The lesson from today's post must not be missed by anyone who reads this!
A very good friend of mine had a discussion with me today and his concern centered on what to do with the shares of Transcorp Plc he bought over a year ago. He is currently reappraising his performance on the stock market (I suppose he is been playing for the past2-3 years now) and and plans to jiggle a bit with his medium to long term plans. He is proud to say he has had some stupendous measure of success, however his only sore point is...yes...Transcorp!
So how did he end up with Transcorp? Well, this friend of mine credits most(if not all) of his stock picks to my advice, however, on Transcorp he did not heed my advice. He was a constant torn to my ears through his phone calls asking what to buy and sell. Credit to him though, he was one of the reasons I decided to commence this blog. I remembered the period I got a call from him requesting what my opinion was on Transcorp, he had some money(a little below N2m) and was considering putting it in Transcorp. What was my consideration then? Well, I have to confess, I was not damn right prescriptive to him then, but I was equally quick to put a caveat on Transcorp shares. Needless to say, I had a discouraging tone towards Transcorp for anyone with a short to medium term perspective.
Don't get me wrong, I am quick to admit that the idea and concept Transcorp represents is noble. The sectors targeted for investment were indeed strategic (and still are) and do hold great potentials. What about the people behind the Transcorp idea, well, I don't know any of them personally, but truly they are people of worth and credible experience worth banking on. So what was wrong? Why didn't I jump on the bandwagon? Why did I choose to use body language rather than my harsh voice to put a "no-no" on the stock back then?
In one of my flaneur moments, shared with my friends during both the private placements and eventual IPO of Transcorp, I was quite categorical on the inappropriateness of taking a dive with Transcorp for anyone with "meagre" capital. I remember picking up the prospectus of Transcorp back then, and was puzzled to discover no historical performance to base any meaningful economic evaluation on. I asked for specific "Economic Value Creation" activities the company has had good track record with, and behold there was none. My mantra then became, if you invest in Transcorp, you invest in an idea - a good idea, but "unproven"! What Transcorp needed then was not a "public offer", it needed "Venture Capital". It was not a 50-50 chance for great returns in the short run, it was a near 90-10 chance of loss of economic value. Furthermore, compounding my puzzled mind then, was also the lack of a clear strategic plan by the proponents of the idea, it was clearly missing in the prospectus. That was another red flag!
So I'm I completely writing off Transcorp? Not at all, I'm only asserting what is now obvious - don't expect any magnificent returns in the short to medium term (actually, the price is quite low now, so it might actually not be a bad idea to buy, but my caveat still stands!). If Transcorp puts its house in order and comes out with a clear plan to ride the crest of economic potentials Nigeria offers, it is a sensible long term bet! It will take a lot of patience(with a 1000 heart skips and beats to go with it) to reap benefits from the stock.
So what will I advise my friend? Stay in for the long haul or get out? It's hard (He invested at a price of N6 and the stock now goes for about N3), he is going to halve the value of his money from near N2m to less than a million. Tough...but the decision has to be taken...I wish I could just tell him, leave it there and hopefully 10 years from now, you can use the returns to pay your children's school fees, but he has a short to medium term plan for his funds and needs to rescue what he has left. Indeed, he should sell....do you think differently?
So if he sells, where can he put this money in the short term that will possibly make-up for the loss he has made on Transcorp? Truth be told? I'm at a loss...but with a gun to my head as I think with my fingers..I'll do an Insurance company or take a position in Presco Plc, at least they have past performances I can review!
Cheers!
2 comments:
True words Gbolade, though I couldn't have put it better. Anyone investing in Transcorp at that point in time (and even now)must have a long-term plan. I did put some money into it (definitely nowhere near what your friend invested but I had a 7-15 year plan in mind) but even from the Financial plan in their IPO prospectus they talked of not declaring dividend for a 3-5 year period and knowing the NSE trends that accompany companies not declaring dividends or bonuses and the typical Nigerian investor's penchant for "reasonable" panic and accompanying share dumping when trends don't look good I knew the share price would definitely drop in the short to medium term. However, it is early days yet for Transcorp and I really hope it succeeds (moreso since I invested in it) but it is difficult to call at this stage particularly with the political interference and bad blood in high places (You can be sure however that if it collapses, I won't break a sweat).
I would advice your friend to pull out and bear his losses if only to spare himself from an early heart attack (I'm assuming he is in your age range) because from what you have said, he doesn't have the heart for a long term investment and really 2M is a lot of money for a long term investment (if he doesn't have loads of money stashed somewhere). Bottom line is, he made a wrong investment without proper planning and should learn from it and bounce back (he still has 1M to play money games with and is definitely wiser if he is your friend) he should not become one of the skeptics of the Nigerian capital market.
The concept of a Transcorp is flawed. The originator (Nick Okoye) used it to his benefit. Anyways, its all good....maybe Tom will be able to turn it around.......doubt it:-)
LAA
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