By Nepson Moyo
TO a simple lay person, think of the following, the country produces goods and services that we use in our everyday life, directly or indirectly. These goods and services are owned by someone out there. That someone could be you. There is a market that enables you to own a piece of some of these companies and that place is mostly the ZSE in Zimbabwe. Investing in the ZSE is buying a shares in companies that produce the goods and services that we consume.
Stock investing has been there for decades. An individual buys a fraction of the company and that allows them to enjoy the profits and share in the risk. Most products that we see are owned by companies listed on the ZSE. Talk of bricks, cement, bread, sugar, drinks and many other products. Would it not be nice the next time you buy bread to know that you are paying an amount and you will get it in return if the company succeed in paying back owners a profit, known as a dividend.
Now one person once said, if you wish to hide something from a black person, put it in writing. In other words, we need to plan and put our plans on paper on how we wish to get involved in the stock market. The market suits all plans and one should set out from the outset their plan and maintain and adapt it as their circumstances change or evolve. I will share some investment strategies which are not exhaustive in their own and have served me in achieving some of my goals.
It is important to define the timescale that one will be involved with the market. We are at different age groups our financial needs and ambitions are so different. When one is starting, they have all the time and therefore their strategy will be moulded from that. When you are starting early and still in your early teens to twenties, cash may be a problem then but also opportunities abound as you have time on your side. By identifying small caps in growth industries one can buy in large volumes for very little and sit on these shares for years.
The benefits would be immense. Take for instance, a few years back Art corporation was trading at US$0.25. Five million shares would have cost you US$12500 around the 2004 thereabout. The same shares would now be worth RTGs$47.5 million and even at current exchange rates this would give one a return of US$539000 at official rate or US$316 000 at a grey market rate of 150. That is a phenomenal return by any imagination and it is attainable.
When one is near retirement then one should be looking at shares which are less volatile and which may be expensive but offer a good dividend from which one can leave off. Time that one has should therefore be used to define a strategy that best suit and allow each to benefit from the market.
If one has sufficient resources, one can look at buying and selling stocks that are liquid. These are stocks that are traded most and allow an individual to get in and out many times in a day, week, month or a year. One then sets a profit target and trade the share looking at historical prices to gauge entry and exit points.
This can be done in a number of ways. Either one buys dividend paying stocks and hold and reinvest the dividends again to by more of the same shares. Other options, generally once a company announces a dividend and if it is good, the share price will tend to start moving upwards until the dividend is paid. By buying in early and selling just before the dividend is paid one can make profit and rinse and repeat in other counters.
Useful fundamental analysis requires a longer-term understanding of prices and inputs that can then be applied to short-term events. Fundamental traders do well when they can recognize the potential for a significant price move toward or away from equilibrium caused by a change in the underlying supply or demand.
One should always be aware that trading on the ZSE should be done with a broad overview of the general market conditions in the country. Read and fully understand effects of politics and economic news on trading environment.
Business income and stock trading
For those with cash generating assets, one can set aside some of the cash from their business venture that they get from dividend payments and use the income to buy into the stock market particularly when prices are depressed. This enables one to preserve value and exit when prices pick up and continuously repeat the cycle. We probably have heard the term, money attracts money and if done right you could be on your way to wealth that is tangible.
Also, these strategies are not set in stone and one can use one, two or a multiple of these strategies at any given time depending on circumstances.
There are many strategies, I hope the above gives just a snippet of how you can trade and benefit yourself. Always understand that, you are the only person who can protect or with the best interest for your money. Read and educate yourself, do not rely on hearsay and use of professionals. Use them to understand for yourself and act in your own best interest.
For instance one should be asking how the recent SDR will affect the capital markets. Under normal circumstances availability of foreign currency is expected to support the exchange rate making the rate go down. One would therefore sale on the assumption that as the rate firms their proceeds from the sales will buy them more usd. However one should read the Zimbabwean economy as one that has been starved of inflows and also operating under sanctions making some rational decisions difficult.
Coming back to stock trading. There are some stocks referred to as penny stocks (A penny stock is a common share of a small public company that is traded at a low price. The specific definitions of penny stocks may vary among countries. For example, in the United States, the stocks that are traded at a price less than $5 are considered penny stocks, while in the United Kingdom, penny stocks are only the stocks that are priced below £1) The jury is out there on how we can define a penny stock for the ZSE, the common trend however is that these are very cheap in comparison to the rest of the market. Medtech comes to mind. The prices of these tend to be very volatile and can increase or decrease by very high percentages. When one is planning on trading these, one should be aware that they are also illiquid and therefore one has to be patient in their entry and exit points. It can take several months to buy or sale the right amount at the right price.
Strategies for trading these generally favour those with time as described above or those with large pockets who can afford to buy and hold for long periods. Case though is these shares can turn a very good return. A recent point was the run that general belts and Medtech did in the last few months. Its not unusual to have double digit gains.
The ZSE, recently introduced an exchange traded fund. The technical details are on their website for further reading. In short, they have taken a basket of the top 10 companies on the ZSE and any person can invest in the ETF thereby gaining exposure to a number of top ten companies by capitalisation. This enables those with small amounts to get exposure in a number of big companies which would be expensive to buy individually. The growth of the ETF tracks the growth of the big caps and one can de-risk their exposure in that way.
Investing on the ZSE can be fun or heart breaking and it all depends on the strategy and goals that one sets for themselves from the onset. Having been investing on the ZSE for close to two decades, I have experienced the ups and down but overall I have to say, I have made more than what I initially invested. What this has provided as well is capital to set up business ventures which have helped feed my investing strategy as well.
It is perhaps befitting that we end on a note on where we see the ZSE going. My take is, the Zimbabwean economy has been emaciated and it is slowly emerging from a deep contraction. If exchange rates and other factors, such as politics are sorted then there is a lot of value in the market. We can only see growth year on year in USD terms going forward. If however inflation picks up then in the short term we will see some weakness in the market but that should be a buying opportunity for long term investors. I am personally bullish on the market and am actively looking for bargains and adding to my positions.
For those that are looking at a good return in the coming years, my advice is to start picking counters and building a portfolio for that. For those that want to keep their money in other assets it is alright, although over time the stock market has always outperformed other asset classes, like real estate.