Tanzania: Repair your investments, but how?

Way back in 2008, I was attending a social function where total invitees were around 50 people. As is the usual practice during such functions, like-minded people form different informal groups to discuss issues which are dear to their heart.

On similar lines I was also a part of one such groups, where the center of discussion was savings and investment matters. One gentleman named Jacob, being part of my group, was
very vocal on a key issue and was advocating that off late investment returns have gone so low that one is discouraged to save money to invest.

I had my own point of view on such matters and it was difficult for me to accept Jacob’s view point upfront. However in such situations there is always a quick solution available i.e. either
convince the other person or get convinced. But this was not happening as both of us stuck to our respective positions on the matter.

Suddenly there was an announcement that the function is about to start and all participants were advised to take their seats. Just before taking my seat to enjoy the function, I made a simple suggestion to Jacob, whether he could share his portfolio details with me at an appropriate time, to which he agreed and we parted ways by saying goodbye to each other.

After about 10 days, I was informed by our receptionist that a person named Jacob wants to meet me. I immediately called Jacob in my cabin and we kicked off our discussion. As per my
request, Jacob provided me the details of his investments made so far. On the face of it
the list looked long and this gave me an impression that Jacob is a serious investor.

Like a Doctor who examines his patient, I started reviewing Jacob’s investment details carefully. While doing so, I remembered Jacob’s remark that investment returns are abysmally low resulting into discouragement for savings. My quick scan of Jacob’s portfolio helped me to diagnose some pitfalls in the investment strategy he followed.

While I was in my deep thoughts towards finding a solution to the problem in hand, Jacob interrupted by asking what he needs to do to improve returns and I immediately murmured – “Repair you investments.” On hearing this, Jacob was dumbfounded as probably it was his first time to come across such a solution which talked about investment repairing.

It was quite unusual for him to accept this, as he thought that investment is not like a machine or motor vehicle which can be taken up for repair. I am sure most of you would also agree with Jacob’s thought process and this is where we need to go deep so as to understand our
today’s topic well. In the heady days of bull runs, we tend to make far more investment mistakes than in normal times.

Sure, most of us make money when the markets are going up, but when the bull-run gets over,
we all have stocks and funds which we should not have bought at the first place. It is an established piece of investing wisdom, that to make money over the long term, all you have to do is to make sure that you don’t lose it.

Or to put it in a different way, you don’t have to do the right thing, as you have to simply avoid doing the wrong things. Makes it sound simple, doesn’t it? After all, avoiding the wrong things must be easier than finding the right things to do, right?

Actually, if one looks at the real investment stories of real investors, it turns out that avoiding mistakes is just as hard, if not harder, as doing the correct things. There was a time when
banking stocks across the world were the darling of most investors, as nobody ever thought in their dreams that even a bank can fail or go bankrupt.

But there are numerous instances where renowned banks [I do not want to name them here]
have gone bust. And now the changed perception is – not all banking stocks are good but there
are some good, bad, and better stocks depending on their individual performance. So if you have bought a banking stock five years back and the bank is not doing well, it makes sense to dispose it off rather than just keeping it in your portfolio.

Taking such steps is nothing but an example of repairing your investments. There was also a time when IT stocks knew only one path i.e. going up. And suddenly we were encountered
by the dotcom bust. Nowadays the performance of many IT companies is not as exemplary as it used to be in the past.

One of the reasons is stiff competition, so one need to rebalance his portfolio by selling those stocks which are not performing well and acquire stocks of those IT companies, which have relatively better prospects of going forward. Another example could be of real estate stocks. This is the sector which at one or other time had remained on top in most countries and
later on tables got turned the other way.

So during boom time it makes sense to buy stocks of real estate companies and come out timely by booking profit before a slide appears in this sector, rather then holding them till
the end with no use. On the other hand, if one’s exposure to fixed income securities is very high, corresponding expected returns will be low.

Thus repairing here would mean reducing the overall exposure of fixed income securities in favor of equity investments by buying quality stocks. Remember, investments are often made for a particular objective. Sometimes they outlive their usefulness. And this is where one needs to repair one’s investments regularly.

Most often an idea, good sometime back, becomes obsolete. Review to see if such investments still form a part of your portfolio. And if so, there is an urgent need to repair your portfolio.
At this state I need not tell you, how to repair it, as by now you know very well what it means to repair your investments, so just go for it!!!!

Jagjit Singh
Technical Adviser
Unit Trust of Tanzania
Email: jsingh@utt-tz.org