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Portfolio Balancing: Avoid Over Exposure To Financial Sector
Rank: Veteran Joined: 11/19/2010 Posts: 1,308 Location: nairobi metropolitan
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Agreed on high risks involved. Banks books are easily manipulated especially as noted on unsecured loans by either 1. underestimating bad debts, 2. Extreme cost mgt on tough times and finally making profits from unclaimed balances, or how else will you explain profit growth when there reduction, little or no growth in revenue?, or how many times have banks issued profit warnings or declared losses, unless there are parastatals?. Sadly, some banks are even put under receivership before previously declaring losses. The day law will be made on surrender of unclaimed balances to gok or it's agent, Will come with significant reduction on banks profits. A case in point was like bbk last year, where a reduction of bad debts of 500m against all logic of increasing loan book, was more than increased profit year on year, enabling it to report profit and cover what was actually a bad year for barclays. Democracy does not belong to the dead
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Rank: Elder Joined: 9/25/2009 Posts: 4,534 Location: Windhoek/Nairobbery
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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young wrote:If you do not take long positions in a stock that is you only speculate, then this thread is not for you.
For long term investors especially in sub saharan African markets, has it ever crossed your mind that your choices of most of your stocks are skewed towards the Finance sector ?
The reasons are obvious :=
They are the most profitable sectors
They are the most liquid sectors.
But be awasre that your greatest risk is in this sector because :-
Your exposure to risk is far more than other sector namely :-
1 High risk Of non performing loans
2 Wrong disclosure of balance sheet entries, auditors are only exposed to what the banks want them to see
3 The spiral effect on other banks because of interbank setlement which if consistently defaulted by a few distressed banks can affect the books of other banks.
The insurance firms are not spared either as they invest heavily on bank stocks.
What ever the returns my take is that you should not expose your porfolio more than 40% of your holdings on finance sector as a leverage.
The industrials seem to be more stable and consistent during turbulence, but their returns may not be as salutable as banking counters.
If majority of your counters is in banking or finance stocks my candid advise is that you need to rethink and re-balance your porfolio.
The banking sector is an ill wind that has already blown in US, Europe. In Africa, Nigeria investors learnt the hard lesson, for those whose portfolio were over exposed to banking stocks, it can happen to any other market.
I know of some investors that do not invest in Banking stocks at all due to obvious reasons above.
Even in Banking you have to split your portfolio between the agressive banks and the value banks.
Your aggressive bank I can pin point are:-
(i) KCB
(ii) Equity
(iii)COOP
(iv) HFC
(V)NIC
(Vi) DTB etc
For the consevative banks I can pin point
(i) Stan Chart
(ii) Barclays
During bullish run aggressive banks take the lead, but during bear run, the conservative banks are more reliable.
I suggest out of your 40% allocation to finance sector, give 40% of it to agressive bankS, 50% to conservatives and 10% to the insurence compnies. With this you will have 60$ of your portfolio spread ON the industrial and other sectors.
Simply put it is not very balanced or not so ideal to be too exposed to financial sector no matter how attractive it is as on the longer term you may tend to loose more.
So check your portfolio and see how exposed you are to the finacial sector ?. Is it not worthwhile to re-balance your portfolio ? The decision is yours.
Happy investing The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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young wrote:@sheep permit me to chip in here, in terms of recovery after general economic melt down like what happened in 2008, blue chips industrials always out peform blue chip financial not only in NSE but in other markets.
Lets take a look at a few blue chips on both sectors :-
FINANCIALS
High of KCB in 2008 was 32.5 bob
High of BBK was 98 Bob
Now KCB is 22 bob plus
BBK is now 56+ bob
Replace KCB with equity that was 300 (Pre split) in 2008
the story is the same, it is yet to attain 30!
None of them has recovered to that high
INDUSTRIALS
The High of EABL in 2008 was 194 bob
The high of ARM in 2008 was 137 bob
Now EABL is 200+, ARM is 170+
Both have a gone above the highs of 2008
If you invest in other markets like Ghana, Botswana, RSA, Hong Kong or US etc the story is the same.
The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Elder Joined: 5/27/2008 Posts: 3,760
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I have searched high and low for this thread. It is the one that motivated me to clear my financials decks, SCB @ 270, NIC @ 44 - 52, KCB @ 24 over the the period. When I look back, it was an inspired decision.
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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This is a likely event that will happen in Kenyan market. Banking sector are gradually over stating their profits to outshine each other and thereafter raising funds by rights issue to "EXPAND REGIONALLY OR BEEF UP THEIR WORKING CAPITAL" Citi group a wrong umpire for now blew the whistle, this issue has been watered down by the big banks , it will re-sufface in future, likely after the post election boom. It has been discussed in our noble Wazua forum and brushed aside. http://mobile.businessda...l/-/fkkrji/-/index.html
Regards The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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young wrote:This is a likely event that will happen in Kenyan market. Banking sector are gradually over stating their profits to outshine each other and thereafter raising funds by rights issue to "EXPAND REGIONALLY OR BEEF UP THEIR WORKING CAPITAL" Citi group a wrong umpire for now blew the whistle, this issue has been watered down by the big banks , it will re-sufface in future, likely after the post election boom. It has been discussed in our noble Wazua forum and brushed aside. http://mobile.businessda...l/-/fkkrji/-/index.html
Regards Messr @young our banks are invincible! Life is short. Live passionately.
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Rank: Elder Joined: 7/11/2010 Posts: 5,040
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@young. I strongly appreciate your wise counsel. What said was true and continues to be true. The investor's chief problem - and even his worst enemy - is likely to be himself
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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sparkly wrote:young wrote:This is a likely event that will happen in Kenyan market. Banking sector are gradually over stating their profits to outshine each other and thereafter raising funds by rights issue to "EXPAND REGIONALLY OR BEEF UP THEIR WORKING CAPITAL" Citi group a wrong umpire for now blew the whistle, this issue has been watered down by the big banks , it will re-sufface in future, likely after the post election boom. It has been discussed in our noble Wazua forum and brushed aside. http://mobile.businessdailyafri...ml/-/fkkrji/-/index.htmlRegards Messr @young our banks are invincible! @sparkly, Realy?!? What makes them unshakeable??? My take, its good to avoid overexposure to one given sector. I believe no sector is invincible!
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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A reminder The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Elder Joined: 7/11/2010 Posts: 5,040
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thanks. over the last 3 or so months ive noticed only banks and insurance look attractive. a good reminder here. The investor's chief problem - and even his worst enemy - is likely to be himself
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Rank: Chief Joined: 1/13/2011 Posts: 5,964
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How about a Power, Civil Engineering & Transport Infrastructure-combo as in Trans Century, TCL for diversification? The transport arm (RVR) looks set to surprise to the upside soon ->Revamped Tororo-Gulu-Pakwach railway line to boost trade with South Sudan http://www.theceomagazin...e-with-south-sudan.html <> http://citadelcapital.co...-two-decades-of-disuse/
A little glimpse of 'how things could be' at RVR from SA: Transnet steams ahead with 71% jump in profit | Fin24 http://www.fin24.com/Com...-jump-in-profit-20131024
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Rank: Chief Joined: 1/13/2011 Posts: 5,964
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[quote=Cde Monomotapa]How about a Power, Civil Engineering & Transport Infrastructure-combo as in Trans Century, TCL for diversification? The transport arm (RVR) looks set to surprise to the upside soon ->Revamped Tororo-Gulu-Pakwach railway line to boost trade with South Sudan http://www.theceomagazin...e-with-south-sudan.html <> http://citadelcapital.co...-two-decades-of-disuse/
A little glimpse of 'how things could be' at RVR from SA: Transnet steams ahead with 71% jump in profit | Fin24 http://www.fin24.com/Com...jump-in-profit-20131024[/quote] Rift Valley Railways (RVR) has purchased 20 locomotives at a cost of Sh357 million under an expansion programme to double its locomotive and wagon fleet by June next year. http://www.capitalfm.co....7mn-for-new-locomotives/
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Rank: Elder Joined: 2/10/2007 Posts: 1,587
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Gordon Gekko wrote:I have searched high and low for this thread. It is the one that motivated me to clear my financials decks, SCB @ 270, NIC @ 44 - 52, KCB @ 24 over the the period. When I look back, it was an inspired decision. GG, I hope where you took the funds has given you better returns than what you would have received from the above banks. Kcb alone has retuned 100%
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Rank: Elder Joined: 6/23/2009 Posts: 13,501 Location: nairobi
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already scaling down, come results announcements in 2014, I shall be ought of KENYAN financials 100%
HF 30,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: Elder Joined: 6/23/2009 Posts: 13,501 Location: nairobi
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another spanner hits the works www.businessdailyafrica....4/-/yqhxj2z/-/index.html
HF 30,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: Elder Joined: 1/21/2010 Posts: 6,675 Location: Nairobi
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I thought this would actually be great for shareholders as their wage bill is controlled... It may also lead to increased dividends as directors use their shares to pay themselves... Mark 12:29
Deuteronomy 4:16
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Rank: Elder Joined: 6/23/2009 Posts: 13,501 Location: nairobi
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guru267 wrote:I thought this would actually be great for shareholders as their wage bill is controlled... It may also lead to increased dividends as directors use their shares to pay themselves... What you are saying is not pure nonsense. However, a greater impact will be felt on the NPLs. The extreme underprovisioning by some of the big five will now have to be revisited with a fine comb
HF 30,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 23,800 ABP 6.45
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Rank: Elder Joined: 6/20/2007 Posts: 2,037 Location: Lagos, Nigeria
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obiero wrote:guru267 wrote:I thought this would actually be great for shareholders as their wage bill is controlled... It may also lead to increased dividends as directors use their shares to pay themselves... What you are saying is not pure nonsense. However, a greater impact will be felt on the NPLs. The extreme underprovisioning by some of the big five will now have to be revisited with a fine comb @Chief Obiero, avoid personal attack on @chief Guru, just pass the message it is up to wazuans to agree or disagree, expend your energy on facts AND @Chief Guru, avoid personal attack on @chief Obiero , just pass the massage it is up to wazuans to agree or disagree, expend your energy on facts Let us take a cue from @Hisah the great The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
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Rank: Chief Joined: 1/13/2011 Posts: 5,964
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obiero wrote:guru267 wrote:I thought this would actually be great for shareholders as their wage bill is controlled... It may also lead to increased dividends as directors use their shares to pay themselves... What you are saying is not pure nonsense. However, a greater impact will be felt on the NPLs. The extreme underprovisioning by some of the big five will now have to be revisited with a fine comb Please help us understand the linkage btwn regulating executive pay & NPLs. It's been a long day for most of us. Thanks.
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Portfolio Balancing: Avoid Over Exposure To Financial Sector
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