Ideas & Debate

NSE investors need long-term mindset

As the markets begin to chug along in the New Year, let’s spare a moment and travel back a bit in time.

Forty-seven years ago, Guess Who’s Coming to Dinner became a major box-office hit throughout the US. What’s remarkable about this movie is that it challenged people’s notion about interracial marriages when such relationships were considered illegal in the country.

Given the extreme nature of racism during the time of the film’s production, the movie idea was really an open provocation to the ‘free thinking’ Americans.

Now, before you mistake this column for a movie review space, the simple point I am trying to make is: in 2017, investors will need a “renewed mind”.

As the most destructive bear market keeps chugging along to new lows, the “old voices” have begun signing again. The Usual Suspects (let’s call them experts, including myself) are back playing their favourite parts, forecasting.

Although not in perfect harmony, the singing is starting to get louder and the tempo fast.

It’s only two weeks in and investors are already inundated with so many lists; forecasts of where the economy is going, favourite investments for the year, direction of interest rates and more.

What’s an investor to do? Ignore them. This time let’s try a different cast, you. Enough of this intellectual madness.

Now let’s talk about investor fear. I understand markets have become radioactive – especially equities.

And genuinely so: Index dropped about 1,000 points last year, price to earnings (P/E) ratios are below their seven-year average of 13.6X, dividend yields are below their seven-year historical average of 3.6X, the 91-day T-bill is still trading below its five-year average of 10.4 per cent and so on.

It is human nature to focus on the negative. It is scientifically shown that losing Sh10,000 hurts more than winning Sh10,000.

However, investors should keep in mind that markets are cyclical and will in time swing back up. Just like a pendulum, markets will never stop in the middle, they will keep on swinging. When the time is right, investors better be plunging in without fear.

Finally, investors need to stop seeing the market not as a gambling den, but as a long-term wealth-creating machine. Dividend chasers, information traders, sub-Sh10 stock pickers and one-stock portfolio players all need a mind-shift.

Markets are not built for sprinters. It does take great maturity to understand that short-termism is a loser’s game.

On the other hand, if owning stocks is a long-term project for you, following their changes constantly is a very bad idea. It’s the worst possible thing you can do. If you count your money every day, you’ll be miserable. 

In all, just like in the ground-breaking movie, investors need an “open mind” to live inside a new perspective. A new way of thinking is necessary to break old barriers. Investors need not be scared of discarding the old and embracing the new.

Markets reward individuality. It is 2017, let’s all aspire to think differently, to dare the unknown and hope for the best.

Mr Mwanyasi is MD, Canaan Capital Limited Capital.