Ronald Makomva

Investing in property - now is the time

Thu, 20 Aug 2009 10:02:49 GMT

Most investors are trying to sell, so jump in and get property at discount prices

They say you shouldn’t invest in something unless you are passionate about it and able to take the time to understand the investment and to nurture and monitor it to identify an opportune time to divest or increase. The alternative, I guess, is to find an expert who will invest your money for you. I am, however, a firm believer that no one else can manage your investment better than you can… but that discussion is for another day.

My interest and passion has always been in property – it is a hedge against inflation, a source of annuity income if you make the right investment and, unlike most assets like shares and bonds, banks are usually willing to lend you most of the purchase consideration (although these days, given the global financial crisis and the level of bad debts banks are exposed to, that is not always the case).

There are lessons I have learnt over the years (and in most cases the hard way) that, particularly with the downturn in the global economy, I think are worth sharing.
Firstly, buy property in areas where the rental yield is high and the rental you receive is higher than your mortgage bond repayment. Easier said than done, I agree, but it is not an asset if you are not making income from it. As Robert Kiyosaki, author of Rich Dad, Poor Dad says, do not buy property in the hope of getting capital growth in the future – buy property when it is selling at a discount to market value or when the rental you will get is greater than the mortgage payment you have to make. What this means is that we should be buying property now, when most investors are trying to sell because they are overcommitted and are therefore likely to sell at a bargain and not, as most of us did, in the last few years when property prices were inflated.
Secondly, when you invest, remember that property is an illiquid asset. It is difficult to sell and, at the best of times, takes a long time to transfer (about three to six months) when a sale has taken place. The difficulty of selling a property for fair value is significantly more in a downturn such as the one we are experiencing now, as a lot of over-exposed people are trying to do the same thing and there is a general aversion to making such large investments. The lesson therefore is: ensure you do not over-expose yourself and that you have enough cash or liquid investments available to tide you over during the tough times.
Lastly, property is a long term investment and if you have made a fundamentally sound investment decision, hold on during the inevitable swings in the economy and it should pay off handsomely.

I cannot however over-emphasise the need to diversify your investment portfolio and therefore, even if property is “your thing”, it is prudent to have a mix of property, shares, bonds and cash in your portfolio. As the saying goes, do not put all your eggs in one basket.

The importance of people

Fri, 14 Aug 2009 11:12:39 GMT

When deciding to invest in a business, the quality of its staff is just as important as its balance sheet

I often wonder how CEOs of large corporations, some of which span numerous countries and continents, are able to effectively run their businesses. Surely they’re not able to know exactly what was happening in every part of their business? It struck me that being an effective leader not only requires great vision, innovation and business savvy, but also the ability to identify, recruit and retain key personnel who are able to identify with your vision, own it, run with it and employ people below them that will do the same. Hiring the right type of people with the right skills is therefore a core function and, in my opinion, probably one of the most important roles of a leader. Doing this ensures that as a leader you only manage a handful of people who run the core functions of your business. They, in turn, do the same for their respective areas of responsibility, and so it goes. One can appreciate therefore, given the interconnectivity of everyone in an organisation, just how much of an impact a “rotten apple” can have on the productivity of a business. The question therefore is: “Why is the human resources or recruitment function not as important in organisations as the financial, sales, marketing or operations functions?” For example, why is it that in most companies, the Human Resources director does not sit on the board and, in some cases, even the executive committee? I think it is an oversight on the part of a lot of companies, as the calibre of staff, their well-being and their productivity, is a key component of its competitive advantage, productivity and therefore its ability to be sustainably profitable.

It goes without saying that when analysing an investment opportunity, the calibre of a target company’s management and personnel – including their experience, qualifications and values – must be just as important a determinant for investing as its financial results, product offering and competitive environment.

Playing the downturn

Tue, 07 Jul 2009 21:14:30 GMT

The current economic downturn should be a lesson in investment to all of us

A lot has happened in the global economy over the last few years. We’ve had a combination of an economic, banking and credit crisis, all of which has resulted in unprecedented decreases in the value of assets across the world, be it shares, bonds or property. As counter-intuitive as it may seem, this is the best time to invest. Warren Buffet often says that most people’s emotions work backwards – they get greedy when asset prices go up and fearful when they go down. Instead, if you are a true investor, you should shop for stocks the same way you shop for anything else: look for sale prices, and never regard falling prices as inherently bad news. Sadly for most of us, we fell prey to our emotions and bought assets at what has turned out to be the top of the cycle, meaning we are now unable to take advantage of, what are in some cases, record low asset prices. I guess there’s a lesson to be learnt here, and hopefully the next time the cycle turns for the worst, we’ll be in a position to take full advantage.

It’s perhaps an opportune time, given that this is my first blog, to give a little bit of background about myself and an indication of what I intend to write about. I’m an accountant by training and worked in investment banking for a few years, prior to commencing my current job in a BEE investment holding and private equity company. Through my weekly blogs, I hope to share my opinion on some of the financial, economic and investment issues of the time, and hopefully in return get different perspectives from you, the readers.