Investing is a gamble, but keep playing

To understand the real impact of Amana Capital’s hit, you need to go further down the chain, to the individuals, the hardworking men and women who put their hard-earned money in Amana.

One investor I know, let’s call her Ann, is 33 and married with three children. She is a media consultant and lives in Nairobi.

Her money personality is saver and risk-averse – she used to save 70 per cent when she was in her 20s, but now, with the children in school and a home to run, she saves 40 per cent.

She also has cash and Sacco savings. Her income has more than doubled since she went into full-time consultancy at 23.

Her biggest and riskiest investment is in a large parcel of land on the outskirts of Nairobi. Ann has been saving with Amana since late 2011.

SHILLING FUND

She put her money into a product known as Amana Shilling, a money market fund. She had over Sh1 million by the time the ship started sinking, in late November 2018.

“I was planning for my wedding at that time,” Ann says. “I needed ready cash because you never know with weddings. My late dad had also taken ill. I withdrew a total Sh850,000 in November and December. The money was available. There were no red flags. I remember I sent my withdrawal applications on Monday, and by Wednesday the money was in my account.

“That was all by God’s grace because in December, they sent us an e-mail wishing us a Merry Christmas and notifying us that they had closed for the break.

They attached the minutes form of extraordinary general meeting (EGM), but the attachment was sneaked into that e-mail. I didn’t know about the freeze until I tried to withdraw more money in January 2019. That’s when I went back to read the minutes,” she recalls.

They said that Sh275 million had been invested in Nakumatt, which was 20 per cent of the Amana Shilling fund value at the time of the investment.

COMMERCIAL PAPER

But as at December 31, 2017, the size of the Shilling fund had reduced, making the Nakumatt investment 29 per cent of the fund.

It also said that 29 per cent of these units would be frozen for a year. This is how Ann and other hard-working Kenyans found themselves sinking in this ship.

Nakumatt floated a commercial paper in 2016. Companies issue commercial papers when they need more money to run their business.

They are attractive to investors because they offer higher interest rates than other short-term options such Treasury Bills and fixed deposits.

But you know how it goes when an instrument has a higher-than-average rate of return? Yeah, it is also more risky.

Commercial papers are unsecured. This particular one, Amana says, “was backed by the approval of fund experts and regulators in the market”.

What made this risky product even riskier is that Nakumatt had issued it based on inaccurate and incomplete financial statements.

Worse still, they were already in the bad books of the banks that had been throwing them a lifeline.

DIVERSIFY INVESTMENTS

Amana had held onto the hope that they could get a cut from Nakumatt’s liquidated assets. However, what was recovered was barely of quarter of what Nakumatt owes Amana and other creditors.

“They had told us we could withdraw our money a year later, in November 2019, but still, nothing to date. My Sh154,000 are frozen. I have decided to cut my losses and write off the amount,” Ann says.

As investors, the greatest lesson we can pick up from this loss is to diversify our investments.

Diversification lowers your risks and cushions you from the blows of our volatile economy.

Spread your money across several investment vehicles: put your savings in two different saccos and different bank accounts.

Grow your insurance policies with Company X and your pension policies with Company Y.

Balance your liquidity levels by putting some of your money into long-term assets like land and short-term assets like a side hustle.

Be curious about where the people you have trusted your money with are taking it: ask questions; study their financial statements and your monthly statements; attend annual meetings.

Most important, follow your gut instinct. Investing is ultimately a gamble: sometimes you win, sometimes you lose; just don’t stop playing the game.

The writer is a certified accountant with ACCA and a former financial auditor