For once, both optimists and pessimists are agreed that 2009 would probably be one of the most challenging times in living history for most people. In the face of the confusion and questions, financial experts have been proffering solutions. In this piece, the Managing Director of Camry Securities Limited, a leading capital market operator, Mr. ATIKU KAFARU, attempts to answer most of the emerging questions
Even those who predicted that Nigeria was too detached from the global economic crisis have all reversed their positions. Warren Buffet (arguably the greatest investor of our time) says: The secret to making money is to be cautious when everyone is greedy and to be greedy when everyone is cautious. But a lot of questions are on our minds:
Have the Nigerian stock market reached its bottom? Should I average down by investing at these low prices? Is there a real estate bubble? Will naira depreciate further? What else can I invest in? Will I keep my job in 2009? Will there be a banking crisis or consolidation? How best can I survive in 2009?
Many experts on the Nigerian economy agree on the following predictions:
Foreign exchange rate will depreciate further to between N145 to N155 per US$1 by the year end 2009; Nigeria‘s foreign reserves may have been halved by 2009 ending, from about US$52bn in December 2008 ($63bn in September 2008); Prime lending rates would range between 20 per cent and 25 per cent, depending on the Central Bank of Nigeria‘s willingness to print money and the mode of financing our N1tr deficit budget. Others are that; Crude oil prices would range between $25 and $55 per barrel, depending on weather conditions and events in the Middle East; real estate prices would adjust downwards by between 10 per cent and 50 per cent (especially in Ikoyi, Lekki and Victoria Island); Nigeria ‘s cocoa exports would drop significantly; there would be huge swings in share prices (upwards and downward) with an average slow trend upwards; Unemployment would rise (especially amongst bankers); Consumer confidence would drop and crime rate would rise; and the foreign exchange ‘black‘ market would re-emerge and trade at a premium of between five per cent and 10 per cent above the official exchange rate.
Generally, all you need in 2009 are the 3 C‘s: CASH, COURAGE and CALM.
‘Cash‘ to survive and take advantage of all the golden opportunities that will arise.
‘Courage‘ to aggressively implement all the highlighted recommendations and tips; and ‘Calm‘ to remain steadfast.
Operative tips for financial survival:
Determine and monitor your net worth: Net worth is what is left after you add all your Assets and subtract all your Liabilities. For you, assets include: Shares, which have been dematerialised into CSCS at current market prices; Real Estate with proper title documents; Cash in Bank; Gold and any asset with a high probability to appreciate and easily determinable market values.
Please note that items like cars, cloths and furniture are deliberately excluded and are considered dead assets. Liabilities include: Loans, mortgages, and anything guaranteed to cause consistent cash out flows in the future. Your aim in 2009 is to measure and increase your assets/net worth consistently on a monthly basis.
Form a cash-backed family reserve: In 2009 we recommend you have a Cash Backed Family reserve in your savings or Fixed deposit account. This can be calculated by estimating your total family expenditure for six months assuming you and your spouse lost both Jobs today. If you do not have this reserve, sell what you can and cut all unnecessary expenditure until you can form this reserve.
This amount should be left unused until 2009 ending. Once you have your cash reserve you can stop saving and start investing. Every additional inflow after your cash reserve forms part of your investible funds.
Avoid Debt: With astronomical interest rates you should be very careful before you use any debt in Nigeria .
Live below your means: If you cannot save/invest at least 10 per cent of your income you are living above your means. To live below your means you should save/invest about 20 per cent of your monthly income, every other expenditure should be cut off or suspended.
Take a Health insurance and a life Insurance: This eliminates two major financial risks you and your dependents may face.
Invest in Real Estate using Investment Clubs: With the proposed decline in real estate, small investments in different real estate ventures, with minimal debt would be preferable to large investments. This form of investment is usually available using an Investment Club.
Investment tips for 2009:
Invest in equities: Invest with a two-year perspective in selected high quality company equities with higher dividend yields and lower P/E ratio‘s compared with their pairs. Buy gradually, buy what you understand, and avoid stocks known to have manipulated prices. In addition you may invest in trusted Mutual Funds.
Investment in Private Equity can be very profitable if done via experienced managers. We recommend about 20 per cent of your investible funds should be allocated to equities.
Invest in Fixed Income: Invest in Commercial papers, Bonds, Guaranteed investments, Treasury Bills, and foreign currency which can be easily liquidated to take advantage of interesting opportunities. We recommend that about 60 per cent of your investible funds should be in this form.
Like Buffet, SEEK ONLY ‘DEALS‘: In 2009 a lot of once-in-a-lifetime deals would emerge, however only those who are ready with cash would be able to take advantage quickly. Make it a point not to part with your cash unless it‘s a ”deal of a life time”.. Don‘t be in a hurry to invest. Always walk away if you are unsure. More deals would come subsequently. The opportunity cost of spending your cash is high.
Reconfirm the status of your Pension (PFA) contribution: Those little monthly contributions could amount to a fortune in future.
Safeguard your assets and yourself: This includes enhancing your immediate security as crime rate is expected to increase. Also, insure your house and any major asset.
Do a Will or a Trust: As morbid as it may sound, this would make a world of difference to your dependants, just in case the unfortunate happens.
Form the habit now and continue updating the Will as you increase your net-worth.
Set two major financial goals: i.e. Education for you and your kids and Housing for the family. Invest towards them aggressively.
Remain motivated and seek opportunities aggressively: This is the time to remain motivated and violently seek opportunities. No gentleman survives the war front.
Do a budget and stick to it meticulously: To manage your expenditure you need to measure them continuously.
In conclusion, aggressively preserve your cash: This would give you more options in 2009. Most importantly, be optimistic, not necessarily about the future which you cannot control, but about your ability to make the best out of whatever the future presents at you. Amidst this uncertainty, most of the traditional assumption that determine the industry boundaries/rules would have silently changed. Now more than ever, a Game Changing Idea will work.