Recently, I sat next to an old man (Mzee) in a Matatu. After we had been travelling a while, he pointed out into a now fully cultivated area and, turning to me, explained, “This is where the market used to be.”
“When was that?” I asked, interested.
“1934. I was a young boy then.”
Dressed sharply, with suit and tie and a trendy hat, Mzee looked good for an over 80-something old man. I am the curious sort, so I reciprocated his generosity with information with probing questions about the past. He lit up, and talked.
In the 30 minutes that we sat together he told us (because everyone in the crowded Probox could hear) all about a past that we knew very little about: about the colourful life and antagonism between white and black, before the Mau Mau war; about Mzee’s time in the Mau Mau as an owner of a rifle and a cache of bullets; how he was arrested in 1957 and tried for murder; and how eventually Kenya won independence and Mzee practiced farming – very successfully. By 1960 he had Shs 200,000 neatly saved in a bank account — all from the proceeds of farming inside the Njukiini Forest, a conservation area in which farmers were allowed to farm and plan trees.
Sadly, Mzee’s story ended up badly, with a sharp description of his downfall economically. A tragedy of a Shakesperean craft.
I will write another blog on my facebook page from my conversation with Mzee. That other one will be a discussion on spiritual matters, which came about as Mzee told us about the Mau Mau oath and how it saved him during his murder trial.
But in this installment, my concern is the business aspect of the conversation.
As earlier stated, Mzee had Shs 200,000 in his bank account in 1960. After a mental calculation I asked him, “Did you invest the money?” He shook his head.
“If you had invested it in Nairobi’s real estate, today you would be a billionaire.”
I knew it because my father had told me about his own experiences with real estate propositions (that he did not execute) around the same time. His work-mates had offered him plots around Adams Arcade / Dagoretti Corner in Nairobi for Shs 15,000. Dad’s response: “With huge tracks of land to choose from in my village, why would I want to buy a tongue of a plot for Shs 15,000?”. Even as late as 1968, when I became aware of the value of money, Shs 15,000 was a lot of money. My mom opened and stocked up a retail shop with about Shs 4,000. She and I did the stock take every month. I was fascinated that we grew the shop to a stock of about Shs 16,000 in 1974!
Smiling almost wickedly, Mzee now told me, “This is where I spent the money.” He was pointing at a small shopping centre that we were passing through at the time, a place called Rukenya. A tiny place. “There used to be a bar here. Every day with my buddies – the wardens at Njukiini Forest who had leased me the land.”
Now, three important lessons:
- The first one is about the time value of money, or the idea that money available to you now is worth more than the same amount in a few days to come. The reason: because you can put the money in your hands to work, eg buy something today and selling it tomorrow for more. That is why some companies discount an invoice to be paid less immediately than to wait 30 days for the full amount. But note: that money can only gain in value by being invested in an activity that generates a profit.
- The second lesson is that the reverse also happens. Money decreases with time. This one is actually a man-made problem. Governments print (increase the number of notes in circulation) progressively, to create money needed to satisfy whims, or pacify an electorate or for whatever reason. After which the law of supply and demand rules: when there are more things (in this case, printed money) than before and the total amount represents the same number of goods, the individual notes in circulation are worth less. This is how inflation (the rise of the price of goods) happens. To shield yourself from the impact of inflation, you must invest and constantly re-invest your available cash in activities that generate more than the total eaten up by inflation and the fees charged by those who may be holding the money for you. If you don’t it will disappear, eventually. You can examine your bank account for a demo. The bank tells you that it pays you interest, but charges commissions, ledger fees, withdrawal fees etc., always ending your story sadly for you, and happily for them.
- If you do invest, however, the gains an be dramatic, because of a principle we learn early in school and immediately forget: compounding. I often give the example of growing Shs 100 with a 20% gain, re-invested over and over again. 100 x 1.2 (20% gain) = 120. That x 1.2 = 144, 173, 207… and so forth. Notice that the amount more than doubled in four turns. Fifty-one transactions translate the Shs 100 to one million. Unrealistic? Perhaps. You need money to eat. You make losses sometimes. But you get the point. Compounded gain grows your money exponentially.
Haron Wachira 