An interesting headline featured in the Nation Newspaper (Kenya) on Thursday, 19 January 2017. Quoting Bloomberg, it stated that The Nairobi Securities Exchange (NSE) was then the worst-performing market globally year-to-date. The reason: risk-averse investors were shunning stocks for government debt, which carried lower risk. The risks, as Kenyans know all too well, have to do with the coming elections, because our political temperature rises so high every five years that foreign investors (who make up the bulk of buyers in the NSE) believe the that the country will most likely go up in flames during or after the election.
So, buy or wait? I would say buy. The majority of investors take a run in the wake of upcoming elections because they are removed from local realities. Locals, and the savvy investor knows that the risk we are looking at, whether real or imagined, is one of many, including drought, corruption, terrorism, et al.
That does not mean investing without calculated caution. One widely defined method of comparing the stocks you are choosing between, known as the Warren Buffet Rule is this formula: “Current assets alone, minus all liabilities.” Stated in a more complicated (educated) format, it is NCAV, i.e. current assets – [total liabilities + preferred stock]. Then divide the answer with the issued shares, to see the calculated value of the share compared to its price in the stock market.
As at the time of writing, here is the application of the formula on Safaricom’s balance sheet.
Current Assets: Shs 203,869,280,000
Liabilities: Shs 82,939,470
Haron Wachira 