Reasons You're Not Rich

Many people assume they aren't rich because they don't earn enough money. If I only earned a little more, I could save and invest better, they say.

The problem with that theory is they were probably making exactly the same argument before their last several raises. Becoming a millionaire has less to do with how much you make, it's how you treat money in your daily life.

The list of reasons you may not be rich doesn't end at 10. Caring what your neighbors think, not being patient, having bad habits, not having goals, not being prepared, trying to make a quick buck, relying on others to handle your money, investing in things you don't understand, being financially afraid and ignoring your finances.

Here are 10 more possible reasons you aren't rich:

You care what your car looks like: A car is a means of transportation to get from one place to another, but many people don't view it that way. Instead, they consider it a reflection of themselves and spend money every two years or so to impress others instead of driving the car for its entire useful life and investing the money saved.

You feel entitlement: If you believe you deserve to live a certain lifestyle, have certain things and spend a certain amount before you have earned to live that way, you will have to borrow money. That large chunk of debt will keep you from building wealth.

You lack diversification: There is a reason one of the oldest pieces of financial advice is to not keep all your eggs in a single basket. Having a diversified investment portfolio makes it much less likely that wealth will suddenly disappear.

You started too late: The magic of compound interest works best over long periods of time. If you find you're always saying there will be time to save and invest in a couple more years, you'll wake up one day to find retirement is just around the corner and there is still nothing in your retirement account.

You don't do what you enjoy: While your job doesn't necessarily need to be your dream job, you need to enjoy it. If you choose a job you don't like just for the money, you'll likely spend all that extra cash trying to relieve the stress of doing work you hate.

You don't like to learn: You may have assumed that once you graduated from college, there was no need to study or learn. That attitude might be enough to get you your first job or keep you employed, but it will never make you rich. A willingness to learn to improve your career and finances are essential if you want to eventually become wealthy.

You buy things you don't use: Take a look around your house, in the closets, basement, attic and garage and see if there are a lot of things you haven't used in the past year. If there are, chances are that all those things you purchased were wasted money that could have been used to increase your net worth.

You don't understand value: You buy things for any number of reasons besides the value that the purchase brings to you. This is not limited to those who feel the need to buy the most expensive items, but can also apply to those who always purchase the cheapest goods. Rarely are either the best value, and it's only when you learn to purchase good value that you have money left over to invest for your future.

Your house is too big: When you buy a house that is bigger than you can afford or need, you end up spending extra money on longer debt payments, increased taxes, higher upkeep and more things to fill it. Some people will try to argue that the increased value of the house makes it a good investment, but the truth is that unless you are willing to downgrade your living standards, which most people are not, it will never be a liquid asset or money that you can ever use and enjoy.

You fail to take advantage of opportunities: There has probably been more than one occasion where you heard about someone who has made it big and thought to yourself, "I could have thought of that." There are plenty of opportunities if you have the will and determination to keep your eyes open.

Real Estate Investment Trusts: Are They For You?

If you once invested in the Nairobi Stock Exchange, chances are that you have made excellent returns over a short period of time. Sadly though, you stand the risk of exposure to an array of factors characterized with investing in non diversified portfolio. If you have considered diversifying your investment portfolio but didn’t know which one to go for, then Real Estate Investment Trusts may be an option to consider. But again, you may ask; are they really right for me.

Majority investors today consider investing in real estate as the ultimate investing goal. To the wealthy individual, it is merely an investment like any other; buy today, cash in tomorrow. That just goes as far as direct real estate investing is concerned. But now, there are the Real Estate Investment Trusts, commonly known as REITS.

Simply put a REIT is a pool of funds that is invested in real estate. Funds are drawn from investors and put under the management of a fund manager who then decides on the kind of real estate investment to go for based on the amount raised by subscribers for the trust. REITs will typically invest in real estate or real estate related assets. These can vary from shopping centers to office buildings, hotels and mortgages secured by real estate.

There are three types of REITs but the most common one is an equity REIT. The REIT basically entails having investors’ pool funds by way of buying shares of the REIT and getting an income out of it. This income is mostly paid on an annual basis.

The other type, a mortgage REIT basically entails lending money to owners and developers or investing the money in financial instruments secured by mortgage or real estate.

A hybrid REIT combines both the features of a mortgage REIT and the equity REIT. An investor in this category has his portfolio well diversified against the downturns in each category.

The United States has the most developed REIT market in the world. Other rapidly expanding REIT markets include Australia, France, Japan, Canada, the Netherlands, Singapore and Hong Kong. In Australia, the REIT concept was launched in 1971 with the General Property Trust being the first REIT to be listed in the Australian Stock Exchange (ASX). There are over 60 REITs listed today and Australia has the largest property trust in the world after the United States. Germany planned to introduce REITs in 2007 but the legislation is seemingly yet to be passed. There are already 7 REITs in Hong Kong. In the United Kingdom, 7 companies converted into REITs in 2007 after the Finance Act enacted a legislation allowing them to do so.

In Africa REITs are also gaining popularity in some key African nations where financial markets are well developed. Key in Africa is South Africa which, according to Ernst and Young was the top performer in the world in terms of total return over three year period giving a return of 34%. The number of public REITs in South Africa was 7 by end of 2006. However, the market had the lowest leverage among the key markets in the world.

Kenya’s market is slowly coming of age. Bora Real Estate Investment Limited (BREIL) was launched late last year at a point when Kenyans felt that the property market had completely sidelined the starters in the investment maze. One of the reasons behind setting up BREIL, according to Joe Macharia, the CEO of Bora Capital (the company behind BREIL) was to provide an investment option that works for small savers who cannot afford to put up a payment to acquire property or build a house.

The BREIL structure is a hybrid REIT but private (not listed in any market). Investors invest in the fund by subscribing to shares of BREIL and getting a regular income on an annual basis.

One of the advantages of investing in REITs is the tax advantage enjoyed by the investors. This is so because REIT investing allows for tax rebates on gains.

There is the old saying that you can never go wrong on land. Same applies to property as it can only appreciate in value. An investor therefore looking for gains over the long term would benefit from investing in REIT as it offers stability over ones investment.

One challenge with investing in REIT is that the target groups, mainly those within the age bracket of 25 to 45 are excited about short term gains. This is not a common feature with REITs which are illiquid and have an investment time span of more than one year.

REITs may just be what your investment portfolio needs. However, do observe caution in taking on REITs, contact your Investment Advisor for more information on the risks and benefits to your investment portfolio.

What are the basics of starting an investment club?

Let us begin by understanding what is an investment club. An investment club is a group of people who come together and embark on investment activities, while learning more about investing.

An investment club is not for the get-rich-quick at heart, but for the individuals who want to be financially better in 5-10 years, depending on the club’s long term objectives. An investment club is also not a merry-go-round initiative.

The overall objective of an investment club is to make money using a pool of equal member-contributions.

When establishing an investment club, one of the most important things for the group to decide is its purpose. Without a purpose, there will be as many objectives as there are members.

Whatever the objective, the members should discuss guidelines to selecting and making wise investments, to avoid particular people driving in their personal objectives into the club. For example, investing in the stock market is a long-term proposition and one that should not be taken lightly .

Discuss, agree and document minimum number of members needed at each meeting to make a decision.

At the earliest time possible, the group should establish several ground rules on which to run the club.

Discuss and decide how it will operate - it is best advised that you get registered at some time. Without being registered, it may limit the club’s investment opportunities and/or force the group to conduct their transactions using a person’s name.

With registration, the members need to agree to their club name, which will be used to register the club either as a partnership or social club. Assign a committee to develop the potential club agreement then, review it with members.

This will force you (members) to make decisions that will help the club function well in the future. Matters such as entry requirements for new members or conditions that must be met before a member can officially pull away from a club, could make or break it if dealt with them as they arise.

By all means, let the members sign to an agreed partnership document. In most cases a lawyer will be necessary to finalize the legal partnership agreement.

Having done this, the members can discuss and agree to finer details such as monthly meetings date and place, minimum periodical individual contribution, and penalties if any. Finding a time that works for everyone can be a real challenge, but attendance is important.

Because investment clubs encourage you to invest regularly and knowledgeably, and to understand the various risks associated with investing, they add on your individual financial intelligence that you could use as a family.

Succeeding-Exploiting Your Strenghths and Opportunities

Succeeding-Exploiting Your Strengths and Opportunities

A Keynote Address by Eric Kimani to WordAlive Publishers Retail Partners Seminar on 6th June 2008

I am honored to have been asked to come and speak to people who deal in knowledge- most of you here sell books and material for study.

I was asked to come and speak on how to succeed by exploiting our strengths and opportunities.

To set the mood for this talk I will share a story I read recently about a middle-aged woman who was hospitalized and had a near death experience and in the experience God told her she had another 43 years to live. Upon recovery she decided to have a facelift, liposuction, a tummy tuck and the whole works that made her look like a 25 year old. Unfortunately she was shortly killed in a vehicle accident as she crossed the street. She appeared before God upset and questioned Him “I thought you said I had 43 more years to live?” God replied “I did not recognize you”! God wants you to be who are. Each person here today is unique. When we seek to be like the next person we loose our identity.

I propose we start by defining Success.

How do you define success?

Many people talk about success, but few understand it. Everybody wants to be successful but few get to be successful. Most people want to be successful but few understand how to be successful. Most people want to be successful but few achieve the success. Many equate success with lots of money and high office. True success has evaded men for thousands of years as epitomized by the words of one of the most successful men in history- King Solomon who conceded that everything is meaningless.

So what is success? True success in my humble view is achieving your goals and in the process finding fulfillment. The measure of true success is looking back at your life at the age of 80 and saying a resounding “yes I lived a successful life”. If we accept that true success is fulfillment, then we will not have a problem accepting that there are very successful people living in Kibera and Mathare slums as there are in the up-market Runda and Muthaiga.

What about our strengths and opportunities?

Remember the biblical story of Moses- God did not ask Moses to go look for a complicated piece of equipment to use for his miracles- instead he asked him to use his herdsman staff and converted it to God’s staff of deliverance. Perhaps you are a teacher, manager, cook, etc and God is asking you to release your tools of trade or talent - that is what he needs not what your neighbor has!

Do you know your strengths? Do you believe in them?

We limit God by limiting our thinking and our aspirations. I firmly believe that we can be anything or achieve anything we want to. Mahatma Gandhi said “I claim to be no more than an average man with below average capabilities. I have not the shadow of a doubt that any man or woman can achieve what I have if he or she would put the same effort and cultivate the same hope and faith”. It is our perception that shapes our destiny. Remember the biblical story of the men who were sent out to go and survey Canaan and came back with a report that the Israelites were grasshoppers compared to the giant people they saw there! Caleb perceived them as beatable in the name of God. We run a family micro dairy processing which has survived an industry with a very high business mortality rate in the last 12 years and competing fiercely with the giants. We perceive ourselves as equal to the task! Seven years ago we set out to set up a college and I told some colleagues that I foresee us offering degree courses to Kenyans inside a decade- I see the dream being fulfilled much earlier!

We limit ourselves by wanting to be like others. You are who you are. I cannot begin to narrate to you the many friends I know who have lost it trying to be like others. I remember a friend who, wanting to keep up with his peers and seeing as if they had much head start decided to put his hand in the cookie jar and nearly ended in jail! It is okay to compete with other people but it is silly to want to be like others.

To find success we must remember that opportunity is described as a haughty goddess! The window of opportunity is small and closes fast. We must not procrastinate. We must learn to swim in deep waters and learn to sometimes swim upstream. Many of us give up too easily. When the business does not work for a year or two they give up in search of easier things. We need to teach ourselves perseverance and persistence. In the early 90’s when we decided to invest in milk processing, I recall walking the corridors of many banks and financial institutions looking for financing. I recall one bank manager who sneered at our proposal asking how we intended to compete with the then giant KCC. We persisted and finally found a willing financier. Like someone put it “determination and persistence makes you omnipotent”.

To find success you must adopt an attitude of abundance. Never say to anyone or yourself that “I cannot afford”. Always have a mentality of the ability to afford. I tell people that if you came to me for example and said that East Africa’s largest company, Safaricom is on sale and whether I would be like to buy it, my immediate answer would be yes! I will illustrate to you why.

Where I live I had a neighbor who owned the empty plot next to me. For many years I told him that I would like to buy the plot although I had absolutely no money to buy it! For the many years he assured me that should he decide to sell it he would consider me. I made him an offer every year although I knew I did not have that kind of money. Then he decided to give it to a selling agent who marked up his price by 1.5m shillings. At around that time my now immediate neighbor, a foreign diplomat, was interested in the property and asked me if he could come into my compound to see my house. He explained to me that he had been offered the plot for 7 million shillings and was considering buying it. I explained to him that I could sell it to him for 6 million if he agreed to pay me half million shillings commission. He agreed. I called my friend and made him a cash offer of 6 million. He accepted. This was a win-win situation for all- my friend got his 6 million instead of 5.5; the diplomat paid 6 million instead of 7 million and I got to keep half a million shillings!! The lesson here is that never say you cannot afford anything!!!

Each of us has the potential and opportunity for success. It is our attitude that determines who succeed and who fail. We need to cultivate an attitude of abundance as opposed to one of scarcity. An instructive story is told of two shoe salesmen sent to Africa to prospect the market for shoes. One came back with the report that there was no prospect because “the natives do not wear shoes”. The other returned with a report that there was a huge market for shoes because “the natives do not wear shoes”. One looked at the issue from an abundance perspective while the other looked it with scarcity. Your attitude will fuel or limit your success. How far you go with your business will largely be limited by your vision and abundance or scarcity view of life. Many of you here will tell you that the reason that they are not succeeding in their book retail business is because Kenya has a poor reading culture. This is precisely the reason you must succeed! The opportunity to build a reading culture is great. How many of you know that about 10 years ago yogurt was foreign as a milk product in Kenya and a preserve of only the more financially endowed? People said Kenyans would not drink it until Dalamere Dairies came and proved us wrong! Today every small town has its own home-grown yogurt! Break the barrier in your mind that Kenyans do not read. Make them read and create business- a good sales person is not one who waits for customers to come to him –it is one who convinces a new customer to buy his product! I am sure there are people here more successful than others in the same business and we will rationalize that it is the location, it is the family, or it is the money they have etc but take it from me the most important is the attitude!

How far can one go?

From what you have heard so far I am sure you can gather that how far you go depends on you- You must first believe it is possible; that you can succeed in your plans. I have just concluded a most rewarding career at Sameer Africa limited of “Yana” fame and one of my attractions to the group was to learn some of the reasons behind the phenomenal business success of the founder chairman Mr. Naushad Merali. One who rose from a petty trader and is now undoubtedly one of the top billionaires in Kenya? I sat in many meetings with him. Besides what else people may be said about him, I will tell you this- he has a complete mentality of abundance; he believes everything is possible; that everything is doable. I have watched a whole board of directors hesitate to do things he just feels should be done big time and in due course his optimism was proved right.

To find true success we must not try to cut corners- the shortest route is not necessarily the best. You do not need to cheat your way to win. When I was a younger man I once desired to buy a bicycle and while I was admiring bicycles at a big shop in the city, a gentleman whom I did not know but apparently knew me came over and told me that for what the shop was selling he could secure the same bicycle for me at less than half the price. I was foolishly elated and agreed with him – after all he seemed to know even many of my relatives and was an elder man. I parted with the money foolishly thinking I had struck a great deal and waited for him for hours on end before I realized I had been conned. I wanted to reap where I had not planted. We must understand that the law of the farm or the law of the harvest as it is otherwise referred, is sacrosanct and immutable. Long term success is for those who understand that for one to harvest in the farm one must go through the natural motions of preparing the land, planting, weeding and weeding again before one could hope for a harvest! If someone came to you with a ridiculous offer to supply you books at say half the price- think before you commit to buy. This would violate the law of the farm. My understanding this law has been a key cornerstone in shaping my life in the last decade. It teaches me to have the patience to invest long term; it teaches me to plant trees that take years to grow; it teaches me that this natural law is inviolable and those who dare to violate it pay dearly for it!

I have also discovered that people who make a lot of money are not necessarily initially after money but they succeed looking for solutions to problems of mankind. Bill Gates was looking for a solution! When I speak on entrepreneurship, I remind people that the only long term competitive advantage that a firm or individual may have is innovation. If you want to succeed better at being the best book sellers, you must distinguish yourself from the average book seller by providing your customer with superior solutions to their problems.

To find true success you must learn to compete fiercely but fairly without cutting the line. We must not cut corners. Bribery and scams may produce temporary advantage. Do not for example pay the city council askari to avoid the fine for say failure to have a valid business license – pay the license and if you do not have it pay the fine! Don’t pay the head teacher or some official to get that huge book order. Only last week I read that the government has lost five billion shillings to book scams. I have discovered in my short career that bribery and scams destroy the self-confidence of the giver and the recipient. People who get involved in these scams never have enough. They try to buy respect and recognition with money and die frustrated wondering why the world does not respect and acknowledge them! I often tell the story of our milk delivery trucks at Palmhouse Dairies and our experience with demand for bribes. For all the 12 years we have ferried milk into the city we have never paid a bribe! Initially we got into all manner of trouble with false charges and arraignment in court. This lasted at most for two years. Both the police and our drivers learnt a lesson that has served us well for the next decade! Years ago I knew a businessman who could afford to buy 10 brand new Mercedes Benz vehicles but struggled for years avoiding paying a few thousand shillings for duty and tax! At Palmhouse Dairies we bought milk on credit from some farmers in a place called Kagwe. It became uneconomical to do so due to among other things a very bad road network. We gave them notice and ensured we paid to the last cent at a time when many newly started processors far bigger than ourselves took off with millions of shillings belonging to small scale farmers as they went under!!! To this day some of those farmers travel many kilometers to bring us milk. If you want to succeed at what you do make your word one of honor!

To find true success at what we do it is important to understand the business you operate in. I am delighted for example that those of you here have chosen to attend this partnership training. Many people try to imitate others and do not invest the time needed to learn the business. I have seen multi-million businesses fail because of failure to understand the basics. I tell the story of how a few years ago I invested a sizeable amount of money in a business venture I knew very little about. In about eighteen months I had nearly lost 1.5 million shillings! I learnt a lesson I can share with you that it is foolish to invest your money in a business you do not understand. Attend training if you must. Study if you must. Many people ask me why I studied law and although I joke and tell them it is because I understood the logic behind the saying that “the law is made for the guidance of wise men and the strict adherence by fools” the truth is that I wanted to understand the law to help me in my work and business. I for example wrote the business plan for Palmhouse Dairies in 1995 backed my understanding of law and accountancy; I have incorporated many of our businesses with minimal legal help; I write our business proposals for funding! To succeed at what you do you need to hunger and pursue relevant knowledge.

To find true success you need to surround yourself with able people. You cannot succeed working alone. Many people have asked me how we have managed to run successful multi-million ventures while still employed and doing much more work in the community. I have always told them that those who employ me do so because they trust me to work for them. Why can’t I trust others to work for me in equal measure? We employ almost 100 people directly in the dairy, the school and the college! We trust them to run the business. If you want to succeed you must want others to succeed. Recently we sent one of our managers to India to shop for certain machinery. The idea behind this is to encourage him as well and motivate him to help us succeed! I learnt one of the secrets behind the success of many successful business people is that they gets others, often more intelligent than themselves to work for them!

To find true success we will need to identify the changing trends in our industry and ride the wave of change. We will need to anticipate the changes that will happen in publishing and the education system for us to ride the wave in our industry. Do not wait for change to change you because ordinarily it is painful and unforgiving. Long before the big dairy players in the market encompassed plastic packaging we foresaw that this was the direction that the market would take. We were among the first pioneers and today this is the dominant and growing packaging method in the world. What are the likely things to change in your industry? What are you doing to ride the wave? How are you incorporating technology into your business? Look for trends and changes and ride the wave.

Before I conclude this talk I would like to speak about one of our greatest pitfalls as Kenyan and particularly African business people who I consider have an unnecessary attachment to land. I sit on two financial institutions board and I can share this with you from experience. We make money say as booksellers and as soon as we see a little profit we buy a piece land to the south, another to the east and another to the west- all in the name of not keeping your eggs in one basket! Some will even invest a little in a matatu or two! This lack of focus is a disaster for particularly the African entrepreneur. I recently witnessed the case of a very successful woman who goes to a bank and borrows Ksh 10 million to expand her business. Decides to diversify and buy shares of Ksh 5 million and in effect the business expansion fails for lack of capital. The bank makes a forced sale of her shares at half the original value and takes her properties to recover the balance. It is not necessary to own pieces of land everywhere- their management is not worth the effort. By managing our three family businesses from the same proximity we are able to enjoy economies of scale and a little more focus on management. When we built a second house for rental next to our current house, we had a choice to go and put up a block of flats in the more profitable East of Nairobi but we considered that not only would it cost us in travels to supervise and manage, but overall we must have saved at least 20% of the total costs of construction due to the proximity. I appeal to us to have focus. Plough back your profits for a time to grow the business. Business needs nurturing. It takes time.

I would like to conclude this talk with a true story told to me recently by a friend narrated to him by someone who worked closely with one late African president. The late president was mentor to the narrator and had built his career through the years to rise to one of the top 5 people around him. As befalls all of us, the late president died in a hospital overseas and this gentleman in the company a select few went to pick up the body for return and burial to his country. When they got to the airport, they were delayed unnecessarily by the release order of a junior customs officer who had to certify the coffin. It was unimaginable that the body of the late president who wielded so much power could be held at the whim of a junior customs officer. After a long and irritating wait the customs officer released the coffin and inscribed the following words “Cargo without value, charge no customs duty”. The man who told this story gave his life to Jesus that day!

As we seek success, we must remain focused on the fact that we are but cargo without value and the only true value we can bequeath the world is to ensure we lead impactful and significant lives- to live in the hearts and minds of generations to come.

The secrets to doing this is the subject of another day but I must leave you with an underline that Character and Integrity remains the only proven key to enduring success.

I trust I have provoked our thoughts adequately on this subject.

Thank you and God bless you.

© Eric Kimani 2008

The Top 10 Distinctions Between Millionaires and The Middle Class

The author differentiates Millionaires (M) and the Middle Class (MC) using the 10 distinctions stated in his book. By understanding the differences between the M and the MC, we can stage and position ourselves for greater wealth building and creation. Most important of all, my belief sync with the author's: Success is a journey.

What i find more interesting is the author's reasons of publishing this book. He mentioned 3 reasons for writing this book: Responsibility, Purpose, Legacy, which differentiates him from other authors of similar books - This guy is damned straight forward. The language he'd used is simple, direct, to the point. Most importantly, easy to understand by layman.

After 2 years of acquiring assets in financial education since Dec 2005, I'd realised that I am already a practitioner of some of the distinctions stated in the book. I am sure that I am able to acquire the remaining distinctions using a few more years. I am glad that I am able to move from the MC to the M very soon.

I attempted to sum up what to expect from this book as follows:

Distinction 1: Millionaires ask themselves empowering questions. Middle class ask themselves disempowering questions.

"Ask and you will receive." & "As a man thinks, so is he." - So better ask empowering questions. Learn to ask ourselves questions that stretch beyond your current levels of experience. The questions you ask yourself determine the results you get in your life. Think about questions that expand your mind. Empowering questions ask us what we can do, make us feel good, become a powerful and peaceful person. Questions controls mind, condition it to create success. 9 questions based on "Be, Do, Have" concept offers clarity; Know What you want, Why you want, and the How will naturally follow. Most important question to ask, "What would make my life meaningful?"

Distinction 2: Millionaires focus on increasing their networth. The middle class focuses on increasing its paychecks.

Own assets (have value and earn passive income for us) using our paychecks. It requires new knowledge so study hard to learn how to acquire income-producing assets. Patience, knowledge and wisdom are required to increase our net worth. Wisdom is applied knowledge. Achieve Freedom - the freedom to work because we want to instead of because we have to. Learn to keep our cost of living the same even as we build our wealth. Uncommon wisdom of M: Do not increase spending when income increases, instead increase investing.

Distinction 3: Millionaires have multiple sources of income. The middle class has only one or two.

The more sources of income we can develop, the more likely we will become a M. The trick to developing mulitple sources of income is to focus on making them passive (with minimum management). Build a TEAM and learn to be humble. Employ Intentional Congruence concept - methodical planning, getting each source of passive income to support the other income. Focus on PASSIVE sources of income, build a TEAM, and practice INTENTIONAL CONGRUENCE.

Distinction 4: Millionaires believe they must be generous. The middle class believes it can't afford to give.

Learn to be generous, it feels great when we give from the heart. Being generous is a sure way to be happy. (that's why Keith write books, teach seminars on success - give people the knowledge they can use to make a long-term improvement) Understand the Law of Sowing and Reaping (Law of Causes and Effects in Buddism)

Distinction 5: Millionaires work for profits. The middle class works for wages.

Wages are the pay we receive for the work we do. Profits are the result of buying something for one price and selling it for a higher price. Learn to earn profits, then sky is the limit.

Distinction 6: Millionaires continually learn and grow. The middle class thinks learning ended with school.

Success is a process, a journey. The more money you spend on financial knowledge, the more money you will make. By reading more (even if it is just a concept in each book), we compressed time and learn financial secrets that took others years to discover. M invest in their knowledge with people who have achieved success that they want for themselves. Wisdom is Applied Knowledge. Focus on personal growth, love life. True success involves peace and contentment.

Distinction 7: Millionaires take claculated risks. The middle class is afraid to take risks.

The only way out of the rat race for the MC is to take calculated risks. Calculated Risks means to gain knowledge first, consider the consequences of failing before taking action. 3 fears of the MC: Fear of Failure, Rejection, Loss. Fear can be overcomed with knowledege. Failure is part of the path to success - Embrace it and become wiser. We must want to succeed more than we want the acceptance of other people. Losing is part of winning. Live like you were dying - take more risks, take more time to reflect, do more things that would live on after we are gone. Take action!

Practice risk management with 3 questions:

1. What's the best thing that could happen?

2. What's the worst thing that could happen?

3. What's the most likely thing to happen?

Distinction 8: Millionaires embrace change. The middle class is threatened by change.

"For the timid in our society, change is frightening. For the comfortable, change is threatening. For the truly confident among us, change is opportunity." - Nido Qubein, Mentor of Keith.

Confidence is acquired thru preparation, hard work, result of working on ourselves, believing we can do whatever we choose to. We can choose or wish to be rich but remember that Choice is backed by a belief that we can do it, Wish is backed by a doubt that we can. Fear blinds us to opportunities - so develop confidence, learn to accept change and fear will become False Evidence Appearing Real. People are born to learn and grow. Change is good!

Distinction 9: Millionaires talk about ideas. The middle class talks about things and other people.

"Big people talk about ideas, average people talk about things, and small people talk about other people." What do you spend your time talking about? Ideas, things or people? M do talk about people and things. M compliments people for what they did right. M shares notes and books with each other. The power of our words create the experiences of our life; so change our vocabulary, stop complaining and start learning. Learn to develop gratitude. The lessons of life come to teach us to look at life from new perspectives. This leads to new ideas.

Distinction 10: Millionaires think long-term. The middle class thinks short-term.

Give up scarcity mentality (money is in abundance!). Make long-term thinking a habit to release its power. Thinking long-term requires patience and patience is an asset. Thinking long-term builds relationship. Thinking long-term builds health. Thinking long-term develops perserverance. The secret of M: Do what you love to do to make money.

Keith concludes with the concept of repetition to train our mind to think differently. Remember, Success is a Journey.

Another realization I'd after reading this book is, "Diversification spreads risks. Knowledge reduces risks.". If I want to increase my wealth, I must choose to, commit to, plan to and act to achieve wisdom, not just diverse.

"When I Stop Learning, I Stop Living."

Which Business are you in?

July 17, 2008: What business are you in? This sounds like quite a silly question when taken at face value, especially when it is directed at the chief executive or business owner. Of course he or she knows what business they are in. They wake up every morning, and probably spend sleepless nights, thinking about their business.

It almost seems obvious that every chief executive knows what business they engage in. Perhaps not.

Many corporate leaders are consciously or subconsciously grappling with the question of what business they are in. Many do not actually know what business they are really in.

This conundrum has a significant effect on how they conduct business, how they allocate resources, who they are really competing against and most importantly, how they position their brands to effectively obliterate the competition and thus make a good return to shareholders.

The Postal Corporation of Kenya provides a great example of a business that has been able to successfully grapple with the question of what business it is really in.

This question is ultimately a branding question as getting the answer right defines every business decision and forms the core of the organisation’s brand essence.

It defines the organisation’s promise. To put it another way, organisations are really in the business of building relationships, and brands are all about relationships that secure future earnings for business.

Fond memories

A few of us will remember the giant Kenya Posts and Telecommunication Corporation (KPTC). Even fewer of us will have fond memories of KPTC. That was the organisation that sold us stamps, delivered our letters (slowly), connected us via phone, fax (sometimes) and even regulated the industry (where it was the only real player).

Regulation in those days meant frustrating any effort aimed at development or ensuring no organisation ventured into the businesses it was in. How times change. Come 1998 and the giant bloated organisation was split into three —Postal Corporation of Kenya, Telkom Kenya Limited and the Communications Commission of Kenya. This marked the beginning of real business and real branding decisions for the organisations.

Postal Corporation of Kenya, now branded simply as Posta, found itself at crossroads with the internet era.

Gone were the days when one would have to get a writing pad, write a letter with an actual pen, put the letter in an envelop and take a trip to the post office to purchase a stamp, then helplessly watch as the letter she had worked so hard to put together was swallowed by a cold inanimate red bin.

The bin promised nothing and often kept its promises. If one was lucky, a letter to the United States would take a couple of weeks.

By the time the respondent across the oceans was able to digest the now outdated contents and respond through the same painful process, a full month would easily have elapsed. The internet, and specifically email, changed all this.

As we entered the new millennium one could get a free e-mail address which allowed anybody with access to the internet to send and receive, what would have taken at least a month, within a matter of minutes. Posta obviously had to grapple with its very survival in an era where state subsidies had suffered the same fate as the dodo and there was no holding back the idea of the internet as its time had definitely come.

It was time to go back to the drawing board for Posta to discover what business they were really in. Like many businesses every day rigours seem to take front seat and the strategic outlook becomes blurred. This cancer had struck Posta and it ails many businesses, most of which do not know they actually have this challenge.

Big picture perspective

Thinking from a big picture perspective allows the chief executive an opportunity to position the brand for the long term. Posta wasn’t about stamps and delivering letters. Posta wasn’t about money orders and telegrams.

Posta wasn’t about courier services. The truth about what the Posta brand is really about is now revealing itself. The Posta brand is about distribution and reach. That is the real business Posta is in. Why do I say this?

Posta is now in several strategic alliances with organisations that would hitherto not touch it with a 10-foot- pole because it boasts unparalleled distribution channels countrywide.

That is Posta’s real strategic asset. It is much more than just mail, courier or financial services. The names of Posta’s partners sound like the who is who among Kenyan corporate brands: Safaricom for airtime distribution, GTV for subscription payments, Kenya Power and Lighting (KPLC) for bill payments, among many others.

One gets the feeling Posta’s drive to leverage on its distribution channels has only began and coupled with great service, will be what makes or breaks its brand. Going back to your own business, what business are you really in? The answer may not be as obvious as it seems and this fast moving world has a way of redefining businesses.

The giant in Safari-com

Safaricom finally breached the KSh7 psychological barrier last week and with supply at almost 6 to 1 against demand, the bottom is not yet been reached so I continue to watch from the sidelines. However, if it does reach below Ksh6, then I must strike come what may. This is to do with Kimunya's exit as well as small investors panicking. So, do you think the big guys are waiting and hovering around like vultures waiting to make a kill after the price dipps enough? I believe all these fund managers wana meza mate tuu.

NSE 20 Share Index

From July 01 2008
The new companies forming the 20 Share Index are; Rea Vipingo, Sasini Tea and Coffee Kenya Airways, Nation Media Group, CMC, Safaricom, Barclays Bank, Standard Chartered Bank Limited, KCB Bank, Equity Bank, Centum Investments and Bamburi Cement.

Others are; East African Breweries, BAT Kenya, Kenya Power & Lighting Company, E A Cables Limited, Athi River Mining, KenGen, Mumias Sugar Company and Express Limited.

Traits That Make You Filthy

Saving money isn't all about whether or not you know how to score screaming bargains.

It has more to do with your attitude toward money.

Just think of those who don't fit the filthy-rich stereotype. People like Warren Buffett.

As explained in the book The Millionaire Next Door by Thomas J. Stanley and William D. Danko, personal finance has as much to do with people's traits as it does with money. Many millionaires, in fact, have frugal ways.

Understanding how personal traits can influence your finances is an essential ingredient for building wealth.

Here are 10 key traits:

1. Patience

Patience is one of the most important traits when it comes to saving money.

This means waiting until the first wave of product hype has passed, keeping a car for an extra few years before getting another one and waiting until something you want fits into your budget instead of putting it on credit.

Patience is often the difference between creating savings and being in debt. Having the patience to wait until you find a good deal is a cornerstone of good finances.

2. Satisfaction

When you're satisfied, there is no reason to spend money on nonessentials. The sole purpose of commercials is to make you believe that buying a product or service will make you happier, wealthier, better looking or improve whatever isn't bringing you satisfaction.

People spend because they want to capture the excitement shown in advertisements. When you are satisfied with what you have and your life (not trying to live like those on TV), your finances will be in a lot better shape.

3. Organization

Being organized can make you more productive and ensure that all the many issues pertaining to personal finances are addressed.

It means not paying late fees, not buying two of everything, knowing deadlines that can affect your finances and getting more done in less time. All these can greatly benefit your finances.

4. Discipline

You need the discipline to continue to save money for specific, long-term goals every month.

Personal finance isn't a way to get rich quick, but is a disciplined execution of your lifetime plans.

5. Reflectiveness

It's important to be able to look at your financial decisions and reflect on their results.

You're going to make financial mistakes. Everyone does.

The key is to learn from those mistakes so you don't make them again, or recognize if you keep repeating them.

6. Creativity

The economy and our earnings don't always match our expectations.

Unexpected developments wreak havoc to elaborate financial plans. When this happens, changes are needed to deal with the new circumstances. Creativity is essential to accomplish this.

Creativity allows you to make something last longer rather than purchasing it when you don't have the money. It means juggling money to stay out of debt rather than simply paying with a credit card. It means finding a cheaper alternative when money is tight.

In these ways, creativity plays a large role in keeping finances in order.

7. Curiosity

Having curiosity helps you learn, study and improve yourself.

The curiosity of wanting to know more, to take the time to study and then take what is learned and put into practice is an important process that is driven by curiosity.

8. Risk-Taking

To build wealth, one needs to be willing to take risks. This doesn't mean uncalculated risks. It means weighing all the options and taking calculated risks when appropriate.

The stock market has risks involved, but over the long term, history shows that it provides good returns on money that is invested wisely. Those who fear risk altogether end up saving money in accounts that likely lose money to inflation in the long run.

9. Goal-Oriented

The importance of setting and working toward goals is obvious. If you don't know where you are going, it's difficult to get there. It helps your personal finances immensely if you have money goals and are motivated to reach the goals that you have set for yourself.

Those who lack goals don't have a road map to take them to the financial destination they want.

10. Hard- and Smart-Working:

Creating wealth and staying out of debt rarely comes about without a lot of hard work.

Many people might hope that the lottery will solve all their financial problems. The true path to financial freedom, however, is to work hard to earn money while educating yourself to continue to have more value and increase your salary.

You may not possess all of the above traits. But knowing them can help you make changes so that you nourish the ones that you have and obtain the ones you're missing.

Ultimately they will help you with your personal finances and create a plan to accumulate the wealth you desire.

11. Decision making: Let say you want to buy a car. How do you decide which type tp buy. Example: An average American drives 12K miles per yr. On average you drive about 50-100 miles on snow, thought the winter months are 5. Because most times it snows, most people skip all those unnecessary trips you drive or else you postpone them. So, should you buy a 4x4 because of snow, when you only apply 4x4 for 50miles, but you gas it for the rest 11, 050 miles?

Should you buy a truck to pull your boat while you only sail 3-4 times per year?

Do you have a rationale for the stocks you hold?

June 6, 2008: I went out for dinner last week with a friend of mine from Kenya. We talked about a lot of issues and naturally, the investments topic came about. She is an active participant on the stock exchange together with her husband.

From what she told me, I have to say, I admired how they manage their investments. Every week, they sit down and analyse each of the stocks in their portfolio and each of them has to have a reason to be in the portfolio.

Each of them has to have a reason to exist. How many of us do that? How many of us sit down and think about whether the reasons why we are holding on to a share are still valid?

Peter Lynch once said that if you own shares in a company, you ought to be able to explain why, in simple language so that a fifth grader can understand, and quickly enough so that the fifth grader will not get bored.

You need to think about your reasons for being invested in a stock continuously. When the results of the company you are holding are released, have a detailed look at the financials and find out if things are going like you expected them to. If they are not, find out why.

If something has completely changed, it might be best to sell and move onto a new share, even if you are going to lose money. It has been said that there’s no shame in losing money on a stock. Everybody does it.

What is shameful is to hold on to a stock, or, worse, to buy more of it, when the fundamentals are deteriorating. Sometimes you will be right and sometimes you will be wrong.

Sometimes, it has nothing to do with the company itself. It might have something to do with the general economy. Different shares react differently to different economic scenarios.

Perhaps in your model you had forecast that the interest rates would go down but they are still rising, perhaps you had seen inflation reducing but instead it is moving up or perhaps the rise in the oil prices caught you completely by surprise. Whatever the reasons are, the new information that has come in should be incorporated into your portfolio.

It does not make sense to hold shares in an industry that is facing serious problems.

Even if the company is good, its future growth will be challenged and eventually the company will have to bow out.

Textile industries in most parts of Africa are going down and the future growth is hampered. In my trip this week, I found a company in Nigeria – Afprint which is listed on the Nigerian Stock Exchange and has found an innovative way to survive.

Its past revenue streams depended on textiles but as the road became tough, it switched to agriculture and is now returning some profits to its shareholders.There are three primary reasons why you should sell a share.

First, you should sell if the reasons for holding the share are no longer valid, secondly, you find a better investment with better returns and finally you should sell if the share price moves and the share you are holding becomes overvalued. by Eleanor Kigen

Safaricom post IPO-

Egypt Mobile last year made a net profit of Sh20 billion on revenues of Sh76 billion and is today valued at Sh213 billion on the Cairo Stock Exchange.

Sudatel made a net profit of Sh14.2 billion on revenues of Sh40 billion and has a market value of Sh96 billion, which is almost double Safaricom's despite being 35 per cent smaller in size (revenue wise).

Looking deeper, investors are currently valuing the revenues of mobile phone companies at a multiple of 3.1 in the sector. On sales to value basis, investors are buying Safaricom at a fair value of Sh3.22, compared to the market rate of 3.1.

On valuation metric that is bound to cause a lot of excitement-but its effectiveness, other than that of illustration is equivalent to a crude weapon-is price-to-earnings multiple.

On this measure, frontier market investors are picking Safaricom for a song. Going by the earnings released last week, Safaricom will start trading at a trailing multiple of 3.6, which is way below the sector average of 15.09.

Safaricom CEO Michael Joseph

If we were to make a bold assumption with the expectation that smart investors will spot this gap and that Safaricom's management keeps the till cranking at the current pace or more, if the company valuation was to converge at the current sector average, the share price could hit Sh21. On a sales to revenue measure, the price would be in Sh15 range.

One thing that an investor is bound to ask is that beside currency outlook (which is currently outperforming), why should they pay more for Safaricom which will have a market cap of Sh200 billion, when Egypt Mobile which is slightly bigger than the Kenyan operator would valued at Sh213 billion?

It seems like only some little arbitrage opportunities exist here.

For an investor looking inside, when Safaricom's ability to make money is compared to its peer group of blue chip Kenyan companies, investors seem to be buying the mobile carrier on the cheap. The trailing p/e ratios of these firms are in the range of 17 to 42, compared to 3.6 for Safaricom.

Again, it is difficult to explain why investors are willing to pay a p/e multiple of 41 for Equity Bank, 19.67 for Barclays Bank and 17 for Standard Chartered compared to 3.6 for Safaricom, yet its potential for faster profit growth is bigger.

One reason why investors are willing to pay higher multiples for blue chip stocks in Safaricom's peer group is based on the fact that firms like Barclays, Bamburi, EABL and StanChart are rock solid firms that have delivered good profit growth and a big dividend pay out over nearly a decade now.

Safaricom on the other hand started paying out hefty dividends of Sh4 billion, which is 29 per cent pay out the previous year. But even with free cashflows of Sh10 billion annually, this is a business that can be cash hungry and very price sensitive. Investors are likely to punish Safaricom for this risk.

Then, even with a good dividend payout, the number of people sharing at the pot-840,000 of them is quite a multitude, which leaves everyone with a small chunk. This means that for retail investors, it will take a long time for Safaricom to make huge profits that will yield a big payout. This share is for big investors.

The only saving grace is capital appreciation, which some analysts doubt.

In an interview, Mwangi Kimani, an independent financial analyst in Nairobi said that he did not see why the price per share was as high as Sh5 as he sees little prospects for organic growth. He is convinced that the Kenyan cell phone services market is almost saturated while the entry by competitors like Econet Wireless and Telkom would continue to push margins down on mobile calls. As it is now, there is a raging price war between Celtel Kenya and Safaricom.

Buying a rival in a neighbouring country such as MTN Tanzania could improve Safaricom's future fortunes, but the anchor shareholder, Vodafone would not be interested in geographical expansion in markets it already has a presence. Mr Kimani recommended a price of Sh2.50 per share for the Safaricom IPO.

"Well 30 cents per Sh5 investment is a return of six per cent on capital. That seems a bit low for a country with a projected inflation rate of at least 16 per cent over the next few years," said Mr Kimani.

He added that even diversification to data services may provide only a little headroom. "Data services, unlike mobile telephony, are not governed by high capital entry licenses, so smaller players like Access Kenya can easily provide M-pesa like services in conjunction with banks, using [other] highly efficient technologies (Wimax etc.)"

Although he is generally positive about the future growth prospects of the company, Humphrey Gathungu, a manager at Stanbic Investment Management Services, said that he did not expect the dividend payment for the Safaricom shareholders to go beyond 40 per cent in the next one to three financial years but this could go up to 60-70 per cent in the next four to five years.

The reason the company has to retain so much in earnings has all to do with need to expand especially in view of the fact that there will be fierce competition in the industry. This factor alone could keep the price of the share subdued for several years

A factor that has always suspected in the stock market but never proved and could influence prices after trading begins is speculative attacks from well-financed institutions or individuals. Such attacks could have the share make wild swings as has occasionally been seen on some counters.

Mr Gathungu pointed out that though there are cases such as Telkom Egypt and Telkom South Africa where the price was at about 1.7 and 2.21 times the book value respectively, there were also a number of other cases in which the price of a firm far exceeded the book value per share of the firm noting for example that Orascom of Egypt, a telecommunications firm, was at 7.5 times the book value taking into account its 2006 earnings. He also pointed out that Stanbic Uganda had seen its price to book value rise by even ten times.

Another success story with regard to price-to-book value is MTN of South Africa, which has been known to trade at over six times the book value.

Safaricom post IPO

Can be summarized in one word. Buy. Nothing else will do given I have a 3 yr strategy on the stock.

In the short-term, the counter's price will be pushed downwards and pulled upwards by broadly similar factors.

Loans: With something like 30% of the Ksh191bn having been financed by loans, guys will be wanting to offload ASAP so they can minimise interest charge. Some will also hold out for gains so that they can break-even against the loan, its interest and associated charges.


Subscription: Because of the oversubscription, I'd say retail investors will get hammered and will be lucky to get over 23%. Of the remaining 70% from above, I'd say 20% will sell because these are miserable number of shares to get. The rest will jump in for more.


Refunds: I expect this to be a protracted process not unlike KenGen. The application volumes and the fact that the brokers don't learn, means guys can expect refunds to still be coming in a yr's time. Thus this may mean they sell to get some cash so they can cope with inflation.

Results: Although the 2007/8 results were slightly below expectations by around a Ksh1bn at PBT level, this was still a good performance that will ensure guys will jump into the stock that on a P/E basis of 14, is undervalued by NSE standards.


My strategy is driven by one simple thing, despite the fact that Safaricom is a 15-20% per yr growth company, it'll do an AccessKenya i.e. whatever happens in the short-term (next 3 months), it will be at around Ksh15 in a yr's time. Any price below Ksh7.50 will see me jumping in. Beyond this price, it'll just depend on how my growth stocks are doing.

Why You Have To Believe In Yourself

Last week, we established that if safaricom declares sh21 billions in profits after tax, the PE ratio would be 9.52. that emerging market
telephony has an average PE of 17.00, therefore, the fair market price would be sh5/9.52 x 17 = sh8.928 per share. I congratulate Raj Bains,
who had the first correct answer. Now, we have to survey the landscape and take some other factors into consideration. the first issue
is whether the market is bullish or bearish. Perfectly good companies will struggle to make upside progress in a bear market. a rising tide (bull
market) tends to float a lot of boats. so we need to put a bias into the model. I have a dear friend and one of the best traders I know and when folk
ask him for investment advice, he responds, "It’s a bull market, don’t you know?" Many People are disappointed because he does not say
more than that but he is signaling a key consideration. the second consideration is the set up. Do buyers have the holding power? How is
the equation between buyers and sellers? It’s not rocket science. there are hundreds of markets all over Kenya. the bourse is no different. Let’s start
with Kenya retail, that’s you and me. are we all going to be ‘scalpers’ and ‘flippers’? Most People have taken short term loans; the year has been
tricky for all of us. It’s going to get a lot better but many folk will be biased towards booking a profit and flipping the shares quickly. We also have
foreign investors? are they going to be of the same mind set? and somewhere in the background, Vodafone might be lurking in the shadows.
I know if I was Mr sarin (Vodafone head) I would be thinking I need 16 per cent to put myself in the majority and I would be happy to pay a
premium for that 16 per cent so that I am finally in a majority and in charge. and this is where investing becomes more of an art than a
science. and the final factor is we need to study the tape, that is the share price from the day it starts trading. If you really want to maximise your returns
(and for many this is a very big outsized investment), you need to know the price at all times. It is going to make a very big difference if
you sell at 7, 8 or 10. If it trades sh10.00 and you are expecting your very kind broker to remember to call you, there is a fatal flaw in
your strategy. You need to be calling him or her and saying, ‘Its trading at sh10 , please sell my shares.’
Aly-Khan Satchu
www.rich.co.ke
is the author of
Anyone Can Be Rich

AccessKenya in buy-outs plan

By Nation AccessKenya shareholders on Thursday gave the firm a go-ahead to acquire more companies in the information and communication technology sector to consolidate its position in the market. Last year, the ICT company acquired Openview Business Systems and Today’s Online, an internet service provider. The much-needed approval by shareholders during their first annual general meeting since listing at the Nairobi Stock Exchange in June last year, will now allow the firm to invest Sh600 million in a number of buy-outs soon. Of the available funds, the company will spend Sh200 million in a new residential network in Nairobi and Mombasa. A further Sh100 will be injected into The East African Marine System (TEAMS) project spearheaded by the government. The project is meant to link the country to the rest of the world through a submarine fibre optic cable. The remainder, Sh300 million, will go towards strategic acquisitions as the company seeks an increased market share of its corporate IT services segment. Shareholders also allowed the AccessKenya board to increase its capital base to 500 million shares that would be used for further fundraising in case of an acquisition, share split or a bonus issue. The company currently has an authorised share capital of Sh250 million shares with just over 200 million shares issued. “This is a strategic plan to give us flexibility though we are yet to decide on what exactly to do with such shares,” noted the board’s chairman, Mr Micheal Somen. AccessKenya directors had also sought from its shareholders the right to make any acquisitions below Sh200 million, or less than 5 per cent of the company’s total market value, without the hassles of calling an extra-ordinary general meeting. “We would rather the Sh3 million spent on hosting an EGM goes to your dividends instead of tedious and expensive meetings,” said Mr Somen. He promised that all targeted acquisitions would be done above board though currently, any negotiations were secret due to ‘commercial challenges of exposing impending deals.

It's all about Collective Investment

Last year (2007) Housing Finance launched a 10-year fixed interest rate mortgage initially targeting investment groups wishing to put up houses either for owner occupation or speculative business.

Written by Eleanor Kigen
April 25, 2008: There is one advertisement I like on CNN. Although I cannot remember the exact words, I find the message powerful. It talks about the impact that a collective group of people can have on the world. They can change it. Alone, it is virtually impossible.

This rings true in the financial world as well. When people come together with different ideas and each with their small savings, they can create something great. Just this week I was reading a book called The Second Bounce of the Ball.

Among its many lessons is that if you want to grow, you need to build a network with whom you can be able to achieve a lot. Collective investment vehicles are a good way for investors to bring together their monies and be able to make bigger investments with much bigger returns.

Alone, each of the investors can be able to invest in a few shares of Kenya Airways, Kenya Commercial Bank, Athi River Mining and so on. But together, they can be able to take over a company, turn it around, make money and sell the investment at a profit.

But for such a venture to work, the people who come together have to have a common goal. They have to know where they are going. They have to believe in the vision. If you belong in an investment group, you have already started the journey.

Do you meet regularly? Do you have clearly defined goals? A clearly defined strategy? Do you have regular meetings? Do you have laid out procedures for making decisions? Do you follow your decisions through?

Do you have an eye for opportunity? Do you take calculated risks? There are clearly many things that have to be taken into account in order to guarantee success of your group.

There are also some other types of collective investments that do not require your exerted effort on a day to day basis.

Sometimes as an investor though, you are looking for investments that offer you optimum returns and diversification in a certain sector, or market capitalisations, or blue chip counters.

In more advanced markets, we have exchange traded funds which give you exposure to the type of counters that you want, be it financials, blue chip counters, large market capitaliasation companies, small capitalisation companies.

In the Johannesburg Stock Exchange (JSE), we have what is called the Satrix Securities which are listed collective investment schemes which can replicate the dividend and price performance of a particular index.

The returns that accrue to you are almost the same if you had directly purchased each of the individual securities on the JSE index. On your own, trying to get exposure to the index is not only time consuming, it is costly.

The advantages of purchasing the Satrix Securities include; lower transaction costs, since the shares on the index do not change frequently it is mostly a buy and hold strategy.

Secondly, a single transactions gives you exposure to a wide range of securities and the selling price moves according to the Net Asset Value. At any time you can know how much you are worth. Some of the Satrix funds include; the Satrix 40 which includes the top 40 companies on the JSE, Top 25 listed industrial companies index, top 15 financial companies index, if you are interested in dividends, you can invest in the Satrix Dividend Plus.

The biggest disadvantage of investing in exchange traded funds is that you can never beat the market. If the market is on an upward rise, you can only make market gains and your losses will be limited to the market losses.

Ultimately, it depends on you, the investor – on your risk appetite and the kind of returns you are looking for. There are many opportunities for collective investments even including gold! If you are looking for above market gains, exchange traded funds might not be the way for you.

Raising a Money-Savvy Child

Long before most children can add or subtract, they become aware of the concept of money. Any 4-year old knows where their parents get money - the ATM of course!

I got a friend to help me quiz some children between 5 & 6 years in his Sunday School class. 30% said they didn't know where money came from. The remaining 70% gave the following answers to the question "where does money come from?"

• Mum & Dad
• Kibaki
• From God
• The bank
  
• From teachers
• From the government
• The church

The life-long benefits of teaching children good money habits make it well worth the effort. Children who are not taught these lessons pay the consequences for a life-time. I find it rather interesting how some smart bankers, doctors and accountants who earned excellent grades in school still struggle financially all of their lives! Some parents don't teach children about money because they think they shouldn't talk about money with children, don't have time, or think they don't have enough money. Parents should take time to teach children about money regardless of income and should start when children are young.

Parenting is not an easy job. A lot of challenges faced within parenting such as this subject are not readily available in a parenting manual. I looked all over the place for some book I could recommend on the subject but to no avail. Over 70% of the people I spoke to about this subject said that they had been taught nothing about money and investing by their parents. The challenge then, is to teach our kids about money while having no role models on which to base these teachings.

How can you assure that your children will know the value of a shilling, understand the importance of saving, and make financial decisions once they grown up to be adults? I was introduced to a well-read, intelligent man, Pastor Muriithi Wanjau from Mavuno Church who was kind enough to share his insights, which I thought make up the perfect manual for raising financially savvy kids.

So where should parents begin? The best place to start would be for both parents to discuss their values and determine how they will create an open environment for their children to discuss money. Issues such as how children should receive money, family values and attitudes about money, how to structure learning experiences for children, how to handle effects of advertising and peer pressure must be mapped out so that when they arise, both parents can deal with them in a consistent manner.

In Sharon M. Danes and Tammy Dunrud's publication, "Teaching Children Money Habits for Life", they maintain that teaching your children about money is more than preparing them for employment or teaching them to save some of the money they earn. It includes helping them understand the positive and negative meanings of money. For example, children need to learn that while it's nice to show someone love by buying a gift, it is just as important to show love through actions and words.

Children and parents should talk about their feelings, values, attitudes and beliefs about money. This helps children understand that conflict about money occurs and needs to be discussed in the family and that compromise is often necessary.

According to Pastor Muriithi, once your child begins to ask for things, usually candy or toys from a shop, he or she is ready to be taught about the value of the shilling. Most children would be about three years by this time. Take them shopping and let the child pay for one item. For children who are not yet going to school, separate coins into piles by size and discuss their value.

Children learn mainly through indirect teaching and by observation and example; a good idea that Pastor Muriithi shared with me was his way of teaching his child. He has 3 "piggy banks" or tins labeled "GOD" "ME" "SAVINGS" in which his six year old daughter puts in her coins once she's earned them doing some odd jobs. He finds ways of giving her little tasks around the house that she can do to earn some money, so that when she wants something she knows how much work she needs to do to be able to have enough to buy it.

How should children receive money? One of the contentious issues regarding money and kids is allowance. Some children may receive money by allowances, by parents doing it out upon request, as gifts on special occasions, or by earning it. Each family appears to have a unique financial solution, in deciding whether or not to use an allowance.

I however concur with Pastor Muriithi who feels that an allowance given on request or for free is not a good idea. Children need to learn that they will never earn something for nothing in life. They need to learn early how to find ways of making money and multiplying it. When a child is given money, they do not develop creativity as far as ways of making more. He gave me an example of his friends daughters who are both teenagers (16 and 18) and through odd jobs and investing, have both saved over KShs 150,000! How may young Kenyans in their late twenties have 150,000 just sitting in the bank?

I remember pressuring my parents, when I was younger, to give me an allowance because "all" my friends were receiving an allowance. My father however never budged! I know understand why.

"The most critical age of a child's growth and development is from 1 to 7 years. The next most critical years are up to 12 years. After 12 years of age, it is difficult to instill values in children" Pastor Muriithi

By the time a child can talk and begins to ask for things, parents can begin to work on concepts such as earning, spending and saving. Earning refers to how children receive money. Spending refers to the way children decide to use their money. Saving refers to money that the children set aside for some future use.

By getting your children to carry out some odd jobs and earning some money for it, you give them a sense of freedom and recognition. Earning also teaches financial independence, the value of work, work standards and habits, how to evaluate job alternatives and the relationship of money, time, skills and energy.

Spending teaches the difference and balance between wants and needs. It gives opportunities for comparing alternatives, enables children to make decisions and take responsibility for them as well as keeping records. Parents should let their children make mistakes and learn from the consequences.

Parents should make sure their children know they've made mistakes too. Let the child know that you can't afford to buy everything you want either. This could be brought out while window shopping together. It's a good idea to also explain the bigger picture too.

For instance, going to the movies doesn't just involve the price of a movie ticket, but fuel for the car, popcorn, time and energy. This will help them be more aware when making financial decisions. Communicate. It's important for parents to talk to their children about money. Include children in family financial discussions appropriate for their age. This helps them feel valued and tells them that money is not a taboo subject.

Saving shows a child how to get what they need. It teaches planning and the concept of delayed gratification. It also teaches the interrelationship of spending and earning. It also teaches the different purposes of planned and regular saving. For instance, a six year old would have short term savings for a specific want or need put into their "ME" tin/piggy bank and regular savings, which are long term put into their "SAVINGS" tin/piggy bank. The difference between the two should be explained to the child.

Help the child set up short-term savings goals and let them know how long it will take to save a particular amount. Keep praising and encouraging your children and motivate their saving by annually matching the amount the child saves. When your child is about 7 or 8 you could open a savings account at a financial institution that accommodates children. Go with them to open the account and explain interest and how the institution works.

As the child grows older, they need to be able to pay for more and more of their material needs such pocket money for school trips, and so on. You should also teach them the concepts of borrowing and sharing. Borrowing means that the money can be obtained for use in the present but must be paid back in the future with additional cost. Sharing means both the idea of sharing what we have with the less fortunate.

As you teach your children about money, remember to continually encourage and praise them rather than criticize and rebuke. Allow them to learn by making mistakes and through successes. One important thing you must remember is to be consistent. Consistency is the key to giving kids a healthy attitude about money. So however you formulate your plan, stick with it. And remember the pay-offs; not only will your kids know their way around a bank statement, one day, they'll be able to support you in your old age :)

Baring Out The Logic Of Equity’s Growth

by: Rina Karina, 2 Apr 08
Equity Bank's total income compounded annual growth rate of 193% per annum over the last five years has astounded many. From gutter press articles, S.K. Patels and phantom employees raising alarms of an impending collapse, to parliamentarians putting forward accusations that have had no basis.

In July this year, the Central Bank of Kenya (CBK) Governor, Prof Njuguna Ndung'u advised the public that an audit of Equity Bank had been carried out and CBK was satisfied with the financial strength and stability of Equity Bank and all other banks currently operating in the market. Yet many continue to allege various improprieties against Equity.

Without a doubt Equity Bank has continued to puzzle many, and it is for this reason that we thought fit to bring to light some facts about this Bank that is making waves not only in Kenya and this continent but in the corridors of the United Nations and the rest of the world.

The bank's business model is simple: to bank the un-banked population. The original founders of Equity had the desire to create a financial services provider that would focus on low income clients and this desire was driven by the realisation that the low and medium income earners had no access to formal banking. Equity was registered under the Building Societies Act and started off as a specialist provider of mortgage financing to its members.

This however was difficult as the Company was limited by undercapitalisation and in 1993 the Central Bank of Kenya declared Equity technically insolvent. The bank's management then put together business model that would help turnaround the company - the shift from mortgage finance to microfinance and a focus on the un-banked population.

The fact of the matter is that Equity Bank's strength lies in its strategy of offering banking services and lending to a previously untapped segment of the market. The bank has high operating margins, efficiency ratio improving from 72% in 2005 through 67% in December 2006 to 60% in June 2007. This has been on the back of efficient growth leveraging the unutilized capacity of a modern and scalable IT infrastructure, ability to maintain above sector average net interest margins and minimal bad debt incidents.

Equity Bank enjoys some of the lowest cost of funds in the sector, at less than 0.78%, while the sector average is roughly about 3%. This has been driven largely by the banks aggressive non-tariff deposit mobilisation inducing nil minimum balances, absolutely no ledge fees even for cheque accounts and lowest minimum interest attracting balance of KShs 10,000. Along with this, is the presence in un-banked sections of the country where the bank can get away without paying for deposits. Equity's savings mobilisation has been its greatest success.

In order to increase outreach into remote and densely populated rural areas, Equity set up mobile banking units fitted with modern IT systems, powered by solar panels. The mobile banking units are customized pick-up trucks which carry lap-tops with information being downloaded and uploaded at the beginning and end of each day.

Equity now boasts 1.4million customers and majority of these clients are small-hold farmers, low end salaried workers and small & medium sized businesses. The bank continues to grow, opening an average of 4,000 bank accounts a day! The bank has grown its lending book at a blistering pace from only KShs 5.5 billion in December 2005 to KShs 14.6 billion by June 2007. This has been achieved through check out systems with employers, lending to SMEs and to entrepreneurial individuals whose own discipline and desire to succeed shields them from the stigma of defaulting.

Equity has redefined its credit policy, with a clear focus on enhancing internal controls to cultivate and maintain a well balanced and high quality loan portfolio. Two years ago, Equity had a problem with lack of focus on a particular niche market in the credit methodology. The Bank tried to cover many markets at the same time and found it difficult to define its typical client and staff tended to use the same commercial banking approach for all types of loans.

This has now improved. The bank has identified the following sectors: Microfinance, Corporate, Consumer, Agriculture and SME. Each business segment is headed by a sector head that is responsible for the performance of their existing sectors. However, the bank may have out grown itself and needs to recapitalise in order to be inline with the CBK capital adequacy guidelines.

The bank also requires the funds for its expansion program as well as to increase lending. We therefore envisage that the company will have to undergo an equity recapitalisation, by either carrying out a rights issue or perhaps selling a certain percentage of the bank's shares to a strategic investor.

The proposed purchase of 20% in Housing Finance (HF), Kenya's leading mortgage finance company spawns tremendous revenue opportunities, cost synergies and scale advantages. The revenue opportunities accruing to Equity Bank are thus: the opportunity to push HF's mortgage products to a section of its clientele and benefit from the resulting explosive growth in HF's business (targets are to sell mortgages to a very conservative 5% of Equity's 1.4 million customers or 70,000 accounts).

Quite an unimaginable feat against only 4,500 mortgage accounts in 30 years of HF's existence! The other revenue opportunity is to be able to lend medium term deposits to HF at a much higher interest margin than attainable from treasuries or deposits with other institutions. The resulting interest spread would accrue to Equity as marginal income on existing assets. Cost synergies that will result include shared services, debt recovery, staff and marketing efforts.

The nine key shareholders of Equity Bank, including Mr. James Njuguna Mwangi who owns 7.32% of the bank were locked in when the banks shares were listed in August 2006 and will not be able to trade their shares until August 2008.

All in all Equity is without a doubt the leader among its peer group. It offers a diverse variety of banking services, has management expertise, experience in the microfinance sector and well placed infrastructure and IT platform. The bank's short-to-medium term plans include the continued expansion of its domestic franchise through investment in additional branches and ATMs, continued innovation of services channels and the possible acquisition of other banks (considering an industry consolidation). Going forward, key challenges for the bank include: maintaining an adequate level of asset quality, particularly in light of the exponential growth in risk assets and the maintenance of its capital position.

Personal Finance

Personal Finance
by: Rina Karina, 2 Apr 08
Sometime this year after I made a presentation on the stock market to some 200 or so men, I got a question from one of them asking how I could talk about investing money when a lot of Kenyan's lived from hand to mouth. He said that the average Kenyan's concern, was not stocks, bonds, etc but where their next meal would come from. His comment saddened me a great deal as it made me realise that a lot of Kenyans don't think about saving as a necessity but rather an activity carried out by the wealthy.

David Ithanya, in his book, The Winners & Losers of Capitalism; and why Africa is not winning yet, states "Africa's problem lies more in its collective attitude, collective outlook and collective mindset. It is the expectations that Africa has of itself, that are terribly low. It is Africa's collective sense of self worth and self belief, which unfortunately, sometimes seems to reside only in rhetoric."

It is important to believe that we as a nation can solve our persistent and pressing problems without the assistance of foreigners. We as a nation and as a continent must find our OWN solutions to our pressing problems. It is my firm belief that when we begin to make a difference in our thinking and personal finance, we will affect the economy of the nation.

Kanjii is a great friend of mine whose view on personal finance is refreshing in its simplicity and practicality. The reality is that successful investing is not difficult at all. It's just intimidating. You don't have to understand all the ups and downs of the Stock Exchanges in the world, the interest-rate decisions by the Central Bank, economic indicators and so forth.

All these things have significant meaning but you don't have to follow them all to invest well. All you really need is to have an understanding of several facts and be confident in yourself as you begin. Ever heard of the three baskets of success? Kanjii introduced them to me and I think they're a brilliant way to group your financial goals.
The first basket of success is the Security Basket. In this basket are finances sufficient to support your current expenses: food, rent, clothing, entertainment, fuel, and so on. You also need to keep at least 3 to 6 months of your income as "damage management" or "just in case" funds. This money needs to be in the bank or in marketable securities such as the Money Market fund or Treasury Bills that are easily and quickly accessible.

As you fill this basket, you would need to consider what your current financial situation is. Are you in debt? Do you have a car loan or a mortgage? Are you planning a wedding? Going back to school? Planning to have children? And so on... You should at least have the basic life insurance that covers you and your family in case of terminal disease, death and accident. This is very important as even though you might lose all your money in an investment, if you need medical attention, it will be taken care of. The size of your security basket will depend on your current financial needs.

The second basket of success is the Investment Basket. Making deposits into this basket should be done once the security basket is full. The investment basket will have the kinds of investments that should provide you with the money that you will need to meet the needs that you expect to have in the future.

Most people have more than one investment objective: a secure retirement is almost everyone's long term goal, more immediately pressing goals are: a down payment on a house, or a child's college education. In this basket you would have both short term and long term assets: stocks (or shares), bonds, bills, real estate, unit trusts, and so on...

You would need to calculate how much you will need to set aside in order to make these investments. The single most important thing you will need to do to ensure that this basket is filled is to live below your means! If you want to be able to invest and accumulate wealth to help yourself or others in the future, you simply cannot spend everything you earn.

All three baskets of success will be fuelled by savings... It's never too late to become disciplined about saving, but the sooner you develop the saving habit, the easier it will be to achieve your goals. You can start by creating a budget for the New Year: no successful company would establish a profit goal without estimating its operating costs in advance.

The same goes for individuals: if you want to free up enough cash to save the recommended 10 to 15% of your pay in 2007, you have to control your costs. Your number one goal should be to do a budget, keep track of your expenses for a couple of months. It's the smaller expenses like clothing, movies, phone bills and coffees that slip through the cracks and before you know it, there's not much left for savings.

Authors Thomas J. Stanley and William D. Danko in their book the Millionaire next door wrote:
How do you become wealthy? . . . It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes. Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and most of all, self-discipline.

Below are a couple of saving tips that you could use:

• Set aside any salary increments. If for instance at the end of this year you're given a salary increment of 10%, your cost of living doesn't change and your expenses shouldn't. Save that extra money every month like you didn't have it. An easy way to do this is to sign up for an automatic investment program, such as Old Mutual or British American unit-linked savings products.
• Cut your expenses. If you can defer making big payments e.g a new car while your current one is running ok albeit old, don't.
• Try monitoring your spending for a couple of months. Keep a spreadsheet and enter your expenses every day. When you itemize your expenses, it becomes easier to see where you can cut down

Louis R. Morrell, Basics of Investing, gives a distinction between saving and investing. Saving is a relatively short-term activity designed to provide a set amount of money at some point in the future, usually for a specific purpose such as buying a car. The major goal in saving is to avoid the risk that the amount objective will not be achieved.

Savings are liquid (easily converted into cash) and are usually used for such things as emergencies, down payment on a home, or a holiday. In contrast, investing is a longer-term in nature with the individual willing to accept more short-term risk in the expectation of achieving a greater long term gain. The goal in investing is not capital preservation but rather capital appreciation.

The dream basket is the third basket of success. In this basket you would have all the things that you don't need but would love to have... a yacht, a cruise around the world, a trip to the moon, a second home, or the latest Aston Martin! It is important not to have these baskets in the wrong order...

I hope to continue increasing financial literacy and letting the public know that you can indeed create wealth! It's just like Henry Ford statement, "the man who thinks he can and the man who thinks he can't, are both right; which one are you?"