When I started as cofounder of a company in 2006, I was about 22 years old. I was a smart kid, with lots of potential. Having turned down an offer to work with one of the biggest tobacco firms in the country with an excellent career development path. Then, I did not know where my strides would take me to. But I had one goal in mind. I did not want to work for money forever. I wanted some form of financial freedom and then, like now, I believed my route was entrepreneurship. But entrepreneurship is not for everyone and most importantly, it is not the only way to create wealth. The commonest means of wealth creation available to everyone is investing that does not necessitate active participation in the operations and management.
Definition of Investing and To Invest
At Genie Capital, we have unique definitions for investing and to invest. We define investing (a noun) as the intentional accumulation and ownership of capital over the long term and to invest (a verb) as to intentionally accumulate and own capital over the long term.
Investing is intentional: Investing is not for the unintentional. Investing is for those with intentions, clear goals and most often objectives. Investing is for those with strong and focused wills. To be intentional implies one takes ownership and responsibility over certain aspects of one’s life, livelihood and more. With regards to investing, this intention ought to be economic and financial in nature. Investors do not leave their economic and financial life to the hands of the state, chance or the Gods. Investors are intentional.
Investing is about accumulation of capital: While lots of people think investing is about making money, we tend to think investing is a lot more than making money. For us, investing is about ACCUMULATING CAPITAL. This begs for a clear definition of capital. At Genie Capital, we prefer the economist’s definition of capital - which is “man made resources used for production purposes.” The stock of software, information and communication infrastructure, transportation infrastructure, governance protocols, machinery, energy production and distribution systems, financial instruments and systems etc. Investing should lead to the accumulation of the stock of capital goods that enable the production of goods and services.
Investing is about ownership of capital: Ownership is fundamental to Investing. Ownership confers responsibility and liability unto the owner. Those who are not ready to take responsibility can not Invest.
Investing is for the long term: Investing is for the long term, not the short term. While gambling and fortune seeking have short term horizons, investing requires a long term perspective. Given our national context, investors should be looking at a time frame greater than 20 years. Those who get into investing with a non-long term perspective tend to destroy the little capital they had as a result of the seasonal fluctuations in human affairs, frauds and more.
Investing vs Trading in Financial Instruments
Most often, we confuse trading of financial instruments with investing. It is trading. Buying and selling of stocks, bonds, crypto assets etc follows the same principles of buying and selling of physical commodities like corn, cassava, vegetables, palm oil, crude oil etc. Do not get me wrong, lots of money can be made in trading financial instruments, just like lots of money can be made from trading physical commodities. However, being a trader of financial instruments does not necessarily make one an investor.
Investing vs Saving
On the surface, Investing and Saving could look alike. However, digging deeper, we realised Investing is very different from Saving. To save is to set aside some money from one’s current inflow and make it available for a future date. That Saving can be used for consumption like making a large purchase, it can be used to cover for emergency expenses or it can be invested. This illustrates that Saving does not automatically lead to Investing.
Primary Investment objectives
In order to make Investing work, the investor needs to be clear what s/he wants to achieve given the time horizon and available resources. Overall, Investing has three primary desired outcomes or what we generally call Primary Investment Objectives - Capital Growth, Income and Capital Preservation (called Safety or Stability in some circles).
The investment objective of Capital Growth implies the investor’s desired outcome is to have their capital grow over time. From 1x to 10x, 100x, 1,000x or more.
In order to achieve Capital Growth, most often, the investor needs to place bets on companies and startups at the forefront of inventions, innovations, new technologies and new business models with potential to scale. The majority of such startups and projects fail, however, the few that succeed provide super returns.
Investing for Capital Growth is not for the faint hearted given that it comes with very high risks that most people can not tolerate. When investing for Capital Growth, the investor has to be mindful of the fact that their initial capital can be completely wiped off without any alert.
The investment objective of Income Generation implies the investor’s desired outcome is to have their capital generate periodic additional income that will be made available to the investor. For example, an investor may invest 100 million F CFA in an asset that gives 1 million F CFA every year over a fixed period of time while the 100 million F CFA remain intact.
In order to achieve Income Generation, investors invest in corporate or government bonds that provide consistent annual, quarterly or monthly interests. Investors can also choose to invest in real estate properties that earn monthly, quarterly or annual rents. Another option is investing in corporate stocks that provide periodic dividends to their shareholders.
Investing for Income Generation is the most feasible Investment Objective for most people. And to an extent, it is perceived as less risky. However, it is the minefield for fraud given that Ponzi schemes are designed to model the need for consistent periodic income.
The investment objective of Capital Preservation implies the investor’s desired outcome is to preserve the economic value of their capital over time. Inflation and depreciation generally erode the economic value of capital. In order to not get affected by both inflation and depreciation, investors can choose to pursue Capital Preservation only, implying over the long term, the economic value of their capital should at least stay the same. For example, if in 2010 the investor started with 10 million F CFA in a country like Cameroon with annual inflation of about 5%, then the investor should have at least 17 million CFA if Capital Preservation was the main objective.
In order to achieve Capital Preservation, investors most often invest in inflation protected securities. These are financial instruments designed with the aim of protecting against inflation. Dividend paying stocks are another asset class that have been used over time to protect against inflation as dividends tend to increase with inflation.
Investing for Capital Preservation is considered the least risky with little prospects for outsized returns.
Importance of having Clarity on Primary Investment Objectives
The importance of having a clear Investment Objective can not be overemphasized. In addition to Risk Tolerance and Time Preference, Investment Objective is needed to design a suitable and optimal Asset Allocation Strategy for the Investor.
A good financial planner or analyst can infer and advise an Investor on the Investment Objectives based on the following variables:
- Stage of life
- Income level
- Family situation
- Starting capital, etc
Our advice to young professionals interested in Investing is mostly biased towards the Investment Objective of Capital Growth. Our rationale for such advice stems from the fact that they are young and more venturous, they have more than enough time to correct their mistakes (when they make them), they can bounce back from failed investments without much damage to social relationships and they have a stable income source (their employment). Whereas for middle agers, our advice is biased towards Capital Preservation.
Investment Objectives normally evolve over time. From one weighted more on Capital Growth which is more risky for young people to one weighted more on Capital Preservation for middle agers to one weighted more on Income Generation for retirees who definitely need the extra Income to supplement their loss of employment income.
"The best time to plant a tree is 20 years ago. The second best time is NOW."
About Genie Capital
At Genie Capital we identify, develop and invest in opportunities, technologies, IPs, processes, etc that deliver superior long term returns to our investors, whether they're investing in Real Estates, SMEs, Stocks, Bonds or Crypto Assets.
We have a mission to help build the financial infrastructure of Cameroon that will enable Cameroonians to directly invest in and benefit from the development of the country, rather than leaving it to foreigners who might not understand our needs and aspirations.
Though the concepts that are the foundations of Genie Capital have been in the development since 2013 or so, the company was incorporated in Limbe in July 2021 with head office at Mile 18 Junction, Buea - Silicon Mountain, SW - Cameroon.