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I bought 45,450 units of Glaxosmith (GSK Nigeria PLC) shares on 27th November 2019 at N5.7 per share.
Sold on 13th November 2020 at N8.1 per share.
That’s a nominal return of ~39.7% in one year.
Great trade? Let’s break it down:
Sold on 13th November 2020 at N8.1 per share.
That’s a nominal return of ~39.7% in one year.
Great trade? Let’s break it down:
Nigeria‘s y-o-y inflation rate as of Oct. 2020 was 14.23%, as reported by the National Bureau of Statistics.
Adjusting for inflation, my real return reduces to:
a). ~22.3% (((1 + nominal return) / (1 + inflation)) - 1) or
b). ~25.4% (nominal return - Inflation).
Let‘s go on:
Adjusting for inflation, my real return reduces to:
a). ~22.3% (((1 + nominal return) / (1 + inflation)) - 1) or
b). ~25.4% (nominal return - Inflation).
Let‘s go on:
To make this purchase, I converted my Euro to Naira in Nov. 2019 at around N400/€.
Today, Euro is trading at around N540/€.
That’s a currency depreciation of ~25.9%.
Today, Euro is trading at around N540/€.
That’s a currency depreciation of ~25.9%.
This means that despite having a nominal return of 39.7%, my real return from investing in GSK (adjusted for FX movements), was actually a loss of ~3.6% (~0.5% if you used the simplified inflation adjustment).
Usually, I would end such a tweet with „take from this what you will“
Usually, I would end such a tweet with „take from this what you will“
This time, however, I will be straight with you. If you earn in FX, avoid Naira denominated assets.
- avoid the Nigerian stock exchange
- avoid Nigerian fixed income (unless they offer >30% [30% because I am being conservative and assuming the currency will depreciate at a...
- avoid the Nigerian stock exchange
- avoid Nigerian fixed income (unless they offer >30% [30% because I am being conservative and assuming the currency will depreciate at a...
... lower rate in future, but I may be wrong])
- avoid Nigerian real estate (unless you are making a bargain purchase)
- only invest in start-ups (tech-heavy startups, which are likely to disrupt the status-quo or solve real problems). Exits will likely be in FX, so...
- avoid Nigerian real estate (unless you are making a bargain purchase)
- only invest in start-ups (tech-heavy startups, which are likely to disrupt the status-quo or solve real problems). Exits will likely be in FX, so...
... offer a hedge against FX fluctuations, kinda (ignoring the impact on valuation at exit).
If you earn in Naira:
- look for FX investment opportunities using platforms like @investbamboo (but take note of the currency conversion rates to see if you’re better off holding Naira assets);
- Depending on the conversion rate mentioned above, retaining exposure to
- look for FX investment opportunities using platforms like @investbamboo (but take note of the currency conversion rates to see if you’re better off holding Naira assets);
- Depending on the conversion rate mentioned above, retaining exposure to
... some Naira equity and perhaps real estate may still be worthwhile.
To summarize, SHORT NIGERIA, AND YOU WILL NOT LOSE!
To summarize, SHORT NIGERIA, AND YOU WILL NOT LOSE!
A good question would be: since I am converting back to EUR, should I use the EUR inflation rate instead of the Naira inflation rate? Probably, in which case, I would have made a real return of just over 10% (down from 39.7%).
Either way, the message is the same!
Either way, the message is the same!
*just over 5%
A few approximations. See Screenshot below 
buying price was N5.7 (36,140 units in Nov 19) and N5.8 (9,300 units in Dec 19).
Nominal return of 39.7% was calculated using N5.8 buying price (instead of N5.7). Should be somewhere between 39.7% and 42.1%
buying price was N5.7 (36,140 units in Nov 19) and N5.8 (9,300 units in Dec 19).
Nominal return of 39.7% was calculated using N5.8 buying price (instead of N5.7). Should be somewhere between 39.7% and 42.1%
Wrote about the Asian Currency Crisis of 1997 and Lessons for Nigeria in June , at the Peak of the Covid-19-driven Crude Oil Crisis...
we let another good crisis go to waste
https://www.nosaugiagbe.com/2020/06/the-asian-currency-crisis-of-1997.html
, at the Peak of the Covid-19-driven Crude Oil Crisis... we let another good crisis go to waste
https://www.nosaugiagbe.com/2020/06/the-asian-currency-crisis-of-1997.html
