This blog post is a guest post from one of our friends and partners, Zach Aldwin. Zach writes weekly in Zimbabwe and is a sought after entrepreneur and business mind. We loved a recent article that was published in the largest business publication in Zimbabwe and asked Zach if he would elaborate here on our blog. And he said "yes." So here we are.
Building up your investment portfolio is something that takes time. If you’re starting to branch out into other small investments the goal of this piece is to give you a few pointers on what to look for, and what to avoid. Many people get excited about “Quick Spins” or “Investing in other countries” but the grass is not always greener on the other side.
(Photo: Dirk Klein)
Invest in relationships not just in concepts. Consider this situation, you get pitched this great idea in a boardroom in Harare (capital in Zimbabwe for those of you not familiar with African geography). The person who is running with the concept is from a city in Ghana and his pitch: “You can buy a piece of land on the Ghana coast at next to nothing. The value of the plot will double every year because of a coastal development fund and when you finally decide to build you’ll be so happy that you put your money here because the return will be unreal.”
Your eyes perk up, and the sound of having an exquisite beach plot on the lovely beaches of Ghana sound like a dream. Even though you’ve never been to Ghana before and you are not really sure if the water is warm or cold, and you’re also not really sure that the beaches are beautiful...The return sounds good and you could also rent it and then use if for your own family vacations. This is a good deal. Well… maybe.
Another way to look at it is that you buy the property on impulse. You end up visiting the plot and you convince yourself that you’ll start building. You contract the builders while you are there and go back to Harare. Three weeks later the builders call—they need more money. You fly back to Ghana only to find that the builders have made a huge mistake on the foundation of the property. You cannot fix the problem in the few days that you are in the city and so you have to schedule another trip in a month. Every extra profit you make begins to be poured into your plot in Ghana. Finally, long overdue, it is built and you start renting.
Then the tourists that rented your place trashed it and break several things in the house and you are not sure if they paid the full amount. You also have a hunch that the person you left in charge of your property stole your geyser (water pump) and replaced it with a substandard copy but that will take weeks to prove. You are 4,000 miles away in Harare and your local business needs your attention. So you cannot just pick up and leave every time there is a problem.
You’ve got an investment in Ghana (for the record: I think Ghana is great country) that is frustrating the heck out of you and when you mention to your wife that you would like to take her there for Christmas she bursts into tears because you forgot about your annual Cape Town, South Africa visit. An opportunity that sounded great ended up an expensive managerial nightmare.
Yes, this may be a cynical approach but it may not far from the truth.
When you are starting to build your portfolio, invest around the corner, literally. Unless you have money to play with, invest in a place that you can drive to, it is so much easier to check up on. I truly had a friend that bought a lovely beach property on the East African coast. He lived in the U.S. When he first invested in the property he was overjoyed. “This will get me a constant revenue source from visitors every single month.” Like in the example, there was more traveling backwards and forwards to manage the property then actually enjoying it’s return and benefit.
In another instance, there are large asset management companies that will help manage your money, but you will not end up owning anything and the return will be controlled. Now there is nothing wrong with that, but remember what you are getting into. Do not put everything you have in something that is extremely controlled. Should you go this route make sure you are clear about the fee structure, penalties for early withdrawal, and do some homework on the funds you are investing in (their prime investments, who manages them, etc.).
If you’re friends with a stock broker, or there is someone you have been to dinner with a couple times and he knows how to trade on the market, then give the market a shot, but remember that you are investing based on a relationship.
If you have a friend in the real estate market that you trust; talk to them. Perhaps they have a fund you can be a part of. Remember though, get everything in writing. When it comes to hundreds and thousands of dollars that you are looking to invest, portion it out. Do not, I repeat, do not invest everything into one place. The world is replete with stories of people who have lost everything when a market has turned or a company has failed. Ask anyone who invested in Enron where in an 18-month period shares fell from $90 USD to $1 USD.
In the long term there are high-risk entrepreneurial opportunities. When you are investing in a small, local, computer business you can see the possible returns. You can go the office if there’s an issue. If you have partners you can organize a 20-minute coffee and sort out the dividends and straighten out problems.
Try this: ask a few people that you trust. What can I do with $2,000 or $3,000? See if there’s anything that works for you. Weigh your options. Get it in writing and go forward.
Special thanks to Zach Aldwin for partnering with us and writing guest posts from time to time. Zach writes a weekly column in the Business section of The Herald, the largest newspaper in Zimbabwe. He also loves great coffee and enjoys camping in the African bush with us from time to time. You can read Zach's bio here.
Posted on October 6, 2012
by Zach Aldwin filed under