy. An idea is for the Federal Government, States and Local Governments share some more from the excess crude account. The money was saved for the rainy day. Now is the time to use it. The Federal Government can use its share to pay off the billions owed to contractors. They can also use the money for needed capital projects such as completing fast some of the Power Plants already in progress. With this more cash will flow into the banks and reduce the liquidity crisis.

The CBN has been very market oriented in the last few years. However, it has shown in the last 6 months that it is running out of ideas. Perhaps the CBN needs to work with the executive and legislature to find a way out the of the liquidity crisis that has been lingering on for over 9 months. The capping of rates can be interpreted as a cry for help. The Executive and Legislature should step up and offer help before it is too late.

NSE and Alleged Price Manipulation

2009-03-25T09:41:00.000-07:00

I read with interest an advert placed by African Petroleum (AP) on the alleged price manipulation of their stock. The advert was disturbing and has the capacity to further undermine the already fragile public confidence in the market.

There were several things that were quite disturbing about the advert. How did AP get hold of the Central Securities and Clearing System (CSCS) transactions of Dangote or is this information available in the public domain? Why is AP now crying that their price has fallen down to earth? Why did they not complain when the price went up to ridiculous levels before the public offer? Did it not go up due to the same loop hole that is now being exploited?

It is obvious especially in hindsight that prices were manipulated up during the public offer mania. We are all living through the consequences. I sincerely hope the Securities and Exchange Commission (SEC) and the Nigeria Stock Exchange (NSE) will be alive to their various responsibilities.

A situation whereby price manipulation whether up or down go unchecked by the authorities is not healthy for our market. Investors should also be reminded that it is not only when prices are going down that they should ask questions. When prices go up to levels that are obviously irrational, investors should also seek logical explanation otherwise they should stay out of the market and resist the temptation offered by a quick gain.

I also use this opportunity to call on the NSE and SEC to sanction companies that have refused to provide their quarterly earnings as required. Such sanctions should not just be a slap on the wrist but should be sanctions that are appropriate. We need better disclosure to calm investors’ nerves. Now is certainly not the time to continue to turn a blind eye on such obvious non compliance.

February

2009-03-16T06:28:00.000-07:00

In line with tradition, February 2009 was a much better month than January. The volume and value of transactions was higher. A total of N37 billion was exchanged compared to N29.8 billion in January. However, the amount was a far cry from the N375 billion that was exchanged in February 2008 (an all time record). The NSE All Share Index closed at 23,377 up 7.2%. This is the first time since February 2008 that the Index has closed higher the following month.

Unfortunately, the gains made in February have since been eroded in March. As at 13th March, the Index has dropped to 21,003 a new 52 week low and a decline of 10.2% compared to February.

In my view the outlook for the capital market does not look very good for the rest of the year. I base my opinion on the following:

- Very tight liquidity which has resulted in high deposit and lending rates. This liquidity will not ease up quickly especially with the adoption of December uniform year end at the end of this year.

- A depreciating Naira as a result of policy inconsistency from the Central Bank. This means more Naira is required to fund imports further worsening liquidity.

- High inflation which is usually not good for companies and individuals since it discourages long term investments.

- Gloomy economic outlook: Low oil price, reduced production due to OPEC quota and high government deficit. Due to the deficit the government will need to borrow locally to fund the shortfall. This will further reduce the funds available to the private sector and continue to impact negatively on cost of funds.

I therefore advice a long term view for any investment on the NSE. I expect the All Share Index to close down this year. The Index needs to go up at least 50% to close even for the year. I believe that is a tall order given the points outlined above.

For the long term patient investor, now is the time to look for quality stocks at reasonable valuations. For the trader, trade with caution.

Crash

2009-02-01T11:27:00.000-08:00

January 2009 will go down as the worst month in the history of the Nigerian Stock Exchange. The All share Index lost 30.6% to close at 21,814. The last time the Index was below 22,000 was in 2003. The drop of 30.6% was incredible given that the cumulative losses suffered in the entire forgettable 2008 was 46%.

The value of transactions exchanged did not fare any better. Only N29.8 billion was exchanged an average of about N1.4 billion daily. This compares miserably to the N286 billion exchanged in 2008 an average of N13 billion daily. It is safe to say that what we witnessed in the last 7 months is a crash.

For the value investor times could not be more exiting. The market PE is currently about 14.3 while the dividend yield is 6%. The market has not been this attractive for quite a while. In my view the market is currently oversold and there are opportunities in most sectors. Definitely, this is not the time for the trader as there has been little volatility to trade. However, for long term investors, this is the time to seriously consider buying quality dividend paying stocks at prices last seen 5 years ago.

Year............PE.....Yield %
30th Jan 2009...14.3... 6
31st Dec 2008...16.7... 4
25th Jun 2008...27.0... 2.1
5th Mar 2008...35.9... 1.6
31st Dec 2007...30.0... 2.1
29th Dec 2006...23.4... 3.88
30th Dec 2005...16.3... 4.75

Whether investors will have the courage and liquidity to go on a buying spree is yet to be seen. One of the things I learnt during this long bear market is that fear is indeed more powerful than greed.

Time to Act

2009-01-21T09:17:00.000-08:00

In the last few days, the share price of most banks quoted on the Nigerian Stock Exchange (NSE) has taken a beating. The share price of some of the banks has shed more than 40% this year alone. While I do not subscribe to the idea of a bail out of the NSE, I believe the Central Bank of Nigeria (CBN) needs to calm the nerves of investors and depositors. The CBN needs to come clean about the health of the banks.

What the market is telling us is that the earnings declared by some of the banks is probably not a true reflection of their financial condition. Otherwise why on earth will the shares of a perfectly healthy bank in a growing emerging economy be selling at a Price to Earnings ratio of less than 5 and a dividend yield of more than 10%?

I am calling on the CBN Governor to come clean about the health of our banks and the level of their exposure to the Nigerian Stock Exchange. We need him to exercise leadership and take responsibility. The CBN relaxed in September 2008 the Cash Reserve Requirement and Liquidity Ratio for commercial banks and also allowed banks to access the Discount Window by pledging Commercial Papers. This action suggests that there was at that time a serious liquidity crisis which called for the CBN to act so aggressively to improve liquidity. Despite such actions, interest rates have not eased.

Nigeria is at a cross road. The financial crisis in the West has led to the collapse of Oil price our main source of foreign exchange. The Naira has declined more than 25% against the dollar in the last 2 months. The economy and the Stock market are facing big tests. We need the CBN Governor to step up and allay our fears and restore some confidence.

2008 In Review

2009-01-04T12:21:00.000-08:00

The year 2008 is a year to forget for most investors on the Nigerian Stock Exchange (NSE). The All Share Index closed the year at 31,451 down 45.8% from its opening position for the year. Based on available data, this is the worst year for the Index between 1995 and 2008. Infact the loss suffered in 2008 is worse than the cumulative loss of 27% suffered between 1997 and 1999.

The All share Index went down for 10 consecutive months, also a record. The FSDH Banking Index was down 57%, the Insurance Index 54% and Manufacturing Index 43%. Only the Petroleum Marketing Index closed up 19%. Value of transactions also collapsed from an average daily figure of N18.5 billion in February to a paltry average of N2.2 billion in December. The most devastating loss was suffered in October as the Index lost 21% the worst decline in 13 years. It was not pretty all round.

The ASI reflected global trends. Most markets were down in 2008. The NSE was especially hard hit by regulatory incompetence and earlier excesses that led to serious over valuation of a large number of stocks.

One of the few positives one can take away from 2008 is the lessons learnt from the long drawn out bear market. The 12 lessons articulated by Brent Arends are worth heeding. They can be found at www.marketwatch.com/news. Here are some of the lessons I have learnt:

1) Cut your losses short. See my earlier post on this topic.
2) Liquidity is key. All bull markets are rooted in easy money. Once that disappears, chances are the market will commence a downward trend.
3) Be properly diversified across sectors. A portfolio composed of Banks and Insurance companies fared far worse than the ASI.
4) Be flexible in your analysis.
5) If you are a trader and the market shows a downward trend, stay out unless you can short.
6) You can underpay for a bad company and still never recover.
7) Avoid being trapped in bear psychology. Between 1995 and 2008, only four years ended down.
8) There is no such thing as a permanent hold decision. Sell when the fundamentals begin to deteriorate.

I look forward to 2009 with the hope that the worst is truly behind us. I cannot really imagine another year of 40%+ decline.

2009 Budget

2008-12-16T07:16:00.000-08:00

The President presented the 2009 budget to a joint sitting of the National Assembly on 3rd December. The benchmark oil price used was $45/barrel. The Federal government will spend N2.87 trillion from a projected revenue of N1.78 trillion. Consequently, the estimated deficit is N1.09 trillion.

The deficit could be financed via several means which include the devaluation of the Naira and internal and external borrowing. Since the announcement of the budget, the Naira has depreciated from N120 to $1 to N140 to $1 a decline of more than 16.5%. The market is therefore anticipating a devaluation of the Naira in 2009 hence the sudden increase in demand of dollars in the Foreign exchange market. The Central Bank has since jumped in to “defend” the Naira. How long this defense will last is anybody’s guess. However, it is safe to assume that unless oil prices rises above $65/barrel, the Naira will remain at N140 to 1$ or fall further.

The budget does not offer much hope for the capital market. The Federal government needs to borrow to fund its deficit. It is quite obvious that banks don’t have much to lend, since a large chunk of their loanable funds are trapped in the comatose Nigerian Stock Exchange (NSE). This further tightening up of liquidity means interest rates will not ease up anytime soon.

As the Naira depreciates, inflation is likely to go up further reducing purchasing power and Naira liquidity. This will lead to less cash being available to individual investors to speculate on the NSE.

The various State governments will soon present their 2009 budget. Just like the Federal government, most of the states will be running a huge deficit in 2009 which will largely be financed through borrowing. The outlook for 2009 can therefore only get worse.

My conclusion from the above is that 2009 will also not be all that rosy for the NSE. The 51% decline so far recorded in 2008 is not likely to be repeated in 2009. However, I don’t expect a more than modest gain. The Index will probably not recover to its early 2008 level until in 2010 or beyond.

The one thing that could change this rather gloomy outlook is a change in oil price. If the average oil price for the year ends up being above $65/barrel, then the capital market might benefit from spill over effect. We can only hope it does.

A Year to Forget

2008-12-11T13:29:00.000-08:00

On 6th November, the All Share Index (ASI) went up for the first time in 43 trading days. It was a welcome respite. The relief lasted only 8 trading days during which the ASI gained 12.6% and closed at 38,018 on 17th November. Since then it has been all downhill once again.

From 17th November to 11th December the Index lost a further 23%. The ASI closed at 29,262 on 11th December, a year low. The last time the Index was this low was in August 2006.

Based on the records for the Index from 1995 to 2008, this year is on track to close with the biggest decline for the Index. The worst so far was 1998 which recorded an 11.9% drop. The cumulative losses between 1997 and 1999, the 3 bear years was 27.5%. The year 2008 is set to eclipse this. 2008 is indeed a year to forget.

What we are witnessing is unprecedented. Our very own financial Tsunami, the like of which we have never seen. Oil price has collapsed, the Nigerian Stock Exchange ASI is down 49.5% year to date and our banks are suffocating under the weight of margin loans. Suddenly it is no longer so rosy for the banks with Zenith, Ecobank and Skye all reporting a poor quarter July to September 2008. I am sure others will follow in due course.

The best thing to do now for those already invested is to do nothing! It is too late to sell to cut losses assuming you can find a buyer. And with the meltdown not showing any sign of slowing down, averaging down is not ideal.

As 2008 draws to a close, i am looking forward to 2009 with the hope that it can’t get worse. Or can it?

Respite

2008-11-23T17:26:00.000-08:00

The last two months were a nightmare for investors on the Nigerian Stock Exchange (NSE). The NSE All Share Index (ASI) went down for 42 consecutive trading days loosing 32.4% in the process. Value of transactions also plummeted and stocks became almost illiquid as there were no buyers in sight. On November 5th the ASI closed at 33,754 down 41.8% for the year and a new 52 week low.

It was therefore a huge relief when on 6th November the ASI went up by 0.35%. A small but giant leap! The collective sigh of relief by investors was almost audible in the papers the next day.

The uptrend lasted 8 days with the ASI gaining 12.6% closing at 38,018. Another downward trend started on 18th November with the ASI loosing 8.8% in 4 days. This was expected as the ASI this year tend to move up or down for a maximum of 8 trading days (except during the 1% downward rule).

Despite the current negative trend I believe most investors were very happy to have had 8 days of respite. The question now on everybody’s lips is will the previous low of 33,754 be breached? A breach will not bode well for the market in general. The next two to three trading days will provide an answer.

In the meantime, it is best to sit out this trend until it is clearer where we are heading. The only clear thing so far is that barring a miracle, the Index will close down for the year. That will be for the first time since 1999. Ouch…..

Meltdown

2008-10-31T16:56:00.000-07:00

October 2008 will go down as one of the worst months for the Nigerian Stock Exchange (NSE) All Share Index (ASI). The Index closed at 36,326 down 21.4% from its opening. This is the worst performance in any one month between 1995 and 2008. The Index has now lost 37.4% year to date and is down 45% from its peak in March 2008.

Value of transactions has all but collapsed. Only N39.7 billion was exchanged in October an average of less than N2 billion a day. This is the worst so far this year and a far cry from the N388 billion exchanged in February 2008. Another record set in October was that the Index went down throughout the month. There was no single positive day for the Index. It was so bad that on some days no stock gained. Another unwanted record!

The 1% cap on downward movement on prices was removed on 28th October which allowed October to set some of the above records. Despite the meltdown, the removal of the cap is a welcome development. We need the market to bottom out sooner rather than later. The 1% cap was merely postponing the inevitable.

By the end of the week most of the banking stocks were selling at more than 50% off their 52 week high. The ASI itself is back to the level last seen in January 2007. If care is not taken, all the gains of 2007 will be wiped out by the end of next week.

What we witnessed in October is probably a once in a generation event. The NSE has been wrecked by the financial tsunami tormenting the world financial markets. The collapse of markets all over the world in the last few months precipitated by the sub-prime mortgage crises in the United States has confirmed the impact of globalization and the interconnectedness of world economies.

Next week will be interesting. I shudder to think that another 25% decline is in the offing. The worse is surely over. Or is it not? Stay tuned.

Back to Sanity

2008-10-28T06:41:00.001-07:00

After two months of the bizarre ill advised 1% cap on downward price movement of stocks on the Nigerian Stock Exchange, the rule has been modified to its previous position. Effective 28th October stocks can move up or down by 5% which was the previous position before 27th August.

The Index promptly fell to 40,163 loosing 3.5% from its previous days close. That is all well and good. The sooner most stocks bottom out the better for everybody. The daily downward slide of the last 36 consecutive trading days has been very damaging to investors’ confidence. The continuous daily slide was largely due to the 1% cap. Now it is gone and hopefully the market will bottom out within the next 20 trading days at worst.

Another rule that seems to have been modified is the 100,000 units rule before an upward or downward movement in price. This has reportedly been modified to 50,000 units. Although this is yet to be confirmed, it will also be another positive development. Some “illiquid” stocks have been stagnant for a while due to this rule.

It will take some time before confidence will return and investors start pouring money into the market. However, the above measures will help boost confidence and hopefully we would see some upward movement in the Index before the year runs out.

In the meantime, my eyes are on the value of daily transactions which have been very low this month. Until this goes up significantly, there will be no meaningful recovery.

Illiquid

2008-10-25T16:38:00.000-07:00

Our stock market has become illiquid. There are no buyers. Value of transactions has dried up. The daily average Naira value of trades in October has been less than two billion Naira. The All Share Index has continued its downward slide unabated.

If anybody had told me six months ago that Access Bank will be selling at less than ten Naira I would not have believed it. Access closed at N9.88 on 24th October, a 20 month low. The 2009 forward PE ratio of Access is 6.1 while the 2009 forward dividend yield is 9.8%. It is not just Access, most of the quoted banks are selling at what appears to be a bargain. A few are still pricey (eg Union and Wema). The only rational explanation for this collapse is that the “Financial Tsunami” that has wrecked havoc in Europe and US is taking its toll on our banks.

The main fear I have however, is that the short term profitability of some of the banks could be compromised due to their exposure to margin loans. If the stock market does not recover to its February level within the next six months, some banks will be forced to write off several billions of Naira.

In the light of the above, it would be prudent to discount the forecast profit of the banks in carrying out valuations. Using Access bank as an example and discounting their forecast earnings by 25%, the forward 2009 PE ratio becomes 7.8 and the dividend yield 7.9%. The result still shows that Access is currently selling at an attractive price.

For the long term investor (at least 3 years horizon) who is not exposed to Nigerian banks, and who has an appetite for risk, this is a good time to consider buying selectively. The key word is selective. Valuations should be done with discounted forecast earnings. For those of us who are already in, my advice is, stay put.

Other sectors worth watching are foods and beverages and healthcare. These two sectors are generally immune to a slowing economy as we must all eat and health is wealth. The healthcare sector is still pricey but could be attractive if its looses another 20%. Dangote Sugar in the Foods & Beverages sector is attractive and worthy of consideration.

Slowly, slowly the market is looking attractive, perhaps even presenting us with an opportunity of a life time. Do we have the confidence, courage (and dare I say – liquidity) to grab it? I hope so.

Financial Tsunami

2008-10-09T01:10:00.000-07:00

A financial tsunami is currently sweeping the world, wrecking havoc and threatening to significantly damage entire economies. We are definitely in the middle of a major financial crisis the like of which the world has not seen in generations.

It all began in the US last year when home owners with sub-prime mortgages began defaulting on payments. This led to cash flow problems for a lot of banks which led them to squeeze credit. A large number of these banks had to take big losses which led to the melt down of their share prices and ultimate collapse of some Wall Street speculators. Major casualties include Bear Sterns, Lehman Brothers, AIG, Freddie Mac, Fannie Mae, Washington Mutual, IndyMac and the list goes on.

The greed of Wall Street and living beyond one’s means lifestyle of Americans has finally come home to roost sucking in the entire world. Due to globalization, what is essentially a crisis manufactured in the United States, has become a major world crisis. American banks have bundled up these toxic mortgages and sold them to banks in Europe & Asia. Sovereign funds not fully grasping the full magnitude of the crisis pumped in money into several American financial institutions in the last one year. They are now forced to write off these bailouts as several of these companies go bankrupt or are taken over for peanuts. Oil prices have gone south on fears of world recession threatening economies of major oil producers including Nigeria.

Our capital market in Nigeria has not been spared. The difference however is that our banks are not really distressed. The fall in share prices is more due to market liquidity drying up than because our banks are distressed. This is why the recent suggestion by Nigerian Stock Exchange (NSE) that banks should bail out the capital market is dangerous. How can NSE suggest our banks should risk depositors’ money by propping up share prices of quoted companies some of which are over valued anyway? No value will be added to the economy except to enrich a few people in the process. I hope the banks have more sense than to engage in such dangerous speculation.

The drying up of liquidity was probably caused by a combination of many factors including:

1) The exit of foreign portfolio managers from our market between February & June this year.
2) The apparent over valuation of the market which led to the exit of discerning local investors from the market.
3) The global financial crisis which has led to reduction in speculators both foreign and local.
4) The continued slide which continues to undermine confidence scaring away new money from the market in the process.

As we live through this historic crisis, I hope our banks and regulators will learn valuable lessons. Nigerian banks post consolidation are gradually embracing the culture of consumer loans. We see on a daily basis in our newspapers adverts by banks of all kinds of consumer loans. These banks need to ensure their risk management is robust enough to deal with the added new risk they are taking.

The crisis was mostly caused by Wall Street greed and American debt culture. Nigerians and Nigerian banks will do well not to be sucked into this dangerous debt culture whose ultimate outcome is the destruction of wealth and livelihoods.

September

2008-10-05T16:18:00.000-07:00

September was a tough month for investors in Nigerian quoted equities. The NSE All Share Index declined for 17 straight days loosing 6.1% in the process and down 20.3% for the year. Value of transactions during the month was a meagre N134 billion, the lowest for the year. Most stocks were on offer throughout the month with no buyers in sight.

The current situation should not come as a surprise given the trend in the last 6 months. The 1% limit placed on downward movement in stock prices has not stopped the decline. What it has succeeded in doing is driving away speculators from the market. Without speculators, liquidity has all but disappeared. In addition, the continued daily slide has continued to weigh on investors mind further draining away their fragile confidence in the market.

The Central Bank of Nigeria announced further measures in September to improve liquidity. These included the reduction in Cash Reserve Requirement and liquidity ratio for banks. So far the new measures have not affected the market positively.

What next? Can it get worse? The reality is that we are in uncharted territory. World markets have been in a state of turmoil throughout the year with almost all markets in negative territory for the year. The good news however, is that Nigerian banks have not been involved in the reckless financial engineering that has threatened the very survival of some US banks.

My advice is to stay out of the market if your horizon is less than 2 years. For those with a long term view, now is the time to consider value investing. There are definitely bargains to be had.

October promises to be interesting. Will the year low achieved on August 26th be breached? We will know in the next two weeks. Stay tuned.

Come into my Trading Room - A Review

2008-09-11T07:36:00.000-07:00

The book “Come into my trading room” by Alexander Elder is an excellent guide to trading for both the novice and experienced trader. The book is written in clear and accessible language that keeps the reader engaged throughout.

The book is divided into 3 parts. Part 1 is the introduction and sets the stage for concepts covered in the rest of the book. A clear distinction is made between an Investor, Trader and a Gambler. Investing requires a great deal of patience and is long term. Traders make money by betting on short term price swings. There is only one rational reason to trade – to make money. However, some amateur traders get carried away by excitement and forget this fundamental objective.

Part 2 discusses the 3 M’s of successful trading: mind, method and money.

Mind – Trading Psychology

According to Elder, to be a successful trader requires discipline. This is true for most professions but especially true for the markets because there are no external controls. There is no boss to force discipline. You have to do it yourself. Good record keeping and sound training are a must.

Method – Market Analysis

This section concentrates on how to analyze markets using technical analysis. The author recommends using no more than 5 indicators. The key is to select a few core tools that suits one’s style of analysis and trading. Technical indicators can be divided into 3 groups: Trend following, oscillators and miscellaneous. It is important to combine trend following indicators which identify trends with oscillators which identify reversals.

Money – Risk Management

Money management has 2 important goals: survival and prosperity. Accumulate equity by cutting losses short and maximizing gains. A strategy is to determine maximum permissible loss for each trade and maximum loss per month. Elder recommends a maximum of 2% loss per trade and a maximum of 6% loss per month.

The importance of establishing exit points was also emphasized. It is critical to decide exit points before entering a trade. Entries are easy while exits are difficult and separate winners from losers.

Part 3 provides examples of recent trades executed by the author. The author emphasized the importance of keeping goods records of all trades. This helps the learning process and assists in making one a better trader.

In all, “Come into my trading room” is an excellent book and I recommend it to anyone seeking financial freedom through trading.

Intervention

2008-08-31T15:14:00.000-07:00

For the second time this year, the authorities saw it fit to intervene in the capital market. The market was in a free fall as the All Share Index (ASI) was down 35% from its peak and down 25.5% for the year as at 26th August. The measures taken were effective 27th August.

One positive measure was the reduction in transaction fees. This is a welcome development as the fees charged are rather too high compared to other exchanges. One very negative measure which had an immediate impact was the capping of downward movement of price of all stocks to a maximum of 1% daily. Upward movement was retained at 5% daily. A similar measure was enforced in early June when prices were not allowed to fall for 1 week. No date has been announced for the removal of the 1% cap.

This one way cap is disturbing as it amounts to manipulation. Any capping should be the same both ways. The last time a cap was applied and then removed, the ASI went on a free fall loosing 28% resulting in this new cap. So when will this temporary fix end?

Since the cap, the ASI has gained 10.6% in just three days. Most stocks have suddenly become scarce. Just a day earlier there were no takers but now everybody wants to get in on the action.

I see this capping as an opportunity to exit some weak stocks as prices move up to break even territory. Some stocks showed serious weakness during the bear run and one would be better off selling them.

On the other hand, this is not the time to buy assuming one can even get anything to buy. The constant changing of the rules of the game erodes confidence and discourages long term investing. The authorities have shown they have no appetite for a declining market. Who knows whether they might decide in the future to peg upward movement during a bull run?

My approach is simple. Sell off weak stocks and buy nothing until sanity returns.

Never Argue with Market Trend

2008-08-26T13:24:00.000-07:00

Although I am not a practitioner of Technical analysis, I was very concerned when on 8th August the NSE All Share Index (ASI) dropped to below 50,000 for the first time in over a year. Since then the Index has been in a free fall loosing 18% in August. Out of 18 trading days in August, we have had only one positive day and that was a meager 0.16% rise. August has also produced the longest loosing streak for the year (11 consecutive loosing days and counting). It has been a very testing month with value of transactions also drying up to less than 40% of what was recorded in February.

When we welcomed August, I was not very optimistic going by past trends. From August to mid September is usually the time of the year when the Index and Value/Volume of transactions slow down and/or falter. However, I have never witnessed such level of decline. And that is including the bear years of 1997-1999. Looking at the data from 1995 to date, we have never had such level of decline in one single month. The worst so far was July 1999 when the ASI lost 17%. Unless something positive happens in the next 3 trading days, August is on track to be the worst month in 13 years.

So what can one do? All the books I have read so far have advised staying out of a bear market. In their opinion when panic sets in investors throw out all rational thinking and dump stocks at ridiculous prices. They advice staying out until a new positive trend develops: higher highs and higher lows. This advice has been vindicated in the last four months. If one had stayed out of the market from April when the negative trend became obvious one would have been in good shape. In fact the opportunity to get out was available in June. Alas some of us refused to take the advice of experienced experts. We stayed in. Rationalizing that GTB at N22 was cheap etc. Two months down the line GTB fell to below N20.

Never argue with the market, the experts say and they are right. When the trend is downward, stay out (unless you are an astute short seller). When the trend is upward get in. Cut losses short and let winners run. It is that simple. Alas only a few practice it with discipline. I hope when the next bear calls we would have the discipline to follow the wisdom of experienced traders.

Liquidity

2008-08-05T14:07:00.000-07:00

The Nigerian financial system has been suffering a liquidity squeeze for some months. The stock market has felt the full force of the squeeze as Naira value of trading has been on the decline since early March. The All Share Index (ASI) has also lost 22% since its all time high achieved on 5th March this year.

One common explanation offered for the decline in liquidity is the proposed common year end for all banks. This is as a result of desperation of some banks to attract deposits to boost their balance sheets. Previously some of the banks have used inter bank borrowings to boost their balance sheets at year end. However, these funds will no longer be available if the common year end is implemented.

The Central Bank of Nigeria (CBN) concerned with the outrageous deposit rates some banks have been offering out of desperation to attract deposits decided on July 23rd to postpone the policy implementation to December 2009 instead of December 2008. The postponement only lasted 13 days as the CBN announced on August 5th that the policy has been completely cancelled. Banks can now do as they wish.

Will the policy reversal improve the liquidity situation? Yes it will. But in my view not to the level that will push the Index back to record territory.

Liquidity will take some time to improve significantly. This is because another major cause of the liquidity squeeze will take time to disappear. This is the effect of the capital raising of banks and other companies on the liquidity of individuals and institutional investors. More than N1.5 trillion was raised through IPO’s and PO’s in the last two years. This is a significant amount representing more than 14% of the current market capitalization. To put it in context Guaranty Trust Bank had N365 billion deposit liabilities as at 29th February 2008. So taking out N1.5 billion (this does not include funds raised through private placements) from the banking deposit system is bound to create a strain on the system.

Therefore unless something happens to accelerate the replenishment of funds in the pockets of Nigerians and Institutional investors, the liquidity squeeze will continue for another couple of months. Perhaps even till the implementation of the 2009 budget.

The banks off course can help accelerate the replenishment by offering cheap credits to consumers using the capital they have raised. This might take some time as some of the banks have expensive deposit liabilities raised during the “desperation” period.

My outlook for August and September remain the same. I don’t expect any significant upward movement in the ASI.

As is the usual trend, October might offer some respite buoyed by the policy reversal, gradual improvement of liquidity and year end positioning.

I hope so.

July

2008-08-03T10:31:00.000-07:00

I welcomed July with a lot of optimism. Unfortunately, July turned out to be the second worst month of the year as the NSE All Share Index lost 5.1%.

There were a lot of corporate announcements as expected. However, they failed to lift or excite the market as value of transactions at N191 billion was the lowest for the year. In fact some stocks lost ground despite announcing positive results and dividends. E.g. Access Bank which started the month at N17.64 closed at N15.98 ex div.

Traditionally, the values of transactions in August and September have been low. However, the Index has shown no consistent pattern. In 2007, the Index went down in August compared to July but it went up in 2006 and 2005.

In my view, the 5.1% loss we experienced in July might not be repeated in August. However, I don’t expect a gain of more than 5% as well. In fact 5% or more will be a major surprise. This is because the only major announcement expected is from Zenith, otherwise it will be mostly quite. Furthermore, the liquidity squeeze might still continue despite the postponement of the common year end to December 2009. Unless liquidity suddenly improves I don’t expect any major rally.

In August as has been in the last 2 months, my strategy is that of wait and see. Purchases could however be made if the opportunity presents itself e.g. GTB at N23 and FBN at N27 (post bonus and ex div).

I hope we get some respite in August despite my lack of optimism.

Gems

2008-07-20T07:30:00.000-07:00

The recent market turmoil has forced me to spend more time reading and reflecting on my investing philosophy. I have re-read a few of my old books and some new ones. I have found some very useful ideas in these books and I decided to reproduce the most thought provoking and most relevant to our current situation here.

These 15 Gems are from: One up on Wall Street – Peter Lynch; Survive and profit in ferocious markets – John Rothchild; Stock market wizards – Jack Schwager; Trading for a living – Alex Elder; and How to make money in stocks- William O’Neil. My comments are in italics.

1. Force yourself to buy on extreme weakness and sell on extreme strength. Although a fairly straight forward advice it is very difficult to implement as I recently found out. Buying on extreme weakness requires a lot of guts and self belief. My target entry price on Dangote Sugar has recently been met but I have been agonizing whether to buy. I finally decided to buy half of my initial plan on Monday. I will complete the trade depending on the direction of the marker in the next few days.

2. Market declines are great opportunities to buy stocks in companies you like. Supports the first gem. With this in mind it becomes a bit easier to implement the first advice.

3. Be patient. When the fundamentals say a stock is under priced but the market does not respond, stick with it. The market will respond.

4. Buying a company with mediocre prospects just because it is cheap is a losing technique.

5. Ignore the short term. True but easier said than done.

6. Think trades through. Including profit/loss exit points before you commit. It is essential to have an investment plan. Performance can then be compared to the plan and necessary decisions can be taken from a sound basis.

7. When you invest, ask yourself what is the worst that can happen. Consider the risks before the rewards.

8. Bear markets can last for 6 months or in rare cases 2 years. Don’t let them diminish your long term resolve. I hope the current bear run doesn’t go beyond 6 months. If it does, my resolve will be severely tested.

9. Bear markets are more compressed in time, more sharp in movement and more dramatic.

10. To come out ahead you don’t have to be right all the time or even majority of the time.

11. Cut your losses short. 10 and 11 work together. You can’t expect to be ahead if you don’t cut your losses short.

12. When it comes to mutual funds, select a good one and stick with it for 10 or more years. Automatically reinvest the dividends. True especially in our market that has been positive for 9 years running.

13. Concentration is critical to superior performance. The greater the number of stocks you hold, the more market like your performance becomes.

14. Hold no more than 10 stocks because your top ten ideas will always perform better than your top 100. Another difficult to follow advice in our market especially with regard to banking stocks. I need to prune down my holdings in banks but which do I keep?

15. Never make a bet you can’t afford to loose. True. You will sleep much easier if you apply this.

Are we Immune?

2008-07-13T07:17:00.000-07:00

Capital Markets the world over have been in a state of turmoil and uncertainty for most of 2008. Most markets are in the red zone for the year including our own NSE. US markets entered official bear territory last week as major indexes closed 20% off the record high.

The NSE All Share Index is 17.6% down from the record high achieved on 5th March 2008. While we don’t have an official definition of a bear market, the mood among regulators and investors is that we are in a bear market.

From the comments of regulators of the NSE and investors, it appears most are perplexed as to why we should be on this bear run. That in my view is to ignore the strong positive run we have had in the last 9 years and the state of the world economy and financial markets.

Since last year when the credit crises surfaced in the US and Europe, the financial industry has not been the same. Record write offs by financial giants Citigroup, Merrill Lynch, UBS etc have followed. The crisis has slowed world economic growth and has pushed the US economy and other European economics onto the brink of recession. High oil and commodities prices have acerbated the situation.

Commentators the world over are predicting gloom. One that caught my eye was a comment by Peter Kenny, “the bottom line is that we are in the middle of a financial tsunami. This is a storm the likes of which this country (US) hasn’t seen”. With Fannie Mae and Freddie Mac (backbones of US mortgage market) facing a meltdown of their share price in the last few days, let’s hope Kenny is wrong. History has shown us that when all are predicting doom and gloom, chances are that recovery is just around the corner.

So what about us in Nigeria, are we immune to the turmoil? In my view we are not and our regulators should start acting that way. The high oil price has helped Nigeria more than hurt but even our manufacturers are groaning under the weight of high diesel price. More importantly, it appears liquidity in the capital market has gradually declined. Although we are told foreign portfolio money only accounts for 12% of the market, I am betting it can only get lower. Foreign money managers have bargains in their backyards and therefore have no incentive to come to Nigeria shopping. Add that to the fact that our own market is also on a bear run and therefore not as attractive as it once was. The liquidity has to come from within.

Regulators of our market need to acknowledge we are not immune to the state of global economic health. We investors need to also acknowledge that and stop worrying. After all our banks are in the best state of their lives unlike those in the US and Europe.

This bear run will surely come to an end like all things in life. Considering all the gloom around us, it might be sooner than we think.

Exchange.........YTD July 10th %

NSE.............(5.5)
Cairo...........(5.3)
JSE.............(6.6)
S & P 500.......(15.2)
DJIA..............(16)
FTSE.100........(16.5)
CAC.40..........(24.8)
BSE 30.(India)..(31.1)

Source: FSDH weekly report

Cutting Losses Short

2008-07-11T15:34:00.001-07:00

In the last four months the patience of investors on the NSE has been severely tested and it is getting to a breaking point. The All Share Index dropped to a year low 53,366 on 25thJune. There was a brief rally for a week but most of the gains have since been lost. Mercifully, the low of 25th June has not been breached.

Right now the market has been so volatile that the safest thing to do by non professional traders is to sit on the side lines. At least that is what I have been doing in the last two weeks. Another thing I have been doing lately is reading and I have read a few gems.

One common theme that keeps recurring in all the books is the need to cut losses and move on. According to the authors hanging onto a loosing position is a refusal to admit a mistake was made in buying the stock. Investors will save themselves from financial ruin by cutting losses short. The common recommendation is to exit a position once 8-10% is lost.

I have a limit of 15% although I could exit earlier if it is obvious the stock is heading for a major fall. My rationale is that I usually have about 12 stocks in my portfolio and a 15% loss represents an average 1.25% loss in capital. That is tolerable.

Earlier in the year I exited Standard Trust Insurance before it became a loosing stock. I sold Japaul in March and cut my losses. If I had delayed the decision, I would have been looking at more than 40% loss. Cutting my losses short is a key risk management strategy I have adopted. Fortunately, in spite of the bear run, none of the stocks currently in my portfolio are in a loosing position.

My advice is to always have an exit strategy either up or down at the time of entry. It is a well tested successful risk management strategy. Without it financial ruin could be around the corner especially in a long drawn out bear market.

As We Welcome Back the Bulls

2008-07-01T13:19:00.000-07:00

The last few months have been very emotionally challenging to the average investor on the Nigerian Stock Exchange (NSE). As at 25th June the All Share Index has lost 19.6% from its all time high of 66,371 achieved on March 5th. The Index closed 53,366 on June 25th the lowest point since 16th November 2007 and down 8% for the year.

Fortunately for most of us, the worst seems to be over as the index went up for the first time in nine days on June 26th. Since then the index has appreciated 7% although it is still 1.6% down for the year. So what have we learnt from all this?

Keep an eye on market valuation

The Index closed at an all time high on 5th March at 66,371. The average market PE was 35.9 while the average dividend yield was 1.6%. If we compare this to the market PE and dividend yield on the last trading day of the last 3 years, we would definitely conclude that the PE was high and the yield low. These two indicators are used in other markets to access the valuation of the market. Our experience in the last four months indicates that these indicators can be used to good effect in valuing the NSE.

Year.....................PE......Yield %
5th..March 2008....35.9---1.6
31st.Dec 2007......30.0---2.1
29th.Dec 2006......23.4---3.88
30th.Dec 2005......16.3---4.75
25th.June 2008.....27.0---2.1

It is therefore very important to keep an eye on the market PE and dividend yield. A large diversion from historical trends calls for caution. While these two might not be enough to be sure of an over extended market, they can be used in addition to other factors such as excessive bullish outlook by analyst and the media, excessive speculation on penny stocks and stocks no longer responding to strong earnings announcements. All these were present in our market in the last few months. Therefore, in retrospect some correction was due. When such factors are observed, it is time to be cautious and consider taking money out of the market.

Stick to fundamentally sound stocks
This is an advice for all seasons but becomes even more important during a bear run. It is emotionally easier to stick with sound companies when the going gets tough. Weak companies tend to fall more in a bear market and recover less quickly when the bull run starts.

Most of the banks listed on the NSE are very sound companies. Although they took a beating during the bear run, they also led the recovery. In addition, at the bottom most of the banks were selling at very attractive valuations and provided a great opportunity for entry and subsequent gains.

Get rid of overvalued stocks

Once it becomes clear that a bear run is on the cards, it is advisable to get rid of over valued stocks. These will typically be stocks will high PE’s and low dividend yields relative to their sector and market. Intercontinental Bank and IBTC were two stocks that were selling at a premium compared to other banks. They suffered like most of the banks and they have been sluggish in the current recovery.

Cash

Always have some cash to take advantage of some great opportunities that will appear at near bottom. There were great opportunities from June 19th to 25th. Only those with cash were able to take advantage. Several stocks such as GTB, Costain and Dangote Sugar have already returned more than 20% from their lows attained in the last two weeks.

Cash can be kept in money market investments that could be easily liquidated to take advantage of bargains.

Finally

Whatever you do, once a bear run starts do not panic. Everything has an end. The long Bull Run ended on 5th March and so did the Bear Run after almost 4 months.

The market looks to be favorable in July although expect the current run to slow down in the next two to three days. Positive earnings announcements will ensure July provides investors with needed respite.

Another Bloody Day

2008-06-19T14:47:00.000-07:00

It was another bloody day on the Nigerian Stock Exchange (NSE). Red was splashed all over the place as 66 stocks took a plunge. Only 17 managed to close higher.

After the bloodbath of Monday and Tuesday, Wednesday offered some respite with 1.6% decline. Alas, it was short lived. Volume dipped more than 60% on Thursday and the All Share Index lost 2.3% to close at 54,908, the lowest point for the year. So far the index has lost 5.3% for the year. The loss for the week stands at a cumulative 9.1% perhaps the biggest lost in any four days for a decade. So where do we go from here?

The last year to resemble a bear was 2005 when the All Share Index only managed 1% gain for the year. Most of the destruction was done between February and early April. The All Share Index dropped to its lowest point for the year 20,661 on April 6th. By then the market was down by 13.4%.

The reversal started in late April but by the end of May, the momentum was lost. A full recovery began in July. The Index rose to 21,911 by the end of July closing with a cumulative year loss of 8.1%. The worst was over. From then onwards it was a steady climb until 4th November when an all time high 26,137 was achieved with the market returning 9.6% for the year. It was a remarkable turnaround given the bloodbath in the first quarter. However, this gain was not carried till year end as Mid November to December recorded declines to close the year almost flat with a 1% gain. So what can we learn from all this?

The worst will probably be over in the next two weeks as we approach July. We expect a lot of quarterly announcements to lift the market. Most of the panic selling would also have subsided and cooler heads will begin to take control.

For the strong, there are some good opportunities in the market at the moment. For the cautious I will advice a wait and see attitude for at least one more week.

I am looking forward to July. It can't come sooner.

Bears on the Prowl - Again

2008-06-18T16:42:00.000-07:00

After last week’s freeze on downward movement of share prices on the NSE, the bears returned in full force on 16th June. The NSE All Share Index lost 2.6% on Monday 16th June. Another 2.6% was lost on Tuesday and by Wednesday all the gains of the previous week were eroded as the Index closed 56,205, down 3.08% for the year. A year low.

Obviously the ill advised freeze of last week did not restore investor confidence. I hope the NSE DG has learnt something and will leave nature to take its course in the market.

The decline on Wednesday was a mere 1.57% which was lower than the previous two days of the week. Volume was also higher compared to the previous two days. So perhaps the worst has passed. However, Thursday is traditionally a low volume day. Consequently, we might not see any recovery until Friday.

For the long term investor, this temporary decline should not be a source of sleepless nights. We have had 8 consecutive bull years. So a bear is due. In 2005, the market returned a mere 1%. There were very good buy opportunities. GTB was one of them selling at lower than the 2004 Public Offer price. I bought it and rode it to 300% gain in less than 2 years. GTB is again selling at less than the GDR price of last year. I smell an opportunity for the long term investor.

My plan for the year was a modest 25% gain for my portfolio. However, this appears to be too aggressive considering market performance so far. I have therefore revised my goal down to 15%. Lets hope this can be achieved.

Meanwhile I await trading result of 19th June. It promises to be an interesting day.

Technical Analysis

2008-06-14T15:38:00.000-07:00

I have a confession to make, I don’t know much about Technical Analysis. Recently I decided to remedy this and bought a highly recommended book. The book is Technical Analysis: The complete resource for financial market technicians by C.D. Kirkpatrick and J.R. Dahlquist. I have just completed a first reading of the book. It is quite interesting although a bit dense at times. However, it is still easy enough for the beginner.

According to the authors Technical Analysis is the study of past market data, mainly price and volume data. This information is then used to make investing or trading decisions. It is based on one major principle: trend. The basic assumptions are:

• Stock prices are determined by the interaction of demand and supply
• Stock prices tend to move in trends
• Shift in demand and supply cause reversals in trends
• These reversals can be detected in charts
• Emotions and investor behavior influence security prices. The two main emotions are fear and greed

The technicians mantra is the trend is your friend. The strategy is to buy a security at the beginning of an uptrend at a low price, ride the trend and sell when the trend ends at a high price. However, implementing this strategy is quite difficult according to the authors.

The chapter on sentiment is quite interesting. Market sentiment refers to the emotions of market participants. For example in a typical bull market, at the peak of the optimism, most investors have put all their available money in the market. Therefore there is no new money available to drive the market higher. The market has therefore peaked and the only way is down. At the height of the emotion, prices deviate substantially from fundamental values, a correction is due.

I think this happened recently in the Nigeria stock exchange (NSE). The NSE All Share Index began to decline (loosing 3% for the year) and the management acted in a bizarre fashion to stop the decline on 9th June. They achieved this by freezing fall in prices for a week. This was a panic reaction and although I gained from it, I sincerely hope NSE management will not do this in the future. This amounts to price fixing and does not bode well for the long term health of the market.

The book is quite a useful addition to Technical Analysis literature. I will recommend it to anyone who is interested in Technical Analysis. I have picked up a few things I will try out but my conclusion is that I simply do not have the time to fully exploit technical analysis. I still have my day job to worry about.

IPO's and PO's: To Buy or not to Buy?

2008-05-24T15:48:00.000-07:00

Lately I have been thinking whether it is really worth it investing in Initial Public Offers (IPO’s) and Public Offers (PO’s). The main reasons for my second thoughts are:

1) Partial allotment. Most recent IPO’s and PO’s have been hugely over subscribed leading to partial allotment. The first shocker was the PO of First Bank. As it was the first PO to return huge sums of money in recent times, most of us were caught napping. I only got about 23% of what I applied for. In hindsight I should never have bothered buying.

2) Delay in receiving shares allotted. The second reason is the delay in receiving certificates or receiving credit in CSCS account. I participated in the Access Bank Public Offer in August last year. Nine months after I am still waiting for my certificate to be verified. Consequently, I don’t still have access to my money.

3) Delay in receiving return money. The third reason is the delay in receiving return money in respect of shares not allotted. To date I have not received my return money for PHB, AIICO and Costain. These offers closed in December last year.

While it is difficult to know before hand whether it is worth it to invest in these offers, the following could aid the decision making.

• Amount on offer. How much is the company trying to raise? In my view if the amount is less than twenty billion Naira, I will stay clear of the offer. Recent examples include Dangote Flour, NAHCO, AIICO and Costain. All were for under Naira twenty billion and all were hugely over subscribed. In hindsight, one would have been better off buying in the secondary market all except Dangote Flour (not available at it was an IPO). Although this criteria does not completely eliminate the risk, it reduces it. E.g. Bank PHB.

• The discount. This is only relevant to public offers. If there is a significant discount to the secondary market price (30% or more), I will consider investing. Otherwise I will pass. A recent example is Bank PHB. The discount on offer was 33% and there was a potential gain of 50% to be had. Bank PHB has proved to be a good gamble. However, buying Skye Bank offer was not such a good idea. The discount on offer was only 17%. However, you can now buy Skye bank at Naira 16 compared to the offer price of Naira 14. This means one would have been better off not buying the public offer as the certificate and possible return money are not available three months after the offer closed.

• IPO decision spreadsheet. I found this tool http://nivestors.com/yahoo_site_admin/assets/docs/IPO_Decision_Table.59121612.xls

courtesy of www.nivestors.com. It was brought to my attention in the investors forum of stockmarketnigeria.com. It helps in simplifying and quantifying the decision.

In the future I will definitely use the above criteria in deciding whether I should invest in an IPO or PO.

The Craze for Private Placements

2008-05-18T09:17:00.000-07:00

A phenomenon is sweeping across the investment landscape in Nigeria. This phenomenon has been gathering storm in the last 2 years. This powerful wave is the Private Placement (PP) phenomenon.

PP’s have been with us for many years but were made more popular by the capital raising of banks in 2004 and 2005. My first investment in a PP was in 2004 when I bought the IBTC placement at N3.9 a share. I sold my holdings in late 2007 at N18+. Not bad but not spectacular compared to recent gains made by some investors in PPs.

It is the lure of these extraordinary gains that is attracting investors and promoters to PPs. Suddenly every company is doing a PP and investors are jumping to invest in any PP in sight.

The strong bull run of 2007 has encouraged many companies to issue PPs. This is because when the investing sentiment is bullish, investors are more willing to take on more risk at high prices. Private companies have latched onto this opportunity to sell a piece of their company at valuations that cannot be justified. The main desire of the promoters is to reward themselves by taking advantage of the general lack of sophistication of majority of investors in Nigeria.

In addition, an ugly trend that has reared its head is staff of issuing houses and placement agents requesting for a premium on the issue price. This is for a PP that has not even close. So they get to make money for nothing! This is fraudulent to say the least and I encourage readers to report such to management of the issuing house or placement agent. These guys need to be taught a lesson.

While investing in PPs could be very profitable, investors should be very careful in which PP they invest in. This is even more relevant with the recent habit of return money on PPs. There are several things an investor can do to safeguard his funds from investing in a very risky PP. These include:

1) Invest only in a reputable company with known products. Eg PP of BGL, Reltel etc. A PP issued by any of the above is surely genuine.

2) Look out for PP packaged by a reputable issuing house such as IBTC, FBN Capital, Afribank Capital and the like. These issuing houses will not get themselves involved in a fishy PP.

3) Do not invest in over priced PPs. To make a reasonable profit, the entry price must be reasonable. The valuations of some recent PPs have been unrealistic. It simply does not make sense to invest in a very risky PP that is over priced.

4) Diligently examine the audited accounts and the forecast. Make sure the fundamentals of the company are sound.

5) Invest only in PPs promoted by reputable business people who know the business.

By concentrating on only PPs that meet the above criteria, investors will be able to separate the wheat from the chaff. In doing so, an investor might discover a gem of a PP, a winner and will stay clear of very risky PP’s that could end up as losers.

What to do in a Bear Market

2008-05-04T16:19:00.000-07:00

After the amazing 75% increase in 2007 a lot of us have forgotten or don’t even know what is a bear market. The last one we experienced was in 1999 when the All Share Index fell by 7.2%. We had 3 consecutive bear years between 1997 and 1999 before the market recovered in 2000.

So what should we do now, in what looks like a bear year? Technically we are not in bear territory since the Index is up 2% for the year. However, the market has been sliding down since mid February with no end in sight. At this rate we will be in negative territory by the end of week of May 9th.

Don’t Panic
Whatever you do don’t panic. If you are in it for the long term, short term trends should not panic you. Now is a good time to do spring cleaning. Stick with only sound companies. See the next point.

Sell Early
While you should not panic and sell everything in sight, you should sell your losers early. Don’t sit around and watch some of your stocks loose 20% or more. Once in a while we all buy losers. These are typically stocks with weak fundamentals, stocks we should never have bought but we did anyway. Now is the time to get rid of them.

Selling early has saved me in the current negative run. I bought Japaul at N13.7 and Standard Trust Insurance at N5 purely on speculation. I sold Japaul at N12 and STI at N5.2 when I noticed we were in what looks like a bear run. The current price of Japaul is N9.4 (down by 31%) and STI N4.23 (down by 15%).

Historically, companies with weak fundamentals do worse in a bear run. So get rid of them now.

In addition, sell those stocks you feel are over valued relative to their peers if you need the cash. I needed cash and I felt GT Bank with a PE of 29+ was selling at a premium compared to UBA. So I sold some of my GT Bank at N37.5. Today GT Bank has dropped to N33 while UBA has moved from N49 to N55.

Shop for Bargains
Shop for bargains using the proceeds of sales of losers or extra new cash. Check out those quality stocks now and buy them at reasonable prices. If you are afraid the market might still be going down, use dollar cost averaging to reduce total cost. That is invest the same amount in the same stocks biweekly or monthly. If the market continues to drop you would buy more shares with the same amount in later months.

It is difficult to time the market. No one knows the bottom has been reached until after the fact. Averaging ensures you are in the game without attempting to time the market. However, don’t use this method to average down the cost of losers. This will be like throwing good money after bad money. Use this method to only buy solid companies.

Invest in Mutual Funds
Most mutual funds in Nigeria tend to reflect the performance of the market. Invest in a mutual fund now and you are almost certain of a good return when the market recovers. Most funds are selling at lower prices compared to two months ago, now is a good time to go in.

Reduce Debts
Consider using your spare cash to reduce debts. In the short term it is better to reduce a 14% debt than to invest in a falling market.

Invest in Money Market Instruments
Put some of your cash in short term money market instruments. While the return is usually between 8%-10%, it surely isn’t bad compared to negative returns in stocks.

Finally
Remember, historically, bear runs have been followed by a bull run whose magnitude and length have been greater. The numbers below tells the story.

Whatever you do, don’t panic!

1997... (7.9%)
1998... (11.9%)
1999... (7.2%)
2000... 54%
2001... 35.2%
2002... 10.7%
2003... 65.8%
2004... 18.5%
2005... 1%
2006... 37.8%
2007... 74.7%

My Top Ten Investment Books

2008-04-19T13:13:00.000-07:00

Here are my top ten investment books in no particular order although I will start with my favourite.

1. Contrarian Investing: Anthony Gallea & William Patalon. My favourite investment book. Well written and full of excellent advice. Follow the advice in this book and your portfolio will be the better for it.

2. The Intelligent Investor: Banjamin Graham. Written by the acknowledged master of value investing. A classic on value investing. A must have for every investor.

3. The New Money Masters: John Train. A guide to the strategies of Soros, Lynch, Rogers, Neff etc. An excellent treatise on great investors.

4. A Random Walk Down Wall Street: Burton Malkeil. The bestselling book on investing by a Princeton University professor of economics. The book challenged Wall Street and conventional wisdom.

5. One Up on Wall Street: Peter Lynch. From one of the acknowledged masters on Wall Street. Lynch shows us how to beat the pros.

6. Nice Girls Don’t Get Rich: Lois Frankel, PhD. Financial advice for women. Very useful for women of all ages. I enjoyed this quote: “ From birth to 18, a girl needs good parents. From 18 to 35 she needs good looks. From 35 to 55 she needs a good personality. From 55 onwards she needs cash.” Sophie Tucker

7. Why Smart People Make Big Money Mistakes: Gary Belsky & Thomas Gilovich. This book introduced me to behavioral economics. A fascinating book on how we spend, invest, save, borrow and waste money. A must read if you want to understand the psychological causes of irrational behaviour towards money.

8. Common Stock & Uncommon Profits: Philip Fisher. Full of great investment wisdom. Even Warren Buffet recommends it.

9. Contrarian Investment Strategies: David Dreman. Another excellent book on contrarian investing.

10. Lifetime Guide to Money: Wall Street Journal. An invaluable guide to managing your finances.

Lack of Funding as an Obstacle to Solving the Power Crises

2008-04-15T07:00:00.000-07:00

As I am writing this I am hot, frustrated and angry. I am using a rechargeable lamp (recharged using my generating set) because I have not had power from PHCN for the past 24 hours. Nothing new.

I am frustrated because although the problems of electric power generation in Nigeria are complex, they can be solved. I am angry because the present government is spending too much time on the past rather than concentrating on doing something now to address the problem. What the government needs to do is to tackle the generation, transmission and distribution problem in a methodical fashion.

Take as an example the issue of inadequate generation. Recently we were told that PHCN is currently generating less than 2,000 MW. Quite pathetic one might add. What if I tell you we can double this in the next 3 years by spending between $3 and $4 billion dollars? Believe me it is possible. This is how.

The previous Obasanjo administration mandated Oil Majors who are currently in Joint Venture (JV) partnerships with NNPC to build Independent Power Plants (IPP). The projects will include High Voltage transmission lines, gas i nfrastructure and the gas where required. The Oil Majors will contribute between 40-45% of the cost of the project (this is based on their equity in the JV) while NNPC will contribute between 55% and 60%. There are several benefits of this arrangement:

1. The government will only contribute 55% - 60% cash during the construction of the project (typically 3- 4 years) instead of 100%. Therefore the impact on the cashflow of government is minimized. The JV partners will recover their contribution over a couple of years after the project has become operational.

2. PHCN benefits from the project management experience of the Oil Majors. The IPP’s will surely be delivered by the Oil Majors as they have their reputations to protect. The current scandals surrounding the NIPP projects will certainly not be experienced in the IPP projects. For example Agip have since delivered their IPP project. Without the Agip IPP our current crises could have been even worse.

3. The Oil Majors will ensure gas supply to the IIP since they are directly involved in gas production.

Unfortunately for Nigerians only Agip has been able to deliver on the IPP due to lack of funding from NNPC. While the Oil Majors are willing and able to fund their share of the project, NNPC has failed in the last two years to provide funding for the projects. For one reason or the other, Shell, C hevron, Elf and ExxonMobil have not received the funds from NNPC needed to deliver the p rojects. Shell has made significant progress without f unds from NNPC. However, for how long do we expect Shell to carry our burden? NNPC is not really to blame as the government refused to appropriate NNPC the funds it needs.

The real question t hen is how much money is required to deliver the projects? Between Shell, Elf, Chevron and ExxonMobil the amount that is required from the government is between $3.5 to $4 billion dollars. Let me put this amount in context. The $4 billion is about 37 days of oil production if we assume oil price of $90 and 2.2 million barrels a day production and government take of 55% of the production. Please note that this is a very conservative estimate. Can you imagine! All we need to fund the four IPP’s is to commit 37 days production spread over 3 years (approximately 2 weeks production per year!).

Although what I have proposed is rather simplistic, it is equally not that complex. Unfortunately for Nigerians the government of Yar’Adua and NNPC just don’t get it. The whole country cant move forward because of the power situation. Meanwhile oil price is at record highs and NNPC is starved of funds to execute national priority projects.

For the past few months NNPC has been discussing with Oil Majors on how to fund its projects (including IPP’s). With oil price above $100 this is totally unnecessary. This is the time to use the oil money to invest in infrastructure and the oil industry itself. This is not the time to engage in long discussions with Oil Majors on funding. Unfortunately some advisors have convinced the current president that this is the way to go.

Yar’Adua told us during his campaign that power is a priority. However, his actions contradict this. The 2008 budget did not provide the required amount to execute the IPP projects or any major power project. When something is a priority the logical thing to do is to allocate funds to it.

So we continue to live in darkness. Until such a time when someone does the simple calculation and realizes that all we need is 37 days of production to add 2,000 MW to the national grid. While 2,000 MW might look small,it will be a huge leap as it will double our current generation. And perhaps our nights will be brighter and cooler.

High Expectations Among Investing Public

2008-04-06T07:51:00.000-07:00

In the last two years the Nigerian stock exchange has attracted unprecedented interest. This was largely as a result of the banking industry capital raising exercise that saw several banks approach the market for fresh funds. The banks spent millions in advertisement which led to increased awareness among the public of the benefits of investing in the market.

The market posted a gain of 74.7% in 2007. However, it appears such a gain will not be repeated in 2008. At the end of the first quarter of 2007, the NSE All Share Index gained 31% compared to 8.7% at the end of the first quarter of 2008.

Already there is a talk of a crash. Whether there will be a crash or not is difficult to call as this depends on so many factors. Although a correction, not a crash is a possibility as most stocks are currently overvalued.

On the other hand, we might see a modest gain during the year of between 15-20%. Unfortunately, a 20% growth might not satisfy most investors as they have been spoilt by the spectacular growth in 2007. These investors have ignored the performance of the market in the last couple of years in managing their expectations.

2004 – 18.5%
2005 – 1%
2006 – 37.8%
2007 – 74.7%

The growth in 2007 is clearly an exception and cannot be repeated year in year out. Investors will do themselves a favour by lowering their expectations to a more modest 20% annual gain. Anything extra should be seen as a bonus.

On Blogging

2008-01-24T06:47:00.000-08:00

I have always wanted to write. I joined a writers club in my home town at 15 but had to drop out after joining a university in another city. Since then, I have written a few pieces but without a medium for publishing, the motivation to write often was none existent. Along came blogging.

I discovered blogging in 2006 but it was only in 2007 that I created a blog for myself. A blog provides the medium to express oneself. Hopefully some readers will find the blog worth visiting.

A writer can only grow and improve by writing. A blog provides a great medium for the would be freelance writer to test the market.

My resolution in 2008 is to post at least one piece on my blog every month. I am sure the adventure will be worth while.

Good Bye 2007

2007-12-31T14:58:00.001-08:00

What a year 2007 was. On a personal level, it was a very satisfying year. I was in good health, got promoted, bought a brand new car for the first time in my life and did extremely well in my investments. A good year all round. Thank God.

Nigeria did well politically. Obasanjo handed over to Yar’Adua peacefully. But that is where the success ends.

Unfortunately, Yar’Adua appears to be too slow in getting things done. We are not expecting miracles but as the Hausa people say “Jummah da za tai kyau tun daga Laraba ake ganin ta” meaning good things are noticed well in advance. From what we can see, Yar’Adua has a tough task. He is surrounded by a lot of incompetent people, who cant deliver on his seven point agenda.

No progress has been made in addressing the power crises. In fact, as I write, I have no electricity from PHCN. The last one week like most of the year was spent in darkness courtesy of PHCN. The security situation has not improved and most of the corrupt ex governors are still roaming the streets.

So what do I wish for in 2008? Here is my wish list:

1) Continued good health and Iman
2) A return of 25% for my portfolio
3) Electricity from 7pm to 7am daily
4) Better security for all Nigerians
5) Corrupt governors locked up
6) Increased accountability from elected officers

I pray my wish list will be answered.

Good bye 2007 and welcome 2008.

If I Were Yaradua

2007-12-08T16:13:00.000-08:00

Nigerians elected Yaradua in April hoping that he would somehow deliver on the seven point agenda promised in his campaign. Seven months after assuming office, Nigerians are still hoping and praying that he would deliver. Will he?

Early signs are not encouraging. In the first place, the seven point agenda is too ambitious. Why not prioritize and choose two or three issues to focus on for four years? If I were Yaradua, I will only choose two issues to focus on in the next four years. These two are corruption and electric power.

Corruption is public enemy number one. We need to reduce or even eliminate corruption if we want to get anywhere. Obasanjo did well by creating EFCC even though he used it to fight his political battles. In my view, creating EFCC was the best thing Obasanjo did in his eight years in Aso Villa. He made the fight front page news and provided EFCC with all the support it needs to fight the menace of corruption.

Unfortunately, Yaradua through the Attorney General have slowed down EFCC. Considering the fact that so many ex governors have lost their immunity, one would have thought some will be behind bars by now. Alas, progress has been slow. With each passing day, I loose confidence in EFCC getting a guilty verdict against the very guilty ex governors.

If I were Yaradua, I will give Ribadu all the backing he needs to ensure some of these ex governors serve some jail time. This will serve as a deterrent to serving governors to keep their hands off public funds.

The second priority I will focus on if I were the president will be electric power. Nigerians have suffered for so long. Businesses of all sizes are groaning under the crushing weight of energy costs. Nigerian manufactured goods simply cannot compete with imported goods due to the high energy costs in Nigeria. The quality of life of Nigerians is compromised due to the poor electricity supply. It is not surprising therefore to find out that when two Nigerians meet, they more often that not spend time lamenting about the lack of electricity supply.

Although Yaradua claims that fixing the power sector is one of his priorities, I doubt if he really is the messiah Nigerians have been waiting for to deliver them from darkness. It is my view that when something is a priority, it should be properly funded. Alas, the power sector did not get what it needs in the 2008 budget. Yaradua made some noises about using alternative sources of funds. Consequently, the Independent Power Plants (IPP) being built by NNPC JV partners will be starved of funds yet again. Apart from Agip, none of the JV partners have been able to deliver on the power plants. This is due to no fault of theirs as NNPC to date has failed to provide its own share of the IPP costs. Without the required funding, these plants will not come on stream as planned. Thereby prolonging our stay in darkness.

Yaradua needs to wake up to the fact that if he wants to really solve the power crises, he needs to provide the required funds. In addition, the power sector is very complicated, it needs to be handled by experts who know the business inside out. Yaradua therefore needs to strengthen the sector with competent hands. Otherwise, he would spend the next four years without achieving much in the power sector just like his predecessor.

If Yaradua can concentrate on corruption and electric power and get results, Nigerians will forever be grateful.

I sincerely hope Yaradua will realize the enormity of the tasks facing him and begin to do what is required to change things. Otherwise his four years will pass swiftly without much being accomplished. That will be a shame indeed giving all the fanfare that greeted his swearing in as the first Nigerian president with a university degree.

Yaradua, we are waiting and expecting.

On Making a Contribution

2007-10-06T12:55:00.000-07:00

I recently read a speech given in June 2007 by Bill gates on graduation day at Harvard University. It was a great and inspiring speech. It moved and inspired me.

For long I have always wanted to make positive contributions to my community but I have found the issues too daunting and complex. Gates awakened me to the fact that the significant inequities in our societies are usually too complex and as such people who care get intimidated and give up trying to make a difference. Gates went on to propose a three point strategy to cut through the complexities:

· Identify the problem
· Identify the solution
· Implement and measure the impact of the solution

According to Gates the most essential and probably the most difficult part is finding the solution to a problem. Most Nigerians will agree with this as we can list the myriad of problems facing us but we cannot seem to find solutions that work.

As a female from Northern part of Nigeria (Kano) I have always felt that the biggest inequity confronting my local community is the lack of quality public education. In this modern age, I believe that no society can move forward when a majority of the citizens have no access to quality basic education (primary and secondary school). It is only through making available quality education to all, that those brilliant minds that could solve our biggest problems can be discovered and nurtured.

Today, thousands are denied access to education while an even bigger number spend time in our public schools without learning much. Recently I visited a public secondary school in Kano metropolis. Most of the classes in the school have over 80 students. Over half the students have no chair or table. Majority of the students don’t have any textbook to speak off and the school library is a joke. No meaningful learning can take place under such conditions and in fact no meaningful learning is taking place in this particular school.

How can we change this? How do we enlighten and encourage parents to send their children to school and to take an active part in their education? How do we get the best out of the money set aside by government for education? How do we get the government to increase funding for education? These are some of the problems that come to mind.

Improving the quality of our public schools is a long, tough and continuous battle. However, it is a battle worth fighting.

A few months ago, the Federal Government called on Nigerians both individuals and corporate bodies to “adopt a school” in order to help the government in addressing the public education crises. While addressing the crises will require more commitment from government, the “adopt a school” approach could yield unexpected dividends.

On my part, I have decided to heed the call of the government and adopt a school. I have already identified a secondary school within Kano metropolis to adopt.

I encourage all readers of this piece out there to try to do something positive that will impact on their communities. For in Nigeria of today, anybody reading this piece is privileged and “to whom much is given, much is expected”.