The Wrong Forecaster

Dear Speculators,

The gloominess of the Nigerian economic outlook has significantly knocked down the prices of some financial assets but the real value of some of these assets have been mildly affected. While recounting the economic misfortune that has befallen the country in the last two years is inevitable, dwelling on the past is a perfect time wasting activity.

Luckily, investment is forward looking and not regressive thinking. The past is a great indication of the future but not a mirror for prediction. The randomness of the world ensures that yesterday looks at least slightly different from tomorrow. And if we have learnt anything from the history books, it is that good things do not last forever and bad times always have an end. Life is by definition cyclical.

The key questions to ask before buying or selling any financial asset is; will the current economic situation last forever? Will the inflation rate remain in double digits over the next 5 years? Will the Naira continue to depreciate indefinitely? Is the price of the financial asset in view currently misaligned with its fundamental price? Howard Marks, co-founder of Oaktree Capital, famously says that a successful investor does not make his returns by correctly predicting macroeconomic trends but by simply buying assets at a price less than they are actually worth.

Emeka Ucheaga,
Managing Partner,
Emeka Ucheaga Advisory

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