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Investment Tips

What to know in order to become an International Investor

What to know in order to become an International Investor

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International Investor, Here’s the easiest way to invest in your future 

If you are reading this, I am very sure you have dreams of becoming rich and successful, with investments scattered all over the world. However, dreams are free, and reality is a different ball game.

International investing is something I encourage everyone to get involved in. The reason is because it offers two major advantages – diversification and growth. However, investing is tough and to survive the game, you need to be knowledgeable about a wide range of things. Having a beginner’s mindset is equally important.

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I have studied successful investors all around the world and noticed a trend. Below are the things you should know in order to become a successful international investor.

1. Basic Math

If you can do addition, multiplication, subtraction, and division, then you’ll be fine. Also, a good grasp of probability will be needed to weigh your options when making educated investment decisions about the future, without complete information.

2. Economic Indices

Understanding key economic indicators is important to help you assess the investment opportunities and risks inherent in any country you may like to invest in. Some key economic indices to be aware of include:

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  • Exchange Rate

Let’s assume that as a Nigerian investor, you are interested in buying the shares of a [fictitious] Chinese healthcare company called Zenjen. You conduct your research and discover that the company is about to release a groundbreaking technology that will cure cancer. The shares of Zenjen trade at 50 Yuan and the current exchange rate is 10 Yuan to a Naira.

To determine how much a share of Zenjen is worth in Naira, you will divide the price in local currency (50 Yuan) by the exchange rate (10 Yuan): 50 Yuan/10Yuan =5Yuan. A Zengen share, therefore, costs 5 Naira.

You call your broker in China and place an order for 10,000 shares at a total cost of 50,000 Naira. One year later, Zenjen was successful in discovering the cure for cancer and its product is in hot demand by patients all over the world. This development has a positive impact on the shares which subsequently rise by 20% to 60 Yuan.

Your thinking is that you have made a profit of 10,000 Naira return on your investment. So, you advice your broker to sell immediately. By the time you check your brokerage statement you still see a balance of 50,000 Naira and wonder why the 20% rise in share price does not reflect in your statement. You then call your broker to explain.

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What went wrong?

As the value of Zenjen rose by 20%, the value of Yuan to the Naira also changed within a year to 12 Yuan to a Naira. If you divide 60 Yuan by 12 Yuan to a Naira, you get 5 Naira (5 x 10,000 = 50,000) – which was your initial investment outlay.

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Within one year, this would have been a profitable investment for a Chinese. But as a Nigerian who needs to convert Yuan back to Naira, this would have been unprofitable.
In reality, if you factor transaction costs and brokerage commissions, you end up losing money even though your research on Zenjen was correct.

In the same vein, currency changes can make it possible to make money even if your research on Zenjen stock was wrong. But that is if the Yuan depreciates against the Naira within that period.

  • Gross Domestic Product (GDP)

The GDP is defined as the market value of all final goods and services produced within a country during a given period. What constitutes a country’s GDP and its level of contribution is a pointer to help determine if the companies operating within that country are likely to perform well.

  • Inflation

Understanding inflation is important because it can affect you, depending on the type of assets you are carrying in your portfolio. For example, stocks are traditionally known to outperform inflation over a long run while fixed income securities are susceptible to inflation risks.

If you invest CAD $10,000 in Canadian Treasury Bills with a 5% yield 1 year ago and will receive 10,500 at maturity, the 500 (5%) return may not be the same as the previous year if inflation rose within that period.

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If the inflation rate is 3%, it means your net return is 2% (5%-3%). The consequence of this is that your purchasing power will have fallen and the borrower (issue of Treasury Bills) will benefit at the expense of the lender (you); just as is the case in inflationary periods.

3. Analyze Annual Reports

It will be foolhardy to invest in a public company without reading its annual reports. The annual report is the most important document to help you understand the performance of a company.
You don’t have to be an accounting genius to understand annual reports. What you can do is start by studying key sections to give you an overview of how the company has performed over a particular period.

Key sections to read in an annual report are:

  • Chairman’s Letter

This includes a summary of the initiatives and performance by the Chairperson of the Board of Directors. Reading this letter will enable you decipher specific and plans for the company’s future.

  • Management Discussion and Analysis

This section shows the analysis of a company’s performance by its executives. It can also include a discussion of risks, and future plans, such as goals and new projects.

  • Board of Directors and Management Team

This is necessary for evaluating the experience and competency of the people managing the company you want to invest in. You can also compare the current year’s list of directors to those of previous years to look for signs of company problems.

  • Business Description

This explains what the company does – its products and services, sources of raw materials, and the status of new products.

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  • Financial Statements

Profit and Loss Statement: To determine the profitability of a company.
Balance Sheet: To have a view of assets and liabilities.
Cashflow Statement: To see the sources and uses of a company’s cash.

  • 5/10 Year Financial Summary

To help you determine trends in profitability, growth, and payment of dividends.

  • Share Price History

To show you upward or downward trends in the company’s share price.

4. Read & Research

International markets have a much more diverse number of financial assets. The traditional asset classes are: Stocks, Bonds, and Marketable securities. Alternative classes, on the other hand, include: Real Estate, Exchange Traded Funds, Commodities, Hedge funds, Venture capital, Crowdsourcing, and Cryptocurrency, etc.

All these asset classes have subs and various strategies to make money. You will need to have an inquisitive mind and the ability to read about and research companies and their products, industries, tax laws and how geopolitics affects a country will be very valuable.

You don’t have to be an expert in all the asset classes. What you can do is just pick one or a few that interest you and study it religiously.

5. Demographics

Understanding how trends in demographics (such as people’s movement, ages, death and buying patterns) affect business cycles, will make you a good international investor.

Demographics can be defined as the study of a population based on factors such as age, race, and sex. The population trends in the countries you want to invest in will have to be monitored to determine what type of asset classes should constitute your portfolio.

Japan is seen to be up against a demographic wall. The population is aging – much faster than that of European countries – partly because of a low birth rate. The country’s resistance to immigration is yet another factor.

An aging population, for instance, may cause low productivity which will impact negatively on the value of investments. It may not be favourable to invest in equities in a country with an aging population, while the reverse may be the case if a population is rising and youthful.

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6. A Firm Grasp of Financial History

“Those who do not remember the past are condemned to repeat it” – George Santayana.

Every disaster or boom that is happening now has happened before and will occur again. So,  it is wise to study significant events in the history of any country you are interested in investing in.

Key questions you can ask yourself:
• What caused market crashes in this country?
• What caused recessions to occur?
• What reforms spurred the periods of growth and development?

Human beings are the major operators of any market. Therefore, reviewing history will show you that humans, no matter how smart, have a tendency to do dumb things.

7. Emotional Discipline

All the above-listed will be a waste of time, if you do not have the emotional discipline to make decisions regarding the market and your money.

The ability to control your fears and greed when the volatility of the market occurs will be invaluable when others act irrationally.
Additional things to know include monetary policy and tax laws of individual countries you are investing in.

In summary, the truth is that this list is not exhaustive. There are probably a thousand more things that will make you successful in investing beyond what I write here. I am willing to earn and would love to see some of your comments.

2 Comments

2 Comments

  1. Brian

    April 15, 2019 at 4:12 pm

    Well curated Article, Segun.

    What you’ve written here, in a sense, sums up majority of what’s needed to be a maverick investor.

    Above all, stay curious and be willing to learn.

  2. Chinedu

    April 19, 2019 at 1:41 pm

    Brilliant piece. In everything stay hungry and keep learning.

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Billionaire Watch

Want to be like Warren Buffet, Michael Phelps? Here are their secrets

The distinctiveness among Buffet, Dangote, Ovia, Phelps, Bolt, Musk, is not what they do, but how they do it and how often they do it.

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Warren Buffett

Michael Phelps won 22 Olympic medals (18 gold), how did he do it? Well, he trained and trained and trained, then he ate and ate and ate every day. He was also blessed with natural attributes i.e., he was tall.

So, wait, if I am tall and eat, and train, I can also win 18 gold medals? No! but stay with me.

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Warren Buffet likes to invest. He reads research reports, likes numbers and is always looking a discount deal on great stocks. Ok. So, if I am good with numbers, research buy great stocks I will become as rich as Warren Buffet? Well, maybe not as rich but you will earn more from your investments. The distinctiveness among Phelps, Bolt, Buffet, Musk, Dangote, and Ovia, is not what they do, but how they do it and how often they do it.

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Let’s look at an Olympic swimmer like Michael Phelps. When Michael was eight, he wrote out his goals; he wrote, “I would like to make the Olympics,” then listed his time goals for the various races i.e. breaststroke, freestyle etc. At the age of eight, this future Olympian had visualized his goals, written them down, and put a date for accomplishing them.

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When seeking to create a financial plan, it is impossible to achieve success without visualizing out a goal on paper. Imagine creating an investment plan without any idea of a retirement date or income or rates of return. It’s impossible without a clear road map to determine how much to save and invest for five years. During his teenage years, he trained “every single day, 365 days a year, Sundays, Christmas and Thanksgiving days included… and twice on his birthdays,” says his coach, Bob Bowman.

If an investor saved N1.00 every day for 5 years at 0%, that saver would have N1,826.00 What if those savings increased to N5.00 and were invested at just 5% annually? Then the savings pot will become N10,373.04. Yes, inflation will erode the value after 5 years, but applying a 13% inflation rate, the saver still has a real saving of N5,170.14.

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So, the second lesson we take from Olympic champions is to start early, save, and then invest constantly. Micheal Phelps is a swimmer, a sport for endurance and speed. What do endurance athletes like swimmers and marathon runners eat? Food rich in carbohydrates; they need the carbs to fuel the massive amount of energy they expend during their sports. Phelps, for instance, for breakfast eats as many as 12,000 calories prior to his races. His breakfast consists of “three fried-egg sandwiches, three chocolate chip pancakes, a five-egg omelette, three sugar-coated slices of French toast, and a bowl of grits.”

What does a sprinter like Bolt eat? Not calories but lean protein, eggs, meat, fish, dairy. Protein allows muscles to recover and develop after sprinting, which causes minute damages to muscle fibres that can be easily converted to energy. So, two different Olympic champions, each multiple gold medal winners, but because of their different sports, they eat very differently to achieve a different objective.

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Similarly, in investing, each investor is different, bond investors have instruments that have 30-year durations as opposed to stock traders who may be looking to buy and flip a stock in hours. What is key is to invest according to a stated objective and risk profile.

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Where the investor has a longer endurance factor to risk, meaning the investor can accommodate volatility in his earning, that investor will be comfortable investing on equities. Equities are higher-risk investments and can lose all invested capital but can also gain 100%.

However, where the investor has a lower risk endurance, then the investor will fill his plate with lean risk asset classes like sovereign bonds which offer lower volatility to stock and deliver a fixed return, but suffer if interest rates rise.

Thus, our third lesson from the Olympians, the food each investor eats, is a function of his individual sport. Where the investors have lower risk, his asset allocation diet is different. Each investor must tailor his asset allocation to his objectives and investment goals.

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Investment Tips

Proxy Voting: Making Your Voice Heard Inspite of COVID-19

Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf.

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Proxy Voting: Making Your Voice Heard Inspite of COVID 19

One of the privileges of owning shares in a company is the ability to attend the shareholders’ meetings and vote on important issues about the company. In most cases, such issues touch on dividend declaration, election and/or reelection of directors, authorization to fix independent auditors’ remunerations, and the election of members of the audit committee, among others.

It has been observed that shareholders love to attend such annual general meetings in person for the pride of place it provides, as well as the social status it bequeaths to the attendees in addition to the souvenirs they receive during such meetings.

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Unfortunately, that era of a social event involving the physical gathering of shareholders seems to be going extinct, thanks to COVID-19.  However, in spite of the devastating effects of COVID-19, and the changes it is bringing to our social life, shareholders can still make their voices heard during non-physical shareholders’ or annual general meetings. This they can do using proxy votes.

What is Proxy Voting: Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf. Proxy voting has not been more important than in the present COVID-19 times. In reaction to the pandemic, proxy voting is being used in areas outside corporate governance. For example, the US House of Representatives is pushing for proxy voting as a means of getting things done in the house. In a proposal released by the House Speaker, Nancy Pelosi, US lawmakers would be allowed to cast votes for their colleagues who are not in the Capitol in person. That underscores the advantage and the increasing importance of proxy voting.

Nigerian Companies and Proxy Votes:  Proxy voting is not new in Nigeria, especially among Nigerian companies. Whether it has been effectively used or taken advantage of is another question. However, Nigeria’s Corporate Affairs Commission (CAC) has been proactive and forthright in its quest to ensure that companies in Nigeria and Nigerian shareholders alike, take advantage of the proxy voting process in keeping with the social distancing rules put in place by various governments to curb the menacing COVID-19. The CAC has therefore asked companies to take advantage of “S.230 CAMA on the use of proxies in holding their Annual General Meetings.”

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In line with the availability of the proxy voting process as a way to give every shareholder a voice and the encouragement and enablement from the CAC, many companies in Nigeria are complying with the advice. A visit to the website of the Nigeria Stock Exchange indicates that all the 30 companies that notified the public about their annual general meetings via the Nigeria Stock Exchange, since April 1, 2020, included notices or indications of the need for proxy votes in such notifications. Many of them even included links to live-stream the events, for those who would like to participate online.

Proxy Voting: Making Your Voice Heard Inspite of COVID 19

Brace for Change: There is no doubt that COVID-19 has changed and will continue to change the way certain things are done. From the look of things, proxy voting may become the new normal in corporate governance and conduct of shareholders Annual General Meetings.

Shareholders, big and small, should start getting used to voting by proxy, especially those who have not been doing so in the past. It is only by so doing that you will make your voice heard, in the affairs of the company in which you have worked so hard to invest in.

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Coronavirus

A New Wave: Where to Invest in H2 2020

Some of the industries that are expected to succeed given the changing times are not your usual kinds of investments.

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A New Wave: Where to Invest in H2 2020

There are two kinds of people in the world: The ‘glass-half-empty’ kind, and the ‘glass-half-full’ people. Where some see problems, others see the opportunities – same glass, but different perspectives. 2020 might have left very little hope to hang on to, but the world is still in motion.

Amidst the chaos, many have found their diamonds in the rubble – and many more will. These people, however, will be those who are willing to adapt to the changing times by repositioning themselves to leverage the opportunities that arise.

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The Covid-19 pandemic has proven to be a holistic challenge, bringing to the fore a myriad of issues. It has caused a dent in the revenue/ disposable income of many businesses and individuals alike, shaken the very balance of the economy with many countries heading for unprecedented recessions, and left everyone with so much uncertainty.

Yet, we are at the cusp of a new dawn. Processes are changing, new industries are emerging, and money is changing hands. Flexibility, automation, and sustainability are just some of the words that will make all the difference in the world of business.

Dr. Ola Orekunrin Brown, the founder of Flying Doctors – a healthcare investment company – had, at the Quarterly Economic Outlook Webinar hosted by Nairametrics, offered insights into some of the industries that are expected to succeed given the changing times, and they have been outlined below. But be warned, a lot of them are not your usual kinds of investments.

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READ ALSO: The week that shook the world: the collapse of the Lehman Brothers and the effect it had on me

Investment opportunities to leverage in H2 2020

Online Events

One of the many trends that emerged in recent times, as a result of the Covid-19 pandemic induced lockdown in many parts of the world, is a huge dependence on internet technology and digital media. Everybody went indoors – and online. The entertainment sector found its home on social media through Instagram Live parties, Tik Tok, and the Houseparty App.

Companies went online as well, leveraging digital technology like Zoom, Microsoft Teams, and Slack. Even the lifestyle industry went online with online gym classes, yoga classes, and even karate classes. Not only have they provided much-needed solutions, they have also come with the additional benefit of convenience.

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A good example of this is Eric Yuan, the founder of Zoom, who joined Forbes’ billionaires’ list for the first time as a result of the increased use of Zoom for work meetings. Apptopia, an App tracking firm, reveals that Zoom was downloaded 2.13 million times around the world on 23 March, the day the lockdown was announced in the UK– up from 56,000 a day and two months earlier.

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Online education

Another feature of the digital economy lies in the education sector. With schools forcefully closed, classes have had to go online. Online courses, training workshops, and even full degrees will become more normal as those who work from home will see these online education courses as an opportunity to develop themselves with little effort.

Investments here will be even more fostered by access to international markets, thereby increasing the market size. ResearchAndMarkets predicts that the online education market is poised to grow by $247.46 billion during 2020-2024, progressing at a CAGR of 18% during the forecast period.

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Institutions that are too big to fail

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The stock market is expected to be even more volatile, given the overall unfavourable economic terrain and a high level of uncertainty – especially with all the talks of a recession coming. In H1 2020, the more favourable companies to invest in are those that have stood the test of time – the stocks that are too big to fail.

Many of these stocks have been in existence for decades and have been able to attain a level of stability as a result of their large market share and stable structures. You want financially strong companies and the reason is not far-fetched; the goal is to put your money behind the companies that are strong enough to withstand the storm to a good extent.

Telecommunication

Another by-product of the Covid-19 induced lockdown is the increased need for internet services. Dr. Ola explains that the use of the internet as well as the move to work-from-home, are some of the megatrends of the times.

Good internet connectivity has proven to be the lifeblood that keeps digital entertainment trends, digital work trends, digital lifestyle trends, digital entertainment trends, and a huge chunk of the communication we have today. As a result of this, companies in the telecommunication industry have begun experiencing growth in revenue and earnings. Investments in this sector will most probably be worth your while.

READ ALSO: Banking related phishing up 9% in 2019, e-stores down 10%

Distribution & E-commerce

When the Okada ban took place, several motorcycle companies that were affected were forced to pivot from transporting people to moving items as full-scale delivery businesses. While many might have thought that a bad idea, the lockdown has undoubtedly contributed to the development of this industry.

The e-commerce industry is also expected to thrive with trade moving predominantly to the internet. Investments in distribution companies and e-commerce businesses are also expected to be worth your while.

Stronger currencies

One of the major hits of the pandemic is the Nigerian foreign exchange market which has now become highly volatile. The demand for the dollar far outweighs the available supply and this has forced importers and speculators alike to scramble for what is available in circulation.

Given the challenges with the FX market, international spending on foreign denominated expenses like tuition fees or international loans will come at an increased cost. To mitigate foreign exchange loss challenges, investments in USD denominated equities, and Eurobond funds will help you withstand the storm. While gains here could have you betting against the Naira, having foreign investments in your investment portfolio will come in handy.

READ MORE: Edtech redefines learning during Coronavirus pandemic

Agriculture

The Agricultural industry is an expected gainer. One of the reasons for this is that local supply chains will expand, given the restrictions on the global supply chain as a result of the lockdown and the border closure. While this will also thrive, Dr. Ola Brown, explains that jobs will only be created in the short term.

This is because fewer hands will be required as productivity, better processes, and mechanization systems increase. An example of this is the new trend of robot herders in the United States. This is even more so as we compete with the rest of the world in production. Needless to say, Agriculture will always exist, given the need for food, as well as the rising global population.

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Healthcare

While the Covid-19 pandemic has a direct impact on the healthcare industry, the industry is a complex one. The first reason for this is that, with the healthcare infrastructure deficit in Nigeria, the government will need to invest in it to provide wide access.

With subsidies on healthcare, the free market in terms of investments might not be as lucrative with more people opting for government healthcare. However, given increased investments in the sector and the move to preventive health practices, the industry remains attractive.

For more detailed investment opportunities with specific stocks in the Nigerian Stock Market, sign up for the Nairametrics Stock Select Newsletter.

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