Thanks Sidney for this article.
However I feel the idea of stock market investing has been misunderstood.
Since my livelihood depends on advising people on investments which inevitably includes stock market investing, I wish to make my contributions as follows:
1. I totally agree that speculating for short term gains is not only unprofessional, but it is based on the principle of a ‘zero sum game’ like gambling where one man’s/woman’s gain is another’s loss.
2. Investing with a long term view in mind I believe is good. The investor does their home work to identify a good stock (excluding the alcohol and tobacco manufacturers of course), with strong fundamentals and a reasonable price in relation to value. The investor seeks to benefit from dividend payouts (just like rental income for a property owner) and hopefully capital growth (to compensate for inflation, and to share in company’s good performance). The risk here is that since the environment is dynamic, the company could go through a rough patch and therefore unable to pay the dividends and stock may not appreciate in price. One of the ways of minimizing this risk is to diversify (never hold all your eggs in a basket), and this is accomplished by holding a minimum of four stocks in different industries. This way the investor is protected from total lose but at the same time benefit from the stock market. Nowadays we have unit trusts which are collective investment schemes and operate through the principle of pooling resources together so that effective diversification can be achieved and costs minimized, while benefiting the investor by way of professional management of money. I do believe most of us are extremely busy, or we lack the information or skills required for stock market investing and thus unit trusts are convenient.
3. Stock market investing has been proved to be the most rewarding (reaction appreciated) and I therefore feel that we should not dismiss it outrightly as speculative investment. We do have people engaged in property market speculation but should we dismiss it also? I believe it is part of good stewardship to save so that you can safeguard your family from the realities of life. With the savings what can one do with it? Of course we aim to grow it to maintain the purchasing power, and earn us some return. Most of bank deposit interest rates are below inflation and therefore one cannot achieve the objective of ‘beating inflation’ by simply placing the money in a fixed deposit account. The parable of the talents should also teach us something here. We thus need to appreciate that as a shareholder, you are actually a part owner of a company that is engaged in an economic activity that hopefully improves the welfare of the community and you share in the success of that company through dividend payments. It is the same thing as starting your own business, where ultimately one of the objectives is to make a profit.
Brethren, we are not of the world but we are in the world and I believe that as good stewards we should make conscious steps in ensuring that we grow what our God has blessed us with so that we can effectively serve Him.
God bless you!
Reuben Email address:
rkkoech@co-opbank.co.ke
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