In Ghana, the most important question for a small business investor is where to focus attention. What makes one company more interesting than another? There are over 2,500 small businesses in Ghana, but few research services. This provides great opportunities for above-market returns but also means investors must have an approach for determining which companies are worth focusing on. After many years of providing business solutions to most private companies and speaking to majority of them, I have developed a preliminary structure where every business entity of SME could tap into it for business growth and expansion.
The principles behind today’s publication could apply to many industries, but they are especially relevant to consumer and retail businesses, the industries in which I have the most experience and encountered most.
Gross margin is the percentage difference between what a product sells for in the market (revenue) and what it costs to produce that product (cost of goods sold, or COGS). This ratio is critical because it is what allows a company to invest in all the other areas needed to get the product to market such as marketing and distribution.
Gross margins can vary by industry, and even by categories within an industry, but razor-thin gross margins leave no room for error. In private equity, I focused on investing in categories that had higher gross margins and thus could sustain increased costs more easily. Examples of higher gross margin categories include personal care, premium pet food, and natural and organic products etc.
It’s very important to keep in mind that gross margin expansion is very difficult. Focusing on creating products with better margins, automating production or getting lower prices for ingredients can help, but mostly in Ghana, the instances where gross margin improvement drives outsized investment returns are rare.
Brand Strength – This is often the toughest thing to assess in a small company, but an investor needs to ask herself, “Does this brand offer something unique?” Within the Ghanaian market, Customer/consumer surveys, “earned” media presence, and third-party data are good ways to start evaluating brand strength. In the consumer packaged goods (CPG) world, there are countless energy drinks and cleaning products. Having proper advertisement about your investment policies and strategies as well as merits concerning your products and services is a reliable resource for brand strengthening and revenue generation.
In a small business, you are investing as much in the leadership as you are in the product or company. As a result, you need to invest behind a CEO in whom you believe. As part of your initial diligence, reference checks and third-party background checks are a must. Beyond that, there isn’t a formula for evaluating leadership talent but you should do what every investor does–spend time asking questions. Get on a conference call and probe on issues you think are important. Does this person understand their business, have a passion for the product, and have what it takes to persevere?
Then you can proceed with your critical investment portfolio decision making.
Many people mostly in Ghana think that if they build a great company there will always be a home for it, but in certain industries that’s not the case. If the company has visions of selling to a strategic acquirer or a bidder, it should be able to identify who these likely “strategic” are, secondly, determine what their acquisition strategies have been, and lastly be able to explain why that business should be attractive to a strategic acquirer.
Recurring revenue is the portion of the revenue that is going to continue in the future. It provides a nice base (ideally a growing base) of revenue on which management can rely while focusing on ways to grow the business. It’s especially valuable because the cost of acquiring a new customer is typically about six times the cost of keeping an existing customer.
In consumer products recurring revenue comes from repeat purchase. Maybe you bought the product once because you liked the packaging. You buy it again because the product performed. It’s not enough, of course, to look to recurring revenue; the question is how frequently that revenue will recur.
The Investment Strategy
A well-planned investment strategy is essential before having any investment decisions. A business strategy is generally based upon long run period. Formation of business strategy largely dependent upon the factors such as long-term goals and risk on the investment.
As the return on investment is not always clear, so the investors prepare the strategy so as to face the ongoing challenges in investment. A balanced investment strategy is generally required in the process of investment, which possesses long time period and some risk tolerance.
In the case, when a strategy is aggressive the chance of attaining a higher goal is higher. An efficient strategy can be obtained from portfolio theory, which shows good estimates on risk and return.
Investment Strategy is usually considered to be more of a branch of finance than economics. It is defined as set of rules, a definite behavior or procedure guiding an investor to choose his investment portfolio. For example, investing in mutual funds has recently emerged as a very favorable investment strategy.
An investment strategy is centered on a risk-return trade-off for a potential investor. High return investment instruments such as real estate and mutual funds usually have more risks associated with it than low return-low risk investment opportunities. Return on investment can be calculated on past or current investment or on the estimated return on future investment.
Symbolically, it can be expressed as:
Vf/Vi -1 where Vf denotes final investment value and Vi is the initial investment value.(“f” and “i” should be noted as subscripts)
Return on investment (ROI) is profitable when Vf/Vi-1>0 and the investment is deemed to be unprofitable when the value of final investment is less than that of the initial investment. ROI is calculated to be 1 or 100% when the value of the final investment is twice the value of the initial investment.
Is quite prudent as an investment manager to know that a passive investment strategy attempted to minimize transaction costs whiles an active investment strategy guide used to maximize returns based on moves such as proper market timing. This usually mean, “Buying in the lows and selling in the highs” or buying investment instruments when they are cheap and selling them off when their price appreciates. This strategy, however, is not very beneficial for small time investors.
This strategy is replicated in Forex Trading investment thus buying and selling currencies electronically within networks of banks. For more detailed info as to how to get yourself educated and take part in this best lucrative investment business (Forex Trading), call 0246751535 to get the book INVESTMENT GUIDE-FOREX TRADING authored by Gabriel Ofori Yeboah, same author for today’s publication. It is worthy to know that the main purpose of this detailed book is to hasten the learning process by supplying you with the most useful information in the simplest manner possible which also comes with a free trading platforms for practicing as a beginner or polishing your trading skills as an expert. With this book you’ll gain the required knowledge and you’ll be more prepared to meet the markets and make money independently. More reason why it is popularly called ‘’the book of Million Dollar Secret That Can Change Your Life.’’
Also, small time investors can adopt the buy and hold investment strategy to invest in equities, which although volatile in nature, give favorable long run returns. Investing in equity markets for small time investors is associated with the investors holding on for very long periods. In the case of real estate, the holding period extends the lifespan of the mortgage. Notably, in case of this strategy, indexing or buying a small proportion of all the shares in market index or a mutual fund is a purely passive variant of the above strategy.
The strategy of value investing, a classic investment strategy simply concentrates on the strategy that an investor buys shares of a company as if he was buying off the whole company without paying any attention to the stock market scenario or any exterior conditions such as the political climate more particularly as we see in this year 2016 as we (Ghana) go to the post in coming November. At the end of the day, if he can buy the stock at less than that its actual future worth to the buyer, the person is said to have discovered a “value investment.”
Investment strategies can also denote the investment strategies a national or federal government should follow to bring about economic growth in a country. This can only be achieved by domestic investment as well as significant FDI (Foreign Direct Investment) flows to particular sectors of countries, especially the less developed ones of Asia and Africa.
An investment strategy in mutual funds is probably the best bet for a profitable investment. Mutual funds is defined as a pool of money supplied by different investors and in turn used by the mutual fund company to invest in various assets such as stocks and bonds. However, a detailed research has to be conducted for choosing the mutual fund companies and only those should be considered which have a professional investment manager.
This will ensure that the funds get channeled towards the right investments. This also applies for investing in stock markets where a decision to invest should follow a thorough research about the past and current trends of the stock prices and their Net Asset Values (NAV). Analyses from market researchers about the predicted future trends should also be considered otherwise gains from capital appreciation; capital gain distribution (in case of mutual funds) and dividends might not be realized.
Lastly, investment strategies leading to green investments or investments in renewable sources of energy will be the next big thing in the investment spectrum.
If you don’t have a purpose or a set of goals to guide your investment strategy, don’t invest. This sounds harsh, but there are so many types, styles and flavors of investing that, without a particular destination, you will be lost at sea.
To become a successful investor, you have to make sure that your personal finances are in order first. Investing without a purpose is bad, but investing when you have high-interest debt is much worse. If you are drowning in overdue bills and credit card payments that you can’t meet, take care of those more serious problems before getting too deep into investing.
Investing is more about the art of asking and answering the right questions than it is about deciding when to buy and when to sell. To question authority, you will need to educate yourself, especially on the subject of financials. Press releases are flakes of snow that rain down on investors and melt away, but financials stick around. Although financials can be tampered with, there is always a trail left behind.
When people buy cars, they try to find the best value for the lowest price; when people buy stocks, they only see the price and, ironically, gravitate toward rising prices. If you are going to invest, you have to check things for yourself in order to find the true value and get the bargains. This takes more time, and it could even cause you to miss out on early gains, but it will tell you when to stay out or when to sell well before the people hears the bell.
There always is a good chance that you will perform better than the majority of individual investors and many of the professionals. But sometimes, particularly during a bull market as we see also in Forex currency trade, gains are not dictated by investor actions as much as by having money in the market, so don’t allow yourself to become overconfident. Overconfidence often leads to over-trading, taking unnecessary risk and eventual losses when the bull turns bear. Also remember that you incur commissions every time you trade – this expense can often erase profits or increase losses.
Patience is a virtue for a good reason: It pays for itself. When the market dips, or even when a particular stock dips, there are always investors who panic and sell. Selling should be treated just as seriously as buying. If it is just a bump, ride it out. If it is truly a problem with the stock, take your time as well – you may find a way to use it in a gain-loss transaction that will save you taxes. By the time you hear it, bad news has already settled in – taking your time isn’t going to make it much worse. More useful point when buying and selling tradable currencies.
Investing too much is not a problem many people have, but it can happen. It is said that the pain of a loss has twice the emotional strength of the pleasure of a gain. For some people, this results in them pulling out of the market prematurely, as mentioned above.
For others, losing propels them into successively riskier ventures in an all-or-nothing attempt to win those losses back. Losses are hard to take, but look on the bright side: You can sell a loss to offset a gain in another sector or, if it is in a retirement account, you can use it as a tax write-off. Concentrating your money too much in one area, either by sector, risk level, or even keeping it all in the stock market, is a sure way to see more nothing than all in an all-or-nothing game.
You should never put everything you have into futures, but you also shouldn’t hold everything in Treasury bills. There is an appropriate level of risk for investors of every age and creed.
There is too much guru-ism going on among investors – so much so that credentials are often lost beneath book titles in which the word “rich” is prominently featured. As with the early caution against trusting authority, you have to question everything. Even if a strategy works for a certain period of time, once it becomes widespread, it skews the system.
Conclusion
Praying or getting behind the wheel expecting everyone else to follow the same rules you do are both acts of faith. Investing, in contrast, requires practice and proper strategy. To be a good investor, you have to make doubt a part of your creed and a make of ritual of double-checking. Today’s publication should help you on your way to achieve your business goals and visions.
Author: Gabriel Ofori Yeboah (Author) Investment Guide (Forex Trading).
Investment/Financial/Banking/business, (Analyst.)
Email:gabbynanaoforiyeboah@gmail.com Tel: 0246751535
