BY ODHIAMBO RAMOGI
Warren Buffet, the world’s second richest man, was 40 years old in 1970.
He had graduated from Columbia University and gone to New York to learn about investments.
He worked in several firms before starting his own — Buffet partnership — which ultimately bought Berkshire Hathaway, his holding firm.
Three years later, the US economy faced a major recession and Warren took advantage of the undervalued stocks in the market to make a fortune.
The result of this decision is evident to all.
Markets the world over fluctuate. They follow the age-old paradigm of economic cycles.
Economics is a balance discipline. Too much inflation is bad; too little is bad, too. Save but don’t save too much.
At some point convert your savings into investments.
Borrowing is not good but it’s the tool of mobilising capital for microeconomic units and for mopping excess cash from the economy by central banks.
Unlike many social disciplines, economics demand balance.
But balance is hard to attain on a linear scale. This is why any economy will have low moments, correct itself and start to rise.
As it rises, it creates the balance and as soon as the excess is felt, it plateaus and starts to fall again.
This may happen in weeks or decades; but it is bound to happen. Men have ridden on this wave to create wealth.
John Rockefeller created his wealth in oil and commodity trading.
However, a lot of value was created in the post-war depression of 1920 through stock investment by Rockefeller Financial Services.
In Europe, the Rothschilds made a fortune through RIT Capital Partners in the recession of the early 1970s.
Locally, men like Chris Kirubi and Jimnah Mbaru have made millions by going aggressively into the market when it was most depressed.
Perhaps the oldest principle in the market is the buy-low sell-high principle established by the Spaniards.
From the days of the renaissance, Spaniards are renown as the best ship makers and traders in the world.
In the olden days, when trade was good and business was booming, demand for ships went up.
Many people would buy the ships for trading and status.
However, tides would turn either due to wars, famines, diseases or political uncertainty.
In the process, many merchants and noble families would sell their ships.
DEMAND AND SUPPLY
The law of demand and supply would apply and thus, the ships would be sold cheaply.
The Spaniards always bought the ships, repaired and improved them and then waited.
As sure as the blue sky, the demand would rise again and the Spaniards would sell the ships at very high prices.
The principle has been applied in commodity trading, real estate and, of course, stocks.
On the December 31, 2014, the NSE all share index was at 162.8.
It had delivered 60 per cent worth of capital gains to investors and was the second best performing market in Africa after Tanzania.
As fate would have it, the all share index dropped to 132.1 by December 31, 2016; a 18.9 per cent loss in just two years.
Tellingly, the Nairobi market has been dubbed as the worst performing in Africa by some international tabloids.
Drought, insecurity, political uncertainty and the introduction of capital gains tax are all to blame for the drop.
The market may thus continue to be depressed for a while with small upward fluctuations.
The agricultural stocks will continue to suffer from the drought stigma, the banking stocks will also see alienation as investors wait and check their performance after a full year.
Investments and insurance do not do well in a depressed economy and are avoided in an election year and so these, too, will have a dull price tag.
Thus, manufacturing, telecommunications and commercials are the key drivers at the moment.
Tourism has mixed fortunes with Kenya Airways losses sandbagging the success of Serena hotels.
Yet in all these, there is a considerable amount of demand in the market.
A few individuals have recognised that one does not plant when it’s warm and bright in the day, rather in the morning when it’s cold and foggy. They are busy sowing.
Seasons come and go, but strategies for wealth creation seem to be intact the world over.
Those who take up more risks and remain disciplined over time get it right.
The blues at the Nairobi securities exchange make for the best ambience for wealth creation.