I doubt there’s a cliché more pervasive in the world of money than: do not put all your eggs in one basket. I’d also suspect it to be the most ignored piece of money advice— the basket in most cases being the monthly salary. Like any cliché, there is some truth to it, though it shouldn’t be taken at complete face value. Understanding and applying the concept the aphorism seeks to communicate is even more crucial—the concept of diversification as a way to balance risk and produce better returns in the long run.
Of course there’s a lot to be said about the trade-off between focusing on one domain in order to build a deeper understanding in that domain and building knowledge and investing in multiple domains. The mascots for this debate are the hedgehogs vs the foxes: the hedgehogs know one thing really well and are driven by that one thing while the foxes know a little of just about everything and adjust their thinking more fluidly. By investing time and resources into one domain, hedgehogs are likely to become experts at that domain faster and excel more in it—but then risk losing out in case factors beyond their control like the weather or tech and policy changes rock their domain. Diversifying foxes, on the other hand, build a broader arsenal of knowledge and investments that are likely to do better overall, in the long term. The losses in one area can be offset by gains in other areas. This does not mean that we should mindlessly diversify — because this is surely a recipe for failure; you’re just as likely to burn out as you are likely to lose more with such a (non) strategy. Deliberate and thoughtful diversification, built on a solid analytical foundation and reinforced by strong beams of intuition, can turn very little money into a lot of money. I’m still learning the art, holla at my boy Warren Buffet for more on this.
I am undoubtedly a fox. I am the kind of person who owns a little of the safest and most stable investment of our era (land, or government bonds depending on who you ask) as well as a little of the riskiest and most volatile investment of our era (cryptocurrency). And just about a little of everything in between. While earning good returns is one of my objectives— duh — I am also driven by a hunger for knowledge about all the various types of investments. I often find that having a stake, no matter how small, makes learning about a type of investment a little more interesting. It’s not just the theory you’re studying, your understanding of the dynamics around the investment could be the difference between losing that $50 or turning it to $100. I also believe that the experience you gain learning while young (with the small bets) will serve you well in the long run when (hopefully) you happen to have larger sums of money to work with. Again, peep the Parable of the Talents. So, start now— the younger the better.
For the remainder of this article, I’ll briefly discuss 10 major investment types that you should consider when building a diverse portfolio. A few disclaimers: 1) this list is in no way exhaustive, 2) the setting for this list is Kenya because this is the context I understand but I am sure, with a few thoughtful tweaks, the same concepts will apply in multiple geographical contexts and 3) of course, this advice is subjective and non-binding. I can’t afford lawsuits bruh; I have cats to feed.
In Africa, particularly in Kenya (and especially among the Bantus like the Agikuyu and the Abagusii who were historically farmers), land has always held greater significance beyond being just an asset. It was from the land that life sprung. Through one’s efforts in working the land, they could gain respect, social mobility and prestige — basically the premise of Okonkwo’s life in Things Fall Apart. When the Kenya Land and Freedom Army — popularly known as the Mau Mau—went into the forests to fight in the 50’s, they had two major demands: wiathi na ithaka, freedom and land. It’s right there in their name, maybe that’s why the white folks rebranded them as Mau Mau terrorists. A cursory study of Kenyan history will have you know that while Kenya gained political freedom in 1963, the land piece of the puzzle was never solved. For the KLFA veterans in particular, the land they fought so hard for, many paying the ultimate price, became a pipe dream most would never reach in their lifetimes. In an ironic twist of fate, those who collaborated with the oppressors acquired massive tracts of land, effectively becoming the new oppressors and causing the economic disillusionment that has been the main subject of Ngugi wa Thiong’o’s writing for a good five decades. It’s little wonder that the land question remains significant and emotive in not just Kenya but also in many post-colonial nations such as Zimbabwe and South Africa. It is at the very core of survival and identity for the African people.
Owning land therefore becomes not just a financial achievement but also a quest for identity and freedom. Financially, the upside of land ownership is that land, as the cliché goes, is always appreciating. Of course economists will shit on that any day by saying that no asset can gain value forever, talking of bust and boom cycles. But land in Kenya will surprise you. There’re plenty of stories of folks who bought land for 50k and sold it for a million. Generally, the boom period for land in Kenya has gone on for quite a while and chances are that it will continue as the population grows and the demand is sustained. I could be wrong.
Land, when done right, is almost always a safe bet. The chances of losing your investment in the long-term are pretty low. A few caveats though:
- Given the demand and billions in the land business, there are a lot of unscrupulous people in the industry. You’re more likely to lose your investment to crooks than to inflation or other systemic factors. If you plan to buy land, either buy from someone you trust— and even in that case vet them and their documents— or deal exclusively with companies you can trust. Be extremely wary of brokers especially. Establishing trust is the hardest part of the equation in contexts like ours where the institutions and systems meant to protect us do not function. Blockchain folks, here’s an opportunity for you. Do you due diligence: talk to third parties you can trust who’ve dealt with the company, physically visit the land on sale, check the documents and registries, study the character and nonverbal cues of the sellers, think and be critical. And do not do it alone— get people who’re more experienced than you, your parents or older relatives for instance. Also, please don’t fall for advertisements on TV or on the roadside. Advertising means the company has money to spend selling their brand, it speaks nothing at all to their character.
- While the title deed will often feature one name, the land — especially if you’re not buying from a company — belongs to the entire family. And most likely, it is that family’s most valuable asset. Because we live a society that is predominantly patriarchal, there’s a high chance the title is listed under the husband. There’s also a tendency for men to sell land without informing their wives and children — and often squandering the money. The family then — justifiably but unfortunately — blocks the new owner of the land from accessing and developing the land. I’ve seen this play out more than once. If you’re buying land, please involve all the parties that would be interested, especially the family. It makes the process a little more complicated, because chances are that you’ll sit through hours of heated, deep-seated family feuds, but it saves you more trouble in the long run. It also improves the outcomes for the selling family so essentially you’ll be doing God’s work and smashing the patriarchy. I did not know this before I bought my piece of land. I remember walking towards the lawyer’s office with my grandfather and seeing the entire family of the seller. Shocked, I whispered to my grandfather, “ndikui andu oothe ni megukaga.” I didn’t know the whole family was coming. He replied in a rhetorical question: “kai mugunda ungiendio aya oothe matari haha?” Can the land be sold without all of them present? Now I understand why he was right.
3. There’s a risk of losing your investment due to political violence — a major lesson from the 2007/08 post-election crisis. So factor that into your calculus, especially when choosing the location. But I believe if your documents are clean and you followed due process, you should be able to reclaim the land in case — and God forbid — such a crisis happens.
A few lessons I have learnt on land:
- Involve older, more experienced people you trust because: a) they will be so excited about it. Older folks often think land, eat land, talk land, sleep land. b) They have so many years of experience dealing with land and when you involve them, it’s a show of trust and it gives them an exciting challenge. c) There’s an entire social network (which predates Facebook) through which information and knowledge on land flows especially in the rural settings. Chances are that if you’re on Snapchat adding bunny ears to your face, you’re not on this social network. d) They know the right prices and can negotiate better than you — especially when they have a relationship with the seller and can speak the language better than you.
- Have a plan for the land: Most people nowadays buy land for speculation, essentially to flip the land for short-term profits. This then reduces the value of the land to just the rate of appreciation minus the rate of inflation. I may be wrong, but this is a rather myopic perspective; it’s like being blind and touching the tail of an elephant and imagining the beast to be the size of a stick. Having a plan for what you want to do with the land, even before you buy the land makes you more strategic in your purchase decision and bolsters the gains you receive from the land in the long term. Think about whether you intend to grow crops (and which crops and what that will entail), develop properties on the land (and what that will entail) or subdivide the land into plots for sale before you purchase the land. Of course you might not have the funds to do all that at once, but at least think (and write) about and work on it.
- Follow Due Process: As I mentioned earlier, there are billions of crooks in this business. As such, as best as you can, follow due process. If trustworthy, trust — but even then, verify. Do the due diligence, ensure the land is not on a road (or worse even, major river) reserve, involve a certified and trustworthy lawyer, keep your payment receipts, check the land registry, talk to the surveyors, get the original title deeds. It’s a long and arduous process but, with time, you’ll thank yourself for it.
Real estate is essentially land’s older sibling who’s figured out what to do for a living. If land is the Premier League, real estate is the Champions League. I have little experience with real estate so this section will be relatively brief — maybe we’ll update it in a couple of years when bae and I have worked with some tenants.
When I think of real estate, I think of three major tracks: developing rental properties for residential and commercial use (by far the most common in Kenya), owning your home as an asset (very common in developed nations like the US) and buying/developing houses for sale. Often the setting for real estate is urban and it requires higher amounts of capital than most other investment classes. Shelter is a basic need, and a rather young industry in most rapidly growing African cities — so no wonder real estate is one of the most prime businesses in these countries.
A few pointers/observations on real estate:
- Build strategically: Unlike land where the value can grow without much effort on the buyer’s end, in real estate, the primary source of revenue is rent. And rent only comes when the space is occupied. The housing market in major cities such as Nairobi has seen an unprecedented construction craze in the last few decades and analysts are starting to observe a glut in the market. The extreme example is the mall madness. Almost 20 malls have gone up in Nairobi over the last ten years. It’s not uncommon to walk through a newly-built mall with most of the spaces unoccupied. And all those empty spaces mean unpaid rent, which then means that the landlord does not get the money they need to, most often, service the loan they borrowed for construction and other costs. Of course there are chances that in the long term the malls will be profitable. The point of this note is not to discourage anyone interested in going into real estate, for there is lots of money to be made there filling a very real need, but to caution them to actually think like entrepreneurs. Entrepreneurs do not simply follow trends just for the sake of it, they analyze the actual needs of the market and then develop solutions that fill those needs. It really hurts (and sucks) to have 50 rental units and only three tenants — and a bank manager knocking on your door. But it’s also kinda cool to chill and do what you love knowing that those rental chums will be coming your way every month.
- Think seriously about home ownership: I feel like even though most of our parents and grandparents own their homes in Kenya, mostly in rural areas, we never quite consider them assets. In my first year in college, I remember being confused in discussions on the 2008 housing crisis in the US. That the prices of houses falling was a terrible thing for most of the US population was a foreign concept to me. Turns out, as most Americans value home ownership and view it as a milestone to aspire to, like you would a college degree, then those who achieve it (about 64% of families in the US currently) see it as a major asset — often their most valuable asset. Getting a mortgage and acquiring a home is almost second nature for most adults in the West. In Kenya, while most families in the rural areas own their homes (usually constructed using their own finances), majority, almost 90%, of us in the urban areas rent space. Of course there are plenty of systems that contribute to this: a weak mortgage industry, low supply of affordable units for sale, personal preferences, lack of awareness on various options, etc. Yet, I feel it is important that young people in our generation start thinking seriously about home ownership both as an asset but also as a marker of identity. I understand that we are very mobile—rootless, even—and are likely to work in more geographies in our lifetimes compared to our parents. Nonetheless, home ownership is an interesting concept to ponder in the long run. Check out this insightful video which compares renting and buying a home in a rather millennial context.
- Think about the costs and time investment: Investment in real estate requires a lot of time and money. If you’re going into it, you need to develop a plan and be all in. We’ve all seen stalled projects—and I am pretty sure they feel as bad to the owner as they look to the observer. We cannot hedge against all risks as human beings but at least do your best estimates and have a solid plan in place before you go into this kind of project. The alternative to the investment in time and energy into construction, of course, is buying a built unit. And the seller charges you an extra price for it. I won’t pretend to know the answer to the construct vs. buy debate but it’s an interesting one to have with yourself and others. I know with all my idiosyncrasies and romantic tendencies I would want to be centrally involved in designing and building my own home, but that’s my heart speaking, not the mind.
- Be human: If you read my Zimmerman article in this series, you know the lengths that landlords in this city (formerly under the sun but nowadays under the gun) will go to cut corners and siphon money from their tenants’ pockets. I understand that you cannot spend all the money in the world as a landlord building the most beautiful units and then rent them for cheap, but even then think about the people who will live in those things you call units but they call home. Not as abstract sources of income but as bone and flesh and blood and heart and soul. Think about their children and their dreams. They might not have plenty to pay rent with but still dignify their lives. If the room is a bedroom, just don’t leave less space for it than your own washroom. Maintain your property and ensure your tenants have access to basic services such as water, garbage collection, power, etc. And just treat them with empathy even when they are at their lowest — and ensure all your agents do so too.
Securities (aka shares aka stocks) are slices of ownership in companies usually listed in stock exchanges such as the NASDAQ, Johannesburg Stock Exchange (JSE) and the Nairobi Securities Exchange (NSE). When companies “go public”, they allow the general public to purchase pieces of them in exchange for a share certificate. Sawa, kitambo there used to be physical certificates but I’d be lying if I said I have ever seen one. As a shareholder, you are entitled to vote in the company’s Annual General Meetings (AGMs) and to dividends from the company’s profit.
With shares, you earn money in two simple ways: a) growth in the value of the share (appreciation of the share price) and b) annual dividends (shares of the company’s profit). Funny aside on dividends: sijui if it’s because I don’t have that many shares or coz I am a long term type of person. Every time dividends catch me off-guard and it feels like finding cash in the pocket of your jacket that you had forgotten about. Anyway, the investor’s main goal (and job) is to find the companies whose share prices are likely to grow significantly over time while also paying out dividends. So, do your research and thinking before buying. Learn about the various industries, read business news, study the leadership and structures of the companies, look at their strategies and financials (or more accurately, if you are like me, ask your friends doing CPAs and CFAs to read them for you and translate them into a language fit for human consumption).
Stocks are riskier than assets like land, savings and bonds. The upside to that: their returns are higher than, say, savings in a bank account. Stocks are also much easier to acquire and do not require that you put in a lot of money or time to start with. In the NSE, the minimum shares you can buy are 100 — which means you can literally buy shares worth about 200 shillings ($2). Of course you’ll get very little in return, but it’ll teach you something. To buy shares in Kenya, you need to open a CDSC account through a stockbroker or an investment bank, pick the stocks and the quantities you want, channel your funds, wait for a few days for the settlement and you’re good. Of course this being Kenya, make sure you choose a reputable stockbroker. I’d recommend Dyer and Blair, they’ve been in business for more than sixty years and they have a mobile and web-based platform for managing your stock portfolio. Let’s face it, we’re fucking millennials: going to the bank all the time? Bruh! Ain’t nobody got time for dat.
There’s another type of stock ownership that I’d be remiss to skip. Many young companies today, especially in the tech startup world, offer what they call “stock options” or “ESOPs — Employee Share Ownership Programs—as a benefit. The idea is to motivate and retain their employees by offering them pieces of ownership in the company with the assumption that they will work harder and longer to grow the value of the company (and thus the value of their personal stock options). Such employees can view those stock options as a valuable asset on their own…but it sucks coz you can’t walk into a coffee shop and go, “yo, I’m gonna get that caffe mocha with these stock options I got from my startup down the road.” Plus you can’t sell them either and if you leave before they vest, oftentimes, you lose them. That’s why many startups make a beeline for Initial Public Offerings (IPOs) and acquisitions, because then, the founders, early investors and the employees of the companies can sell (or retain) their stakes. Ladies and gentlemen, that’s how millionaires and billionaires and minted seemingly overnight. Often, the value of these stock options grow at ridiculously high rates and offer employees the privilege to get into the game way early. As such, if you happen to be negotiating for a role in a company that might offer you stock options, ask about it. If your company floats the idea, consider it seriously. In 2016, I talked to a Kenyan man who invested about 30k into an ESOP then completely forgot about the share certificate for a decade. When he found it, the damn piece of paper was worth 10 million shillings! I was just like…
Part II of this post discussing the other major investment types is coming soon.