NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, February 17, 2015

It had been a ’bad’ trading year. The balance sheet was deep in the negative, following heavy investment in restructuring, rebranding and repositioning.

The share value had plummeted to a record low, never seen at the bourse. People’s savings had literally evaporated. Everyone was scared.

This is what greeted us at the beginning of a new trading year, when a listed manufacturing firm in Kenya share price hit rock bottom, a few years back. We all needed assurance. And assurance we received:

“Never buy shares, hoping to sell at a profit and pay school fees… shares are good for long-term investment, not short term speculation… “

In this brief address, the CEO had summed up, and demystified what buying and selling shares is all about. In his subsequent weekly briefs, the chief executive would educate us more on this, and soon we all came to appreciate what the stock market is all about when it comes to individual, low-income savers and investors.

In the current conventional capital markets practice, only a few enlightened individuals, big institutional investors and shrewd speculators invest in shares of listed companies. This has created an impression, even among the elite, that buying and selling stocks is a speculative venture: buy when they are low, sell when the stock value goes up. This makes sense for the big institutional investors and stockbrokers, whose lifeline depends on the value and number of shares traded. The capital market should go beyond this, to serve development, not merely speculative trade.