DEVELOP YOUR 2023 INVESTMENT STRATEGY NOW!
Putting your money to work and productively is the dream of every investor, and this process has to be strategically thought of so that desired returns are realized. For many people, investments are a hit-or-miss affair, this however does not mean you use hope as a strategy, rather it needs an informed plan to guide individuals and businesses to make the very best of their investment decisions.
As we venture into 2023, the economic climate in Kenya presents an ideal template for the investor to experience the turbulent and rich times the investment space offers. As we emerge from Covid-19 and an election period, the market is bracing for good times and we need to be ready to capitalize on the expected eventualities.
At a very basic level, we must first understand the relationship between an investment strategy and a financial management strategy. An investment strategy is a set of principles designed to help an investor realize their financial goals by guiding their decision-making based on goals, risk appetite and future capital needs.
A financial management strategy on the other hand is broader and incorporated the investment strategy and it involves planning, directing, monitoring, organizing and controlling money to accomplish business objectives and return maximum value to the stakeholder.
Working with the above, turbulent times that we are in requires resilience that calls for a defensive strategy when planning your investment strategy. This requires the investor to put more emphasis on investments that offer high dividend yields as opposed to investing in growth stocks. The former represent stocks that have a stable price but offer high dividends while the latter are those that have great fluctuation in price but offer very low dividends to the investor. Once we move away from turbulent times then require the investor to change strategy from defensive to growth stocks where the focus will be on capital gains available.
To further stay afloat, the business investor must also be able to manage their costs by analyzing things like their cost-to-income ratios; this compares the cost of production versus the value of the sale and the lower the ratio, the better. This essentially is achievable by pegging costs to revenues so that your costs only increase with a corresponding increase in revenues, for example paying commissions as opposed to salaries.
In addition to this, an investor needs to have adequate wealth management skills. These are both hard and soft skills necessary for generating above-average returns. The hard skills represent technical skills among them reading and interpreting chats given that history traditionally repeats it and as an investor, you must be able to know and anticipate these trends and invest around them.
Separately, an investor also needs fundamental analysis skills and this skillset gives futuristic insights through your ability to look at and interpret key business ratios. Savvy investors look for investors with lower readings as they represent better payback periods of their investments.
Soft skills on the other hand are not taught in school; rather they are gained from experience. These are difficult to acquire but they largely inform the investor on the tactical do’s and don’ts. For example, novices because of fear sell during tough times and are also motivated by greed to buy when the market picks up. On the flip side, savvy investors using soft skills will use turbulent times to invest; buying from the selling novices and sell in peak times when greed drives the novices back into the market.
Age also plays an important role in the psyche of an investor. Younger investors tend to have higher risk appetites and this go for equity as opposed to fixed bonds while older ones tend to do the opposite. Factoring in age, your investment portfolio must meet.
“Key strategies for investing in 2023 recap.
- Invest in growth companies especially when the PE ratio falls below 10. The price-earnings ratio, also known as the P/E ratio, is the ratio of a company’s share price to the company’s earnings per share. When it goes above 20 sell
- Adopt a defensive stock strategy by investing in stocks with a high dividend yield of 10% and above, for example, a stock that is valued at Ksh. 100 giving you a dividend of Ksh. 14 = a 14% return.
- Invest 10% of your disposable income in growth and dividend stocks
Financial management strategy recap
- Invest any excess cash from operations
- Encourage quick payment of your sales by offering discounts on cash payments
- Avoid bad debts on account receivables
- Negotiate with suppliers for extended payment periods so you can manage your cash flows
- Consolidate your loans under one financial entities and negotiate better-paying terms
- Diversify your portfolio and asset acquisition. A portfolio is your mixture of assets and ideally, you should look at three key profitable sectors of the economy to invest in.
- Invest in risky and risk-free assets
- Re-invest your income to compound your returns
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Article based on Timothy Mwendia Webinar Presentation –Timothy is an Entrepreneur turned Investment Analyst who derives pleasure from not only saving but also combing through investment options looking for the one with the highest returns. He has 20 years of experience at the Nairobi Stock Exchange trading both Equities and Bonds.
