The Rise And Fall Of The “Sure Banker”

Like most people I know, these days whenever I see stock prices on TV or in the paper, I have to stifle a whimper. The market, in which I have invested a fair piece of my savings, has fallen much faster than it rose in the last few years. “That’s my old-age-hummer-money”, I mumble to myself as I look at one-naira-per-share stocks which I purchased at ten bucks. And I’m not alone either, like I said. Just about every young professional or businessman I meet has a stock market sob story. Some much worse than mine. Try talking to an oil worker who took a loan from his company to buy stock without feeling a little perverse relief that at least you don’t owe people who challenge militants for a living.

So, how did we get into this collective mess? I mean, it’s not as if we are mugus who are too greedy to pass up a seemingly great deal… are we? Well, how did we end up throwing our money into a gaping void? And, since we are optimistic Nigerians, how do we get it back?

Let’s start with what made the stock market so appealing. First of all, there was the sales pitch. My bankers and brokers were smooth operators. They had charts and stock histories. They had anecdotes about “people you know, people you do business with” who have bought thousands of shares. I didn’t want to be the only guy watching the gravy train go by, did I? And I didn’t. I’m a Nigerian. Who no like betta tin? The traders tapped into an impulse that is deep in the Nigerian psyche: Refusal to be left behind. You see this impulse at work whenever you drive along a road and see twelve vendors selling the exact same thing. “Ehen? Zinc roof dey move market for dis side? Oya make I bring my own!” We can’t fight our nature: once we hear people are doing it and making money, we all have to go into it.

The second appeal of stocks was that they were presented as sure things. Just buy them, sit tight, and watch the value rise. Collect your dividends when you pass “GO”, and maybe buy more shares. Kinda like fixed deposit, only cooler. Of course many wise investors didn’t fall for this one, but so many “chairmen” – to whom the ins-and-outs of investment and finance are a foreign language – did. Think about how many older, richer ladies and gentlemen you’ve heard moan “I was told these shares would keep rising, that I could retire. What is going on?” Here’s what’s going on: we got roped into a financial culture for which the average local investor was not sophisticated or prepared enough. Heck, even the financial system itself was not sophisticated enough for the new stock culture. Share certificates took ages to get to buyers. Setting up a trading account was a long, byzantine process. You weren’t even sure you owned the stock you bought for months, as the specter of oversubscription loomed. All these problems created an environment where shares were not easily or quickly resold. In fact, to the average Nigerian stock owner, the idea of reselling seems foreign and weird. Yet that secondary market is necessary for a naturally volatile market like Nigeria. Our stocks are not sure things that one should hold on to forever. If the environment allowed the small investor to jump easily and quickly from one stock to the other, perhaps we would have seen a clearer distinction between winner and loser stocks, instead of the general downturn we now have on our hands.

Then again, the big foreign investors are really the ones driving the market. These funds pumped money into Nigeria when their home economies were booming. They bought stocks in all sectors at once, tying the fortunes of the entire stock market to their whims. When the going got rough in their home countries, and debts began to mount, they pulled their cash out of the Nigerian market and returned it to Europe and America. Our stocks tumbled. Did we really understand how dependent our stock prices were on these funds? Not in time.

The response to the crash of the market itself was also very Nigerian: finger pointing. The aforementioned bankers and brokers have borne much of the brunt, of course. When my friends and I hang out, the consensus is that the brokers among us are not allowed to complain about the economy or their finances since “na una fault”. I know this isn’t right. Really, I do. But I can’t help it. Nothing is better at deflecting the blame for a bad decision than blaming an expert’s opinion. I must say the brokers I know are taking this state of affairs with admirable dignity. No cases yet of an out-of-work stockbroker smashing the heads of his heckler friends with bottles of odeku. Bravo.

The next scapegoat for public ire has been “government”. Oh yes. You knew it was just a matter of time before Nigerians pick on that great big all-powerful force that can make everything better if it really wanted to. Suggestions for what government should be doing have ranged from placing warnings about stocks, to arresting executives whose stocks crash, and fixing the prices of shares to prevent a crash. Good to know we’re not communists, or anything. Again this all points to the fact that we don’t really understand how markets are supposed to work and we’re just playing at it. The strangest suggestion was a government “bailout” of the stock market. How that would have worked, I’m not sure. Government buying crashing stocks to boost their prices, ending privatisation? Government loaning people money to buy stocks? Government paying stockbrokers their missing commissions? The details were sketchy. All we knew was the Americans were bailing stuff out so, you know, we should too. It scares me whenever the National Assembly is the most reasonable voice on an issue, but that’s exactly what happened here. The Honourables killed the bailout idea before it went too far.

So, our stocks are going south of the Niger Delta. Does this mean I am doomed not to buy my Oppressormobile? Far from it. Downturns in a market are normal, and a sharp investor now has a chance to get good stocks at bargain-basement prices. If you’re going to get through this, you’ll have to be pickier than you were during the stock boom. No more rushing stocks just because everyone else is. No more buying based on name recognition. In short, you have to become an informed trader. Read those boring financial statements. Read articles that give you insight on a company’s business plan, so you can determine how profitable they will be in the short, mid and long term. Do NOT buy stock in companies whose expectation is to make profits from stock sales. A few weeks ago, I heard the chief executive of a large corporation declare that the company was running at a loss, but it expects to get back in the black after issuing more stock. So let me get this straight: Your company can’t turn a profit based on its activities, but you expect Nigerians to have enough confidence to buy enough shares to get you out of the red. And this confidence, of course, would be based on your brand name, which, as we have seen, has nothing to do with your actual level of success (or lack thereof). These are the types of pitfalls the Nigerian investor must learn to avoid if he has any hope of getting out of this mess.