Concept Advisory Services

• Safaricom IPO: Is it Worth?

  Posted: March 28, 2008, 7:25 pm by CRB

  Two years ago, I was a banker and hence I can imagine what those in the operations department of our local banks are bracing themselves for on the opening of the Safaricom IPO. At that time, it was the KenGen IPO and I remember us leaving office sometimes at 10Pm as we processed the many requests for financing.

  Apart from the KenGen IPO, no other IPO has received much interest from the Bankers like the Safaricom IPO. Not only because of the magnitude of the offer but also because the company is one of its kind in East Africa in posting record profits. For the current financial year, analysts are predicting k’sh 17 billion as the firms’ net profit.

  Investors unlike in previous IPO’s eagerly await the share. With the other IPOs, investors debated on the wisdom of subscribing. The trend has been low allocation on the shares applied with Kenya Re and KenGen having greatly disappointed many investors. Applicants for KenGen were allocated a measly 7,000 shares as the maximum while retail investors got a low of 200 shares. The issue of delay in refunds has also greatly dampened the appetite for retail investors. There has also been the issue of share price appreciation with many doubting the ability of the IPO’s and the secondary offer prices to rise. A case in point being the Mumia’s secondary offer where the offer price was k’sh 49 only to see the price come down to a low of k’sh 17 before the bonus issue. Eveready has not helped with the price dropping to k’sh 6, less than the k’sh 9 offer price.

  However, Safaricom is different and I do not see the price ever going below k’sh 5 unless something drastic happens like reporting a loss. Nevertheless, even as we get excited with the IPO, I want us to consider some points on the much-awaited IPO. That Safaricom is a big offer is no doubt. Compare the 10 billion shares on offer with the KenGen offer of 650 million. With the retail investors allocated over 30% this translates to 3 billion shares in the hands of investors who are keen to dispose at the least price appreciation. My worry is many will be buying the share with the sole intention on disposing and thereby making a kill in the secondary market. This price appreciation may be a myth considering the large volume of shares out there. The average investor has also smarted and now knows that price appreciation on secondary market is only for a short while. Moreover, considering the foreign investors are well taken care of with their 35% allocation, where will the demand come from?

  There is also the issue of earning. There are 10 billion shares on offer representing 25% of the Safaricom share capital. This means the share capital of Safaricom is k’sh 200 billion with 40 billion issued shares. Now assume that Safaricom makes k’sh 20 billion after tax. The earning per share will be k’sh 0.5. Moreover, in the last financial year, Safaricom made k’sh 12 billion and paid out a dividend of k’sh 4 billion. Assuming the same rate of dividend payout, this would translate to a dividend earning per share of k’sh 0.11 for the current period. This is commendable for a share with supposedly a market value of k’sh 5. KenGen with a market price of k’sh 24 paid k’sh 0.40 for its financial year ending December 2006.

  There is fear that Safaricom share may not rise as expected due to the high number of shares in the hand of retail investors. Similar argument has been advanced to explain KenGen whose share price has never gone past k’sh 40 two years after listing.

  What does this contend for the investor looking to finance the IPO through credit financing? Many banks are coming out apparently to assist investors in buying the share with a 100% financing. And many are buying the idea considering the hype generated by the IPO. Even some banks not known as retail friendly are all out announcing their financing product.

  Financing comes at a cost with Equity bank charging a 15% interest on reducing balance. Add the banker’s cheque commission, processing charges and the insurance cover and you get a whole lot of added expenses not being disclosed- but for obvious reasons- by the bankers.

  Not that I would advise anyone to ignore financing. Using other people’s money is not a new phenomenon in investing. Assume the share price rises, you can dispose the share and pay off the loan and just pay interest on only one month. But there is a catch. Upon financing, shares will be the security, thus one cannot dispose until they clear the loan, and the CDSC can release the hold on the shares. The implication is that one has to borrow another loan to clear with the bankers and ensure they sell the shares in a reasonable time to ensure good return. A small delay can see a potential investor losing out due to price swings. And the Capital market players are not famed for their efficiency especially when they have a large workload to handle.

  For those queuing to get info on financing, my advice would be take that loan only if you can afford to pay the instalment from other means rather than hoping the share price will rise big time and you will sell and pay the bankers. That is what many are contemplating. And can you imagine a fraction of 3 billion shares being dumped at the NSE? This would ensure the price does not go past k’sh 7

• Safaricom IPO: Is it Worth?

  Posted: March 28, 2008, 5:40 pm by CRB

  Two years ago, I was a banker and hence I can imagine what those in the operations department of our local banks are bracing themselves for on the opening of the Safaricom IPO. At that time, it was the KenGen IPO and I remember us leaving office sometimes at 10Pm as we processed the many requests for financing.  Apart from the KenGen IPO, no other IPO has received much interest from the Bankers like the Safaricom IPO. Not only because of the magnitude of the offer but also because the company is one of its kind in East Africa in posting record profits. For the current financial year, analysts are predicting k’sh 17 billion as the firms’ net profit. Investors unlike in previous IPO’s eagerly await the share. With the other IPOs, investors debated on the wisdom of subscribing. The trend has been low allocation on the shares applied with Kenya Re and KenGen having greatly disappointed many investors. Applicants for KenGen were allocated a measly 7,000 shares as the maximum while retail investors got a low of 200 shares. The issue of delay in refunds has also greatly dampened the appetite for retail investors. There has also been the issue of share price appreciation with many doubting the ability of the IPO’s and the secondary offer prices to rise. A case in point being the Mumia’s secondary offer where the offer price was k’sh 49 only to see the price come down to a low of k’sh 17 before the bonus issue. Eveready has not helped with the price dropping to k’sh 6, less than the k’sh 9 offer price. However, Safaricom is different and I do not see the price ever going below k’sh 5 unless something drastic happens like reporting a loss. Nevertheless, even as we get excited with the IPO, I want us to consider some points on the much-awaited IPO. That Safaricom is a big offer is no doubt. Compare the 10 billion shares on offer with the KenGen offer of 650 million. With the retail investors allocated over 30% this translates to 3 billion shares in the hands of investors who are keen to dispose at the least price appreciation. My worry is many will be buying the share with the sole intention on disposing and thereby making a kill in the secondary market. This price appreciation may be a myth considering the large volume of shares out there. The average investor has also smarted and now knows that price appreciation on secondary market is only for a short while. Moreover, considering the foreign investors are well taken care of with their 35% allocation, where will the demand come from? There is also the issue of earning. There are 10 billion shares on offer representing 25% of the Safaricom share capital. This means the share capital of Safaricom is k’sh 200 billion with 40 billion issued shares. Now assume that Safaricom makes k’sh 20 billion after tax. The earning per share will be k’sh 0.5. Moreover, in the last financial year, Safaricom made k’sh 12 billion and paid out a dividend of k’sh 4 billion. Assuming the same rate of dividend payout, this would translate to a dividend earning per share of k’sh 0.11 for the current period. This is commendable for a share with supposedly a market value of k’sh 5. KenGen with a market price of k’sh 24 paid k’sh 0.40 for its financial year ending December 2006. There is fear that Safaricom share may not rise as expected due to the high number of shares in the hand of retail investors. Similar argument has been advanced to explain KenGen whose share price has never gone past k’sh 40 two years after listing. What does this contend for the investor looking to finance the IPO through credit financing? Many banks are coming out apparently to assist investors in buying the share with a 100% financing. And many are buying the idea considering the hype generated by the IPO. Even some banks not known as retail friendly are all out announcing their financing product.  Financing comes at a cost with Equity bank charging a 15% interest on reducing balance. Add the banker’s cheque commission, processing charges and the insurance cover and you get a whole lot of added expenses not being disclosed- but for obvious reasons- by the bankers. Not that I would advise anyone to ignore financing. Using other people’s money is not a new phenomenon in investing. Assume the share price rises, you can dispose the share and pay off the loan and just pay interest on only one month. But there is a catch. Upon financing, shares will be the security, thus one cannot dispose until they clear the loan, and the CDSC can release the hold on the shares. The implication is that one has to borrow another loan to clear with the bankers and ensure they sell the shares in a reasonable time to ensure good return. A small delay can see a potential investor losing out due to price swings. And the Capital market players are not famed for their efficiency especially when they have a large workload to handle. 

  For those queuing to get info on financing, my advice would be take that loan only if you can afford to pay the instalment from other means rather than hoping the share price will rise big time and you will sell and pay the bankers. That is what many are contemplating. And can you imagine a fraction of 3 billion shares being dumped at the NSE? This would ensure the price does not go past k’sh 7

   

• Tembea Kenya:Know Kenya

  Posted: March 18, 2008, 1:57 pm by CRB

  Easter holidays are here with us and I am not sure how you will spend yours. Are you in the minority who will opt not to overindulge but invest the funds in the upcoming safaricom IPO? The announcement by Finance Minister, Amos Kimunya, caught me by surprise as I had anticipated the process to start afresh after the peace deal.

  The other news of the week, and which the mainstream media did not pick was the unveiling of the Tembea Kenya website that is an initiative by the Kenya Tourism Board to raise awareness on local tourism. Tourism is one of the sectors badly affected by the post election violence and any measures taken in a bid to return the industry to normalcy is welcome. The only part I fault Kenya Tourism Board is their tendency to fall back to the local market when the foreigners are not willing to travel to Kenya. Marketing to the locals should be an ongoing activity in order to entrench the holiday culture in our people. As of today, locals account to a partly 25% of the tourism revenue.

  The other day a client of mine from Nyanza was joking on the possibility of me not having gone past Nakuru town. I did inform him that I have gone further; even to Kampala and that there are few major towns in Kenya I have not visited. We then got into an exchange on Kenyans’ travel habits and the outcome was unanimous that we are not the adventurous type. I have met many residents of Central province who have no idea where Kakamega is. On the same note, how many from Western or Coast can claim to have visited Meru National Park in Eastern province. Kenyans have a tendency of locking themselves up and viewing any chance to visit a new place as bothersome.

  Apart from the educational visit, few of us would care to know where the National Museum is situated, the snake park, giraffe centre or mamba village. Or even the Ngong hills! Instead, our idea of spending leisure time is by drinking ourselves silly. You drink at the same place or town on each weekend and do not even care to know what that pub at Langata is offering. For those not in love with alcohol, you spend most of your time curled up in the seat reading and watching TV or gossiping on this or that.

  The point is, you could do with some travel outside town for once. Get to know that place you hear of in Machakos. Get to Nakuru and by all means visit the national park and see the flamingos in their millions. And if you have a passport, cross the border and get to learn one or two things from our neighbors. For example, last year we traveled to Arusha just for the fun of it and I was surprised by the quality of their infrastructure. Arusha town is a relatively cheap, clean, and airy town. And our neighbors are not as backward as we Kenyans like to imagine. In fact if we continue with our political squabbles, we might as well sell our birthright to these guys. I have had similar trips to Kampala and other towns within Kenya. And Easter is one such a period you can decide to know your country.

  Many of us think you need lots of money for such a trip. However, the reality would surprise you. for a backpacker trip to any East African town for two people you would need only K’sh 20,000 and return home with some few artifacts even if fake. I’ll give the example of a trip to Arusha and the following is the breakdown of costs involved.

  1. Transport: For a good deal get a Matatu to Namanga for k’sh 300 each and then connect to Arusha at the border. Here you will pay k’sh 350 each.
  2. Accommodation: With k’sh 1,500, you get the equivalent of Kenya’s hotel 680 half board. Therefore, four days will just consume 6k of your budget.
  3. Taxi local. You can hire a cab for k’sh 2,000 for 6 hours. Yes 6 hours.
  4. Food. Food prices are dirt-cheap. With k’sh 100, you are assured of a healthy breakfast. For evening meal, budget k’sh 200 on the higher side.
  5. Security. The place is secure as we could travel without restriction. We didn’t sample the nightlife but there didn’t seem to have much happening.
  6. Service. Probably this is the only area the locals need to improve on. But this was more or less compensated by their legendary calmness and good manners. Even the cops are humane going out of the way to make you feel at ease ‘naomba passpoti yako ndugu’

  I hope that I have managed to shatter the myth that any form of travel is expensive. Get out and interact and surely you will broaden your thinking.

  Happy Easter holiday!

• Ten People You Should Get To Know In Your Organization

  Posted: March 15, 2008, 12:46 pm by CRB

  When you walk into a new job for the first time, it’s often not clear what the culture of the organization is or what exactly you will truly be doing in your job. It might also be very unclear what exactly is expected of you, and also what your opportunities are for advancement.

  Naturally, it’s great to cultivate relationships with your peers (the people who work regularly with you), but no matter the culture of the organization, it’s worth your time to get to know a few other people as well, as they can help you out greatly without much effort on their part.

  Here are ten people you should get to know in your organization as soon as possible to make your job go smoother and also maximize your promotion opportunities later.

  The boss This is the most obvious one on the list, and this is also the first person you should know. When you’re new, don’t hesitate to ask questions and use those as leverage for conversations. The questions shouldn’t express a cluelessness in your job, but should instead invite the boss to open up a bit. Ask questions about general organizational culture, and look for opportunities to ask questions directly about your boss’s role in defining that culture and the direction of the organization as a whole. In short, get the boss to open up by making him or her feel good about their role; you can do this by asking questions that allow for reflection on

  The boss’s boss If you have a chance to meet people further up the ladder, be sure to make your name known to them. Shake hands firmly and be very direct. If the opportunity permits, state your pleasure in being with the organization and ask questions similar to how you opened the door with your boss. Mostly, the key here is to cultivate a positive presence and hopefully name recognition up the ladder.

  The Tea lady and the janitor:  Not only does this person help keep your area clean, this person hears a ton of things about what’s going on at work. Befriending the janitor will not only improve the service that you get in terms of cleanliness, but it also give you an insight into a lot of things that are going on. In my previous organization, the janitor was almost always the first person to know if there were promotions, firings, hirings, and reorganizations coming down the pike.

  The administrative assistant Be very nice to the administrative assistant who manages any paperwork you may file. Don’t ever forget to regularly stop by just to ask how he/she is doing. Listen to venting and empathize. Not only will this make things smoother for you when you need secretarial services, a secretary sees a lot of things pass over his/her desk.

  The boss’s secretary Similar to how you treat your secretary, you should treat the boss’s secretary well, too, but for different reasons. The boss’s secretary will be able to make sure that things you turn in are reviewed quickly and also properly attributed, which can be vital if you’ve ever had anything stuck in “secretary purgatory.”

  The boss’s boss’s secretary This is very similar logic to why you should favor the boss’s secretary, but this relationship mostly ensures that you’ll at least have access up the food chain if need be.

  The person with the most seniority close to you in job rank This person usually has a huge amount of knowledge of what’s going on in the workplace, both in terms of your actual job function and also the culture of what’s going on around you. This person can be an amazing resource for straight shooting on how to get things done.

  The human resources person assigned to you The human resources personnel are usually overlooked until they’re needed, and then they’re basically demanded. When you have a pressing HR need, it’s going to go much smoother (and much more likely in your favor) if you have a good standing relationship with the HR officer.

  The IT specialist assigned to you The logic is almost identical to the HR person, except the IT specialist can get you back to work quickly if you have a good relationship with them. A good way of handling this is to occasionally just chat with the IT specialist if you see an opportunity and send a thank you note after everything that they do for you.

  The person with the most job knowledge close to you in job rank Basically, this is the smartest person in your peer group. You should naturally make friends with everyone in your peer group, but make a special effort to reach out to anyone who has a strong grasp of the technical aspects of their job.

• Is It Time To Sell Your shares?

  Posted: March 13, 2008, 2:38 pm by CRB

  In less than a week, the Nairobi Stock Exchange (NSE) share index has shed some points, which is reversal of the bullish run that come upon after the signing of the peace deal between Premier Raila Odinga and the President, Mwai Kibaki.

  Many people see this as a reason not to buy stocks or to sell them. In fact, many people do just that. They look at these losses and see danger - and they don’t want danger, so they stay out or they sell.

  Let’s look at it another way.

  On December 21, 2007, you could have spent K’sh 100 to buy a share in the Nairobi Stock Exchange. On February 29, 2008, those shares are now on sale for k’sh 96. You are buying the exact same thing, except now you’re saving k’sh 4 per share.

  Nothing fundamentally has changed about the investment itself. You’re still buying the same pieces of a wide array of large Kenyan companies. The only difference is that right now, these stocks are on sale.

  Let’s keep this logic going. Let’s say over the next two months, the stock market rebounds and it goes back up to 5,600 points. You will score a very quick return on your investment.

  On the other hand, if it goes down yet again, your losses now are much smaller than if you had bought in on December 21^st.

  What’s the idea? A down market isn’t a time to sell. It’s a time to buy. You don’t go to the supermarket and stock up on produce when the prices are expensive - you wait until things are in season and the prices are low.

  What if I already own that Unit trust and I just took that loss on the chin? What if you came into this downturn already owning a fund, and you’re sitting there swallowing losses? This is the scenario where it’s tempting to sell and stop the bleeding.

  Look at it this way, though. You’re already stuck with this loss - there’s no way of getting out of it. On the other hand, you’re currently holding an investment that’s at a discounted value. If you’re investing for the long term - and if you’re in stocks, this really should be a long-term investment - then you need to hold onto that stock, not sell. By selling it now, you’re asking someone else to come in and take that discounted investment from you at a nice bargain price.

  What if I own individual stocks? Individual stocks are potentially different. First, if you own the stock of a specific company, you should have specific reasons for owning it. Perhaps you have high confidence in the current management, or you believe in a specific product of the company. The reasons can vary, but if you don’t have a clear reason - and also a clear definition of what needs to happen for that reason to go away, you shouldn’t own the stock.

  Let’s say, for example, that you own Equity bank stock and you do so because you believe in James Mwangi management style. As long as he’s firmly in as CEO, you’ll keep holding the stock. When word starts being whispered that perhaps Mwangi is about to retire, it may cause some serious tremors in Equity’s stock, and it might have gone down a bit when you hear the news. Of course, your reason for owning Equity is now gone, so you should sell - but that reason to sell has nothing to do with the stock price as of today.

  In the end, keep one thing in mind: stocks are a long-term investment and if you sell based on what the price is doing today, this week, this month, or even this year, you’re asking a smarter and more patient investor to take your money. Don’t sell any investment unless you have a reason for selling it, a reason not based on that day’s price.

• Some Thoughts on Shopping Kenyan Style

  Posted: March 12, 2008, 1:48 pm by CRB

  Below are my thoughts on Kenyan shopping.

   

  Location matters: Stores and supermarket located in affluent areas charge a higher price. I had this idea that a Nakumatt store was a Nakumatt store but had a rude shock. Try shopping at the junction or Westgate branch. The prices are higher than what you would find at Lifestyle and Nakumatt downtown branches. This price distortion can be witnessed in firms located in Tom Mboya Street and lets say Kimathi Street despite selling similar products. Economists call it price differentiation whereby you charge a different price on the same product or service depending on the consumer’s ability to pay. Kenya Power and Lighting are masters at this. The industries pay higher than the households do. Moreover, the fellow who lives at Lavington definitely pays more than the individual who stays at Kiambu does.

   

  Very few shops stock quality items, and even then the price is too high: I visited a men’s shop that deals with suits situated along Kimathi Street in downtown Nairobi.  And who have a solid reputation in quality of their suits only to find out that what they are stocking is available from the stalls i.e. ‘exhibition’ centers at half price. A point is do a bit of window-shopping and do not take even established players for their word. Do not be the individual who is attracted by the brand more than the product itself.

   

  Whenever you see a sales tag displayed at the window, know that this is a store’s way of disposing dead stock. The store will incur a huge loss if they were to stick with the stock and to minimize on losses; the best way is to invite the masses with discounted offers. Bata Shoe Company is currently running such an offer of buy the second pair at a 35% discount. The shop is at an exposed position and you will be surprised in that majority are willing to accept even a lower offer than what they have stated. Try it once and you will be surprised.

   

  For those who like shopping at Tom Mboya Mall (from hawkers) always quote your offer at 50% of the sale price. The hawkers may not hold a qualification in marketing but there are masters in manipulation and human psychology. Thus they will make their offer price double on their projected sale price. Most of us will proceed to haggle some 20% off and the hawker will have made a kill. I have friends who have bought junk at ridiculous prices. If you must buy from Tom Mboya Mall, make sure you squeeze for the best bargain. Make your offer, stick to it, and let the hawker know you are willing to leave without the product. Haggling will only reveal you as a desperado and give him more ammunition to make a quick buck from you.

   

  Kenyans are into fads: For men it’s those sharp pointed shoes first seen with pastors of the evangelical churches. I can’t speak for the ladies but boots seem to have made a comeback. Problem is, during this period prices of the goods will be high until everyone has the item and then price comes down until the manufactures can come up with another fad.

   

  Kenyan products are substandard: Occasionally I feel the urge to promote our industries by buying a Kenyan product be it clothes or electronic stuff. However, the experience is the same countless times. Either the product will not last or the quality or finish is extremely poor. My conclusion is you cannot buy an item for patriotism sake.  The manufacture should not peg his product success on how patriotic Kenyans will be. In most scenarios consumer take quality in consideration even before the price.

   

  What is this thing with suppliers or providers of services increasing prices without notices? The Matatu men can do it due to their uncouth behavior but even descent establishment are adopting the habit. The other day I popped in my usual place for lunch and while settling the bill was informed of the price increment up by k’sh 20. This is consumer exploitation though we’ve gotten used courtesy of the oil companies.

   

   

• Some Thoughts on Shopping Kenyan Style

  Posted: March 12, 2008, 1:03 pm by CRB

  Location matters: Stores and supermarket located in affluent areas charge a higher price. I had this idea that a Nakumatt store was a Nakumatt store but had a rude shock. Try shopping at the junction or Westgate branch. The prices are higher than what you would find at Lifestyle and Nakumatt downtown branches. This price distortion can be witnessed in firms located in Tom Mboya Street and lets say Kimathi Street despite selling similar products. Economists call it price differentiation whereby you charge a different price on the same product or service depending on the consumer’s ability to pay. Kenya Power and Lighting are masters at this. The industries pay higher than the households do. Moreover, the fellow who lives at Lavington definitely pays more than the individual who stays at Kiambu does.

  Very few shops stock quality items, and even then the price is too high: I visited a men’s shop that deals with suits situated along Kimathi Street in downtown Nairobi. And who have a solid reputation in quality of their suits only to find out that what they are stocking is available from the stalls i.e. ‘exhibition’ centers at half price. A point is do a bit of window-shopping and do not take even established players for their word. Do not be the individual who is attracted by the brand more than the product itself.

  Whenever you see a sales tag displayed at the window, know that this is a store’s way of disposing dead stock. The store will incur a huge loss if they were to stick with the stock and to minimize on losses; the best way is to invite the masses with discounted offers. Bata Shoe Company is currently running such an offer of buy the second pair at a 35% discount. The shop is at an exposed position and you will be surprised in that majority are willing to accept even a lower offer than what they have stated. Try it once and you will be surprised.

  For those who like shopping at Tom Mboya Mall (from hawkers) always quote your offer at 50% of the sale price. The hawkers may not hold a qualification in marketing but there are masters in manipulation and human psychology. Thus they will make their offer price double on their projected sale price. Most of us will proceed to haggle some 20% off and the hawker will have made a kill. I have friends who have bought junk at ridiculous prices. If you must buy from Tom Mboya Mall, make sure you squeeze for the best bargain. Make your offer, stick to it, and let the hawker know you are willing to leave without the product. Haggling will only reveal you as a desperado and give him more ammunition to make a quick buck from you.

  Kenyans are into fads: For men it’s those sharp pointed shoes first seen with pastors of the evangelical churches. I can’t speak for the ladies but boots seem to have made a comeback. Problem is, during this period prices of the goods will be high until everyone has the item and then price comes down until the manufactures can come up with another fad.

  Kenyan products are substandard: Occasionally I feel the urge to promote our industries by buying a Kenyan product be it clothes or electronic stuff. However, the experience is the same countless times. Either the product will not last or the quality or finish is extremely poor. My conclusion is you cannot buy an item for patriotism sake. The manufacture should not peg his product success on how patriotic Kenyans will be. In most scenarios consumer take quality in consideration even before the price.

  What is this thing with suppliers or providers of services increasing prices without notices? The Matatu men can do it due to their uncouth behavior but even descent establishment are adopting the habit. The other day I popped in my usual place for lunch and while settling the bill was informed of the price increment up by k’sh 20. This is consumer exploitation though we’ve gotten used courtesy of the oil companies.

• Make the Most of Your Salary From Your First Job

  Posted: March 11, 2008, 12:55 pm by CRB

  Getting that first job after college or high school is a very exciting, yet stressful event. You’re probably overwhelmed with many new challenges, opportunities, commitments, and have a lot of questions. One of the biggest changes may be in regards to money.

  This new job may provide a significant increase in cash flow. While it may seem like you’ll now have a lot of money, this is a critical time to begin managing your money wisely. This includes creating a budget to help you pay off debt, student loans, develop savings, and begin investing for retirement.

  Create a Budget

  If you’ve been in school prior to this new job, your finances were probably relatively simple. You had some basic bills to pay i.e transport to and from campus; photocopy services etc. and your education may have been funded by your parents or through the Higher Education Loans Board (HELB)

  Now that you are ready to begin life in the workforce, your cash flow needs will change significantly.

  Once you have an idea of how much your paychecks will be, it is time to sit down and determine what your expenses are. How much is rent for that SQ at Buru Buru? Will you be moving to a nicer place? Buying a car? How long before you have to begin paying back the student loans. These items will play an important role in determining where your money has to go.

  Creating a budget doesn’t have to be difficult and it can be done in a few easy steps. It is important that you establish this spending plan as soon as possible so that you don’t find yourself in financial trouble later on.

  Tackle Your Debt

  If you have student loans, you generally have three to six months before payments begin. Don’t use this grace period to rest on your laurels, but begin to plan for the payments before they start. Find out how much the payment will be and factor it into your budget now. If your lender offers automatic electronic payment, consider setting up monthly or bi-weekly payments to come right out of your bank account.

  Develop a Savings Plan

  Now that you are on your own and have a steady stream of income, you should begin saving a little bit of money each paycheck for an emergency fund. Having an emergency savings fund will help you out in a jam so that you do not have to rely on high-interest credit cards or face a financial crisis.

  The best way to begin saving is to create an automatic savings plan. If you have a set amount of money being set aside from each paycheck automatically, it is impossible to forget. In addition, once the money is saved automatically, after a few paychecks, you won’t even miss the money.

  Begin Saving for Retirement

  If you are like most young people starting out in your first job, the thought of retirement seems like an eternity. Do not be like many who on each Friday, they have no savings and yet can afford to drink on a weekly basis at the many downtown Nairobi joints.

  While it may be true that you have 40 or more years until retirement, do not wait to begin saving. Even a very small amount can begin to add up thanks to the effect of compounding interest.

  Check with your employer to see if they offer a retirement plan. Many companies even offer a matching program where you can essentially get free money just by saving. If your employer doesn’t sponsor a plan, the best thing to do would be to consider having a personal pension plan.

• Are You Taking Responsibility for Your Personal Financial Situation?

  Posted: March 9, 2008, 2:56 pm by CRB

  I have made it a point to watch Jeff Koinange’s show, Capital Talk, on K-24 whenever I have the time. The show is informative and Jeff makes it a point to ask straightforward questions. More often, journalists from other media houses are reluctant to venture into some topics that can give us a better insight into the guest’s mind; the real persons and not the rehearsed versions! For example, while interviewing Manu Chandaria, Kenya’s arguably top most CEO, Jeff had the guts to ask him on his relation with his wife considering the couple is always together in public functions.

  Jeff’s guests are normally the who is who in Kenya. Top CEO, politicians, business owners and even men of God have all graced Jeff’s show. He has also interviewed comedians like John Kiarie. I am yet to see a ‘common man’ in his show, but then, when did a common man set an agenda for the nation.

  I have noticed how all these guests are optimistic on the future regardless of how things are. The guests also take hands on approach to issues, always preaching that a solution starts in us. That it depends on us as individuals, not the government, church or even the politicians to solve what afflicts us as individuals and as a society. When Kenya was burning, you could tell that these guys were willing to play a major role to see the situation return to normalcy.

  Compare the CEO sentiments with the regular crowd found at Kencom bus stage. Every time the news people want to hear on the common mans view, you will see cameras zooming to this direction. And what comes out of their mouths is sometimes depressing. To them each problem requires government intervention. I once watched a feature on a dumpsite and the residents were complaining on the foul smell. How the government should relocate the site. The funny thing is, in the background there was this man emptying his trash at the same site. Some trash he could have probably burnt. And to make it worse, the dumping site was only a few meters away from the recognised dumpsite the Nairobi City Council set up. Why the community decided not to travel a few metres to the designated dumpsite evaded me. But here they were shouting loudest on the need to relocate a dumpsite that was their own making.

  Therefore, as the CEO takes a personal responsibility on issues the common man is comfortable sweeping the issues under. And when he cannot handle it much further he will point his finger elsewhere.

  Personally, I feel that taking issues head on enables us to lead better lives. Something happens to our lives when you are able to tackle a problem that at the beginning looked like a mammoth task. It is this good feeling that will give you the confidence to be self-reliant. Ultimately, small success will lead to big ones. Even the poor fellow who becomes super rich, the rags to riches type, learns this at one point. That is why the fellow will start with a kiosk at downtown Nairobi, make it a success and move on to a well-stocked general shop and with some time set up a wholesale shop somewhere in a middle class estate.

  The individual who constantly shifts blame robs himself the ability to set his life on course. Problem solving is a process rather than an event. First you recognise a problem, and then try to find a solution. What might work and what will not. You then go to the implementation phase. If it works out then all is fine, if not then you repeat the process. This process will definitely make you a better and focused individual.

  This also applies to our personal finances. Are you the type constantly drinking each weekend but blaming your employer for a poor pay? Have promotions evaded you due to lack of qualifications but you are better off meeting your pals for chitchat instead of enrolling for an evening course for some additional qualifications? Or are you yearning for a better income but the idea of starting a Jua kali business makes you nauseas since you are too qualified for that sort of trade. The list is endless but I am sure you get the hint.

  Ultimately, how you live is up to you. But do not blame others for your shortcomings. Be it financial, on health and even your love life. Take the initiative to sort out the mess, and hopefully when others see you trying they will not feel so hard to chip in.

• Bernard Obonyo emails about his student loan money

  Posted: March 8, 2008, 1:16 pm by CRB

  Now for the most part all of that money will be used to do things like pay rent, and buy groceries, but when I’ve calculated it out, there’s around K’sh10,000 left per semester minimum, and more if I can be frugal about how I spend it.

  My questions was, do you think it would be smart to turn around and pay off part of my loans with the extra cash, or could you recommend me a direction to maybe take this extra money that I have, and invest it to make a return? I know right now that I could put it into a money market account at my bank, Stanbic, Nairobi, which is about 6%. Other than that I wouldn’t know where to begin.

  The problem with investing money in the short term is that it’s dumb. Sure, you could make a few percentage points — or you could lose most of it. Short-term volatility is very high, while time (and good investing choices with low fees) smooths out short-term volatility. As I’ve written before, time pressure=bad decisions. For example, I remember when I was a first year, we hosted this prospective freshman in our room for Admit Weekend. This guy left our room with a single decree: “Guys,” he said, “I’m not coming back until I hook up with a hot girl tonight.” My roommate and I looked at each other and laughed and laughed. Then we told him to just pack his stuff and take it with him — he wouldn’t be coming back, and it was nice to meet him. When he sheepishly came back around 3am, alone, I believe that moment of happiness will rival even the birth of my children. Setting a rapid timetable for getting ass, it turns out, is difficult.

  Back to student loans. Do you want to invest your student-loan money for the possibility of making just k’sh 90/month (9% returns) but possibly losing some/most/all of it in the short-term? “But Concept Services,” you might say, “I’ll just invest it in something safe so I can’t lose it.” Lower risk = lower rewards, so if you invest it in a safe government bond, you’ll earn about 5% — basically your savings rate. You need time and more capital to grow your money, not K’sh 10,000 and a few months. That’s the domain of get-rich-quick quacks, something I hate. Remember, the first thing I ask when someone wants to know about investing is, “When do you need this money?”

  The basic messages here are:
  Risk and reward. Before you get overly excited about something, ask yourself if it’s worth it. You might make k’sh 2,000 in a year, with the possibility of messing up your finances for doing those stupid balance-transfer games? Not worth it.
  Sexy vs. rich: Making it sustaintable. Are you building a long-term infrastructure or are you doing something short-term and dumb to distract yourself from the hard work of learning about real banking, budgeting, saving, and investing? Do you have a savings account? An investment account with proper asset allocation? Have you bought even one personal-finance book?

• The Art Of Speculation

  Posted: March 7, 2008, 1:09 pm by CRB

  There was a time it paid to be a speculator in the Nairobi Stock Exchange, from the period of September 2005 to October 2006.Many individuals would put in their money and in a few weeks time reap good returns. Majority took Sacco loans and the unsecured personal loans from banks and pumped all this cash in stocks, and they were not disappointed.

  By then, prices would rise by margins of k’sh 5 to even k’sh 20. Any keen investor didn’t have to wait for a major announcement like expansion plan or declaration of a huge dividend from the companies to make some good gains.

  Nowadays, even with companies announcing big profits e.g. 33% profit increment by Kenya Commercial Bank; this does not excite the market. You actually get the impression that this was expected. And Stanchart announced what might turn out to be the highest dividend of the year at k’sh 10. The share price has gone up but not with the expected margin. Even my favorite stock, Centum investments that announced half-year profit of 600 million has its share still at k’sh 28.

  The only share that favors the speculators is Equity Bank stock. Just when you write off the stock as having reached its peak, it climbs to a greater price.

  I have made a couple of observation on trading to gain as a speculator.

  Average investor: The average CDSC holder is getting sharp as far as stock trading goes. Individuals are doing a thorough homework as opposed to prior years where they could just put their money on whichever stock without consideration. This has meant that price oscillation with big differences is no longer possible. If you are to speculate, do your homework twice.

  Time factor: Two years ago, you could buy and dispose the same stock in a month and still make a quick buck. Have you noticed the way prices are constant of late. It has taken over three months for Centum investments to move from price of k’sh 26.5 to k’sh 28. And k’sh 28 has come to be due to the bullish run after the peace deal. To make it as a speculator in today’s market, give it a time horizon of a minimum of six months.

  Volume counts: Trade volume was a factor two years ago and will still be a factor years to come. For you to maximize return on a small price movement you need to hold a good volume. You definitely cannot speculate with 100 shares. Even if it is for the Nation Media Group with a current market price of k’sh 340. You need some serious volume to realize any tangible gain. Consider an individual with 20,000 shares in share X. if the share price appreciates by even k’sh 2, this individual will have made k’sh 40,000 less brokerage commissions.

  Few are chosen: Some stocks are not for speculation for a couple of reasons. The first is volume. You need a share easily available. That is, the daily trade volume should be high. With some stocks you can place a buy order and not get it soon as no one wants to sell. For others, like those in alternative investing segment go for months without a single trade. The easier it is to buy, the faster it will be for you to pull out with your profits.

  Favorite Stocks: There are some stocks generally favored by the masses. Stocks like KenGen, Mumias, Kenya Re and all financial sector shares. Being the favorite, individuals are constantly monitoring their performances and any good news translates to an increase in the share price. Compare Kenya Commercial Bank stock with a stock like Limuru Tea. Are you even aware that Limuru Tea is listed in the first place?

  Price counts: The average Kenyan investor considers price as the greatest factor when it comes to trading in stock. That is why KCB will move a high volume in any given day than Barclays bank. Many are willing to part with k’sh 28 than k’sh 70.

  Our stock market is largely fueled by the retail investors who practice such beliefs, that the lower the share in market price the better it is. For you to gain substantially you need to be where the retail investors are. These individuals sell and buy without careful considering. Many belonging to this group will trade based on their neighbor’s advice or even on a rumor. It is through these mistakes where you will make a gain.

  Exit strategy: Only invest and speculate on what you can afford to lose. If it does not go your way in the short term, be prepared to invest for the long-term

  Maximizing returns at the Nairobi stock exchange does not require a degree in financial analysis. Some observations and watching your back will come in handy.

• The Art Of Speculation

  Posted: March 6, 2008, 6:51 pm by CRB

  There was a time it paid to be a speculator in the Nairobi Stock Exchange, from the period September 2005 to October 2006.Many individuals would put in their money and in few weeks time reap good returns. Majority took Sacco loans and the unsecured personal loans from banks and pumped all this cash in stocks, and they were not disappointed.

  By then, prices would rise by margins of k’sh 5 to even k’sh 20. Any keen investor didn’t have to wait for a major announcement like expansion plan or declaration of a huge dividend from the companies to make some good gains.

  Nowadays, even with companies announcing big profits, i.e. 33% profit increment by Kenya Commercial Bank does not excite the market. You actually get the impression that this was expected. And Stanchart announced what might turn out to be the highest dividend of the year, at k’sh 10. The share price has gone up but not with the expected margin. Even my favorite stock, Centum investments that announced half-year profit of 600 million has its share still at k’sh 28.

  The only share that favors the speculators is Equity Bank stock. Just when you write off the stock as having reached its peak than no sooner it climbs to a greater price.

  I have made a couple of observation on trading to gain as a speculator.

  Average investor. The average CDSC holder is getting sharp as far as stock trading goes. Individuals are doing a though homework as opposed to prior years where they could just put their money on whichever stock anywhere without consideration. This has meant price oscillation with big differences is no longer possible. If you are to speculate, do your homework twice.

  Time factor. Two years ago, you could buy and dispose the same stock in a month and still make a quick buck. Have you noticed the way prices are constant of late. It has taken over three months for Centum investments to move from price of k’sh 26.5 to k’sh 28. And k’sh 28 has come to be due to the bullish run after the peace deal. To make it as a speculator in today’s market, give it a time horizon of a minimum of six months.

  Volume counts. Trade volume was a factor two years ago and will still be a factor years to come. For you to maximize return on a small price movement you need to hold a good volume. You definitely cannot speculate with 100 shares. Even if it is for the Nation Media Group with a current market price of k’sh 340. You need some serious volume to realize any tangible gain. Consider an individual with 20,000 shares in share X. if the share price appreciates by even k’sh 2, this individual will have made k’sh 40,000 less brokerage commissions.

  Few are chosen. Some stocks are not for speculation for a couple of reasons. The first is volume. You need a share easily available. That is, the daily trade volume should be high. With some stocks you can place a buy order and not get it soon as no ones wants to sell. For others, like those in alternative investing segment go for months without a single trade. The easier it is to buy, the faster it will be for you to pull out with your profits.

  Favorite Stocks. There are some stocks generally favored by the masses. Stocks like KenGen, Mumias, Kenya Re and all financial sector shares. Being the favorite, individuals are constantly monitoring their performances and any good news translates to an increase in the share price. Compare Kenya Commercial Bank stock with a stock like Limuru Tea. Are you even aware that Limuru Tea is listed in the first place?

  Price counts. The average Kenyan investor considers price as the greatest factor when it comes to trading in stock. That is why KCB will move a high volume in any given day than Barclays bank. Many are willing to part with k’sh 28 than k’sh 70.

  Our stock market is largely fueled by the retail investors who practice such beliefs, that the lower the share in market price the better it is. For you to gain substantially you need to be where the retail investors are. These individuals sell and buy without careful considering. Many belonging to this group will trade based on their neighbor’s advice or even on a rumor. It is through these mistakes where you will make a gain.

  Exit strategy. Only invest and speculate on what you can afford to lose. If it does not go your away in the short term, be prepared to invest for the long-term

  Maximizing returns at the Nairobi stock exchange does not require a degree in financial analysis. Some observations and watching your back will come in handy.

• Making Sense Of A Personal Budget

  Posted: March 4, 2008, 2:31 pm by CRB

  Visit any website dealing with personal finances (including this one) and you won’t miss this advice: ‘have financial goals to put your finances in order’. Accompanying this advice is the importance of maintaining a budget on a monthly basis. You are then required to collect details on how you spend your money and with this know what to cut, where to lessen expenses etc.

  I tried it once and it did not work. I had this spreadsheet detailing each expense incurred. Therefore, if we have a drink, there would be an entry ‘had a drink with Alex, cost k’sh 1,200’. I did this for sometime but found it to be demanding hence abandoned the idea altogether. First, I made it a point to remember all expenses that I had paid for during the day. Was I to remember what a client had requested or what I had for a snack? Secondly, I found myself conscious of my expenses. Actually, too conscious! My job entails meeting many people and mostly, it is I who initiate the meeting. It therefore follows that I am normally the one to foot the bill. Consider a situation where I am checking on what you are ordering, despite assuring you that you can have whatever is on the menu. Obviously, I would worry if you ordered a drink or a meal which I consider out of my budget.

  So does this budgeting thing work? Many individuals who have gone the budgeting way prefer working with a given figure in mind i.e. monthly estimates unlike a situation where you monitor where each coin is going. For instance, you can allocate k’sh 5,000 for entertainment. Overshooting this amount by k’sh 1,000 may not be a cause for alarm but if you overshoot by k’sh 2,000 then there is a reason to worry. If your monthly average expense for Safaricom/ Celtel post paid line is k’sh 8,000 and the last month you were billed k’sh 12,000, that is way above the mark and you need to monitor your calling habits with a view to reduce the expenses. A budget, like any other tool is supposed to work for you, not you working for the plan- by each evening inputting figures in a spreadsheet. This will become monotonous and I can guarantee boredom and fatigue will set in as there will be no motivation.

  In any case, you need to be flexible with your finances. If you follow your budget too closely, there is a danger in losing in other ways, which are beneficial in the long term. For example, while budgeting, making a provision for entertainment with friends may seem to be a bad idea. But it is the same friends who in your gathering, get to inform you of an upcoming vacancy or that investment idea with good returns. You also get to reduce your stress levels by sharing out life’s challenges with your friends. In the short run, it is true your bank account will exhibit a healthy position by tight budgeting but the very fact of being tightfisted is limiting future opportunities for you.

  I have interacted with many successful individuals who operate within budgets and the pointers below might be of help.

  1. Know your income. And I do not mean gross pay for the employed! If you do not know what is coming in, how will you know what you are spending on?
  2. Allocate your expenses in order of importance. Start with Rent all the way to entertainment. Simply prioritize. Do not be like the individuals who when paid will first check in a pub and will only go home/ work after exhausting all the money.
  3. Make your allocation as realistic as possible. If from town to Buru Buru bus fares range from k’sh 40 to k’sh 70, depending on the whims of the matatu driver, then allocate 4,500 as your monthly expense. For the surplus, you could save this amount but do not make a low provision.
  4. Enlist the help of others. If it is your drinking pals or the investment group you are in, let them know your ceiling. If you are comfortable with a contribution of k’sh 12,000 and not k’sh 15,000 let them know beforehand.
  5. Start small. Even if you know you are ‘wasting your money’ in one way or another, do not take drastic measures. The way to go about it is to carry out your expense reduction plan in bits. Do not go cold turkey; it’s not as if you are flushing some toxic material out of your system.
  6. Avoid. I think the easiest way to fall into temptation is to prohibit oneself from carrying an action or behaving in a particular way. With many, the moment you decide to forgo a certain practice is the day you find yourself overwhelmed by a big craving. Therefore, if you decide to cut on shopping that is the day you will pass by an elegantly displayed skirt suit. My advice is to avoid those situations that will tempt you and weaken your resolve to go on with the plan. Myself, I have been an internet addict but nowadays I avoid the internet cafes, especially where you

• For Many Kenyans,Lack of Enough Money Not A Reason

  Posted: March 2, 2008, 4:52 pm by CRB

  John’s day has been hectic. He has been up and running, the whole day trying to beat the Kenya Revenue Authority (KRA) deadline of submitting the Value Added Tax (VAT) returns by the twentieth.

   ‘Working as an Accountant is no easy task’, Johns says. ‘Its all about meeting deadlines’ he adds. ‘If it’s not the government, with the statutory returns, it’s the management who expect timely weekly reports’ says John.

   Meet John, a 28-year-old Accountant for a medium sized architecture firm. John has risen to the position of Senior Accountant having graduated 4 years ago with a Bachelor of Commerce degree from the University of Nairobi.

   To unwind, John frequents his favorite drinking joint to meet either old friends or network by making new contacts. Today is one of those days. John wanted us to meet to discuss the financial mess he is in, and explore the various channels he could invest in.

   John knows what I do and the conversation takes the familiar route of personal finance. You see, despite John earning a tidy sum, he has not been able to do much in terms of investments. To his pride, he has bought a couple of stocks for two blue chip companies at the Nairobi Stock Exchange. However, with his hefty net pay, he could be in a better position. For once, he should be having a better-diversified portfolio since this is the only form of investment that he makes. John prefers to keep the rest of his pay in a savings account.

   Nevertheless, keeping money in a savings account is not the only shortcoming afflicting John. His lifestyle has made him not realize his full potential in terms of investing. John is the type who has to visit a pub in downtown Nairobi every day after work. Actually, the waiters know him and his usual request for a beer is meet with ‘Kama kawaida?’ Swahili for usual beer. He ends up spending k’sh 500 for the night when he is alone and if there is company, the bill comes to an average of k’sh 1,500 since he has to use a cab, as chances are he will leave late.

   John’s house is classy, with the latest carpet from Saudi Arabia. The seats are black leather and had a price tag of k’sh 200,000. His entertainment system is valued at slightly over k’sh 150,000. John’s motto has been to live today, as no one knows about tomorrow. John is also not the type to draw a household budget when making his purchases. Being single, John prefers eating out with the occasional cooking over the weekend.

   John’s financial woes have to do with his spending habits. If he could cut on the consumption of non-value adding items, he would be able to save and invest part of his income.

   As we do the paper together for him to join, the British American equity fund John asks me to stay in touch. ‘You see, if I knew about these investments products, I could be far in terms of wealth’ John says as we conclude our meeting.

Blah blah blah

Fish cakes

Alas a fish cake.

Yet more fish cakes

Guess what ... yeah ... fish cakes.

The end of the fish cakes