Babatope’s Blog

Sometimes they are. Most times they aren't. Short and simple. 

Designer clothing could be an investment as it shapes the way you look. Which in turn determines how other people look at you or "respect" you. 

Designer clothing is an investment because the quality is higher than that high street crap. It looks better (hopefully). And lasts muuuuuuch longer!

But, from a pure financial point, designer clothes aren't really investments. Especially not for a student or young professional spending from their income or pocket money. 

Here's the thing, for it to be an investment, your designer clothes, shoes or bags need to bring you some sort of return--today or in twenty years. 

So the Balmain shoes you buy today should be able to bring some money in everyday. Whether you wear them or leave them on your shoe rack. As well as have the potential to be resold, hopefully for a profit. But how often does that happen?

Also, let's not lie to ourselves. Most of us buy designer outfits to look cool, feel rich, impress others and.... "Investing in designer clothing" doesn't always come with an attached expectation to make money back. Which is sort of fine, because you dont necessarily expect to make money back from Zara or H&M clothing (if that's your taste) when you buy them. 

Designer clothes could be you succumbing to consumerism. Or simply being stupid with your money as you don't realise the opportunity lost by doing so.

This is something to think about. I guess that's why it's a good thing that all investments aren't made with financial intelligence. Or maybe not?

Morgan Housel’s “the Psychology of Money” talks about a very powerful idea in relation to this: real wealth is unseen. Is their wealth hidden behind unseen tastes in clothing?

I am astounded by how overconfident people tend to be when it comes to stock markets and investing. A lot of the conversations I have around buying stocks and investing tend to revolve around people believing they can pick the right stocks and make home runs. Which, I don’t believe is true. I share three reasons why:

• Speculating ignores fundamental values

The famous Fidelity fund manager, Peter Lynch had one of the most successful careers as a stockpicker. As he describes in one of his books, his approach (I believe) is do some research into companies, looking at things like their overall performance and balance sheet.  Then, combine that with obvious business trends he sees around. For example, 2020 and 2021 saw a rise in universities using Zoom for online lessons. The business trends help him think intuitively about whether the business would grow or not. He also split businesses into different growth stages so he has a clear understanding of the type of growth to expect from different companies. That is, Coca Cola may not grow much, but it’ll remain profitable and it has a strong global business. On the other hand, oil companies today are struggling and the industry is likely to contract in response to Covid-19 and oversupply issues. For the average investor, this poses some problems. You have to be able to value a company appropriately and understand the business environment of each enterprise you invest in. This is something most people don’t have the time for or interest in. 

We also have to understand that stock prices are influenced by two factors: economics and the things people do. 

The economic factors would be the underlying things that affect businesses. Think of things like business cycles: sometimes the economy goes through a recession when few people are hired, and people are generally less capable of splurging on luxuries. Then there are upcycles when prices are high, but there’s money flowing almost everywhere in an economy. There are also industry specific factors that may affect one business but not another. Schools are closed and facing reduced enrollment due to Covid-19, but Amazon and other online retailers are seeing surges in their orders. These factors genuinely affect a company’s ability to earn more money in the future and directly impact how companies are valued. That is, the share price. Or better said, the “fair value” of the company.

However, there are human beings and its usually difficult for everyone to agree to the same thing. People and companies using different methods to value businesses and influenced by their emotions may be willing to pay different prices to own a piece of a company. When people are optimistic, they’re typically willing to pay more. When they are pessimistic, they are typically willing to pay less. These feelings may not actually match the economic value of the business. So, sometimes shares are overvalued or undervalued. 

Now an individual operating in these markets risks getting shredded. That is buying when people are optimistic and prices are artificially high. Then selling when prices are low. Speculators typically buy shares expecting the price of shares to go higher. But that’s not guaranteed. It may be that they bought an overvalued stock, and people will become unwilling to pay high prices after they discover the business is not as profitable as previously thought. There are many things that can go wrong which put the average person that tries to speculate at enormous risk. 

• Even when you arrive at the right economic value, buying a few stocks increases risks

Some individual investors are able to arrive at the right prices for stocks. But then another factor comes into play. Let’s call it portfolio design. Essentially, every financial instrument has a risk-return profile. When you put cash in the bank, there’s an almost 100% chance you will get back the same amount back in two years, if the bank doesn't close shop. But, in two years, the same amount of money may not be able to buy what it can buy today. Yet, you may buy stocks today and lose everything tomorrow. Or better yet, double your money. The rewards are higher than holding cash but the risk is also higher. Even among stocks, each one has a different level of risk with regards to how likely the business would still be operating in the future and whether they would continue earning healthy profits. 

Portfolio design should help you balance these risks by sharing your money among all the things you can invest in. Balancing risk and return, depending on your investment goals.

Yet for the average investor without a ton of money. Getting adequate investment spread may not always be possible. For example, you may split all your money across 5 or 6 stocks, in say the airline industry, yet lose most of your money when coronavirus makes it almost impossible for people to travel. 

It’s usually better to find a way to spread your risk across as many financial instruments as possible. It protects your hard earned money from your fallibility. Stock pickers, I’m assuming they can select winners every single time, risk failing woefully at this  

• The algorithms are better

I tend to have this argument with friends from time to time. Trading on a day to day basis, to me, is a losers game. Big asset managers, hedge funds etc use computers and AI-enabled data systems that move faster than individuals and are able to act on random insights an individual may not have access to. A firm was once able to trade shares in a company Warren Buffett was going to buy because their internet crawling systems picked up a flight from the city where said company is based, to Omaha (where Buffet lives). Can you do that? Do you also have an ultra-fast machine that can trade at the same speed big financial firms do? 

I don’t think so. There’s no point taking risks with your money to eat from the crumbs of big firms. 

Last year I was at a church retreat. At some point, we had a mens talk. Two of us; men in their 60s decided to talk about their lives, and their financial situations came up. One of the men is a missionary, the other a senior executive at a multinational. The executive said to us, he started working right after college, decided he wanted to work as an executive for his company at their international locations and started reading the Wall Street Journal religiously. Over time he had invested a good chunk of his income over the years. And he told us confidently that he had no fear about retirement. 

The missionary had lived in many countries preaching the gospel and working odd jobs to make ends meet. His kids went to good schools, and he was happy to have been able to raise them in a loving family despite not having a lot, materially. About retirement, he essentially said he had no assets and really he’d lived his life by the Grace of God. So he had no worries. Now, I thought that was bonkers. In my head, I was thinking, how can you put yourself at such financial risk. “God isn’t going to save you from not preparing from retirement.” 

Now I realise that was a stupid thing to think. The missionary had devoted his life to a mission more important and noble than money. And truly, as I believe, God does provide for His children. And missionaries, as do other people who set themselves apart for religious service, have a particular calling to abandon material wealth. But that’s not the case for most of us. Most us will work in normal, secular jobs and earn regular incomes over the course of our lives. Most of us will also live long enough to get into retirement. 

The challenge is that most people don’t start thinking of or planning for retirement until it is a few years, or maybe even months away. 

Now that’s dangerous. 

Doing this means you’ve handed someone else the power to determine what your retirement income will be. It also means you may have wasted income you could enjoy in retirement, if you had invested more deliberately. For some people, it means they will have to work longer and harder than their bodies can handle, or need to handle. 

Planning for retirement shouldn’t be something you leave until the last minute. It’s something you should start thinking about today. Whether you’re 20 and you’re just starting your first job. Or 35 and with two kids and a new house. You should certainly not start thinking about it at 55 when you are about to retire. Plus, if you start thinking about it early, you may actually realise you don’t have to work that job until 55. 

So here two few things you can do in the next week to start thinking about retirement:

1. Find about how pension plans work in your company and country: Are there special investment or savings accounts when you put money away for retirement? Does your company match every amount you put away in that account? If you’re an entrepreneur can you create a pension fund for yourself as employee of your company?
2. Create a plan: Think about things like the age you want to retire from your job and what you’d do with the rest of your time. There’s more to life than working for income. Match that with how much it’ll cost you to live the lifestyle you want once you retire. Then start thinking about how you can build up investments to afford that lifestyle.

When should you start thinking about retirement? Now. Now when it’s so far off you don’t even worry about it. Now when you’re beginning your career and have no idea where you’ll end up. Don’t wait, start.

When I talk about money with my friends, I get a range of reactions. I get those who put smirks on their faces because they think I am stingy or stupid for believing the things that I do. I get blank faces that stare at me, judging me for being a capitalist who only cares about money. And sometimes, I get people interested in what I have to say. 

I'm not sure which category you fall into but here's the thing, I am deeply passionate about personal finance. For one main reason, during my short time on earth, I've noticed that money is perhaps the one thing we all have to deal with everyday. Yet, most of us don't understand it or know how to handle it. 

I've made it a personal mission to learn as much as I can about it. So that I can help people like you. And myself, of course. Anyway, I write what I like and believe so feel free not to take my opinion as professional advice. 

Let's imagine there are only two ways to invest: actively and passively. One requires you to think everyday. The other requires you to do the bulk of your thinking upfront, then leave things on auto cruise. Which one would you pick? 

I'd say auto cruise. But here's the thing, it's boring. 

With passive investing, you typically buy an index fund or two. Sometimes three (the more complex it gets, the harder it is to manage) Each index fund contains a couple of different individual stocks. Some funds focus on all (or almost all) the stocks that can be purchased in a single country. Or within a narrow sector, like the Energy sector. 

Now, remember that saying, "don't put all your eggs in one basket?" Well, that's the point of putting money in index funds. The average investor (you and I) is unable to do all the research to figure which individual stocks will be extremely valuable in the future. If you do, you might still make fatal mistakes that destroy all your wealth, if something like Coronavirus happens. Then all the airlines, hotels and entertainment parks you invested in stop working. If you put your money in a basket of stocks, across a set of industries, you get to protect yourself from crazy downturns. And, most importantly, you get to sleep well at night. Not worrying if the stock market will rise in the morning. 

But most investment professionals won't tell you this or try to advertise it to you. They want you to believe you have exceptional skills in investing so that you can trade often or bring your money to them. That way they charge you tons of fees, and get rich off money you worked hard to earn. 

Active investors these days sit in front of screens watching how stock prices jump from one point to another. Many of them aren't really investors. They speculate. Guessing what'll rise and what'll fall. Sometimes they make tons of money, other times they lose a lot. 

If you are young like me, would you rather take a bet on yourself by investing in a few stocks that you pick, or would rather put your money in every possible basket?

I think we should all learn about the stock market, and be passive investors. 

The events of the last two weeks in Nigeria have been intense. I have gone through intense moments of fear, hope, and distraught. Fear of what the future holds for Nigeria. Hope that people are willing to live and die for this nation we were born into. And distraught about the lack of political will and disconnection the political elite have with the livelihoods of regular Nigerians. 

Without the events of the last few weeks, I would never have imagined that Nigerians could successful prove a point to the political elite in the manner they have. And even better, I may never have seen the ability of Nigerians to organise and execute with precision and excellence. The #EndSARS protests show a generation tired of ineptitude and incompetence. A generation that is willing and able to rise up to the challenge. It also showed, unfortunately, the wide gap between the rich and the poor. It showed that progress cannot be made without scaling back the trauma and habits of political violence developed in the years leading up to today. 

Now, the task upon us is to figure out a way forward. It is obvious that we need to take political action to have long lasting change. I think there are three possible routes we can take: the Macron way, the Ocasio way and the "Third way."

In the Macron way, we would have a single inspirational leader create a new party, run for the office of President and attempt to reform the whole nation from that position. The President of Nigeria has A LOT of power. But there are some of obvious limits that make this unviable to me. First is the election cycle. The sequence of elections make it difficult to have a national assembly that rhymes in the same direction as that of the president. Both elections happen on the same day. So there is a risk that a President may be elected from one party, but his party fails to get a majority in the National Assembly. Especially if this party is created by non-traditional politicians. 

The other way would be the Ocasio one. Two American NGOs seeking to reform national politics figured out ways to make their members candidates of traditional parties. I don’t think this can work in Nigeria. The APC and PDP party structures are so tightly controlled and shaped in the interests of incumbents, that it would be difficult for new comers to try to hijack the party structure. More so, voters are so used to party name changes that if you hijack the party structure, the incumbents can simply leave and take their supporters to another “platform”. I also saw in 2019 how many young people were frustrated in traditional parties. Those who scaled were typically supported by godfathers and/ came from politically influential families. 

I am learning the importance of changing ideas when presented with new facts. It would actually be viable to hijack existing party structures. They have name recognition, committed party members who follow the voices at the top, and strong grassroots structures.  These attributes make the work slightly easier if the party is hijacked from the top. 

I propose the third way. Instead of trying to hijack an existing party, or attempting to win top-down, we need a more grassroots, country-wide efforts within a new political party or structure based on shared beliefs. This can be a party of coalitions or a small group of like minded youths. Everyone needs to come together with ideas of their vision for Nigeria and discuss those visions. Drilling it down to a clear simple, ideology for what the future Nigeria should be like. This should definitely be done digitally and in secret. And should involve young Nigerians only at this stage. Once completed, I think there should be a wide reach out to outsiders within traditional politics. That is, people who have either attempted to run for public office or attempted political reform. They don’t have to be saints, but they should align with the values set by the coalitions or founding members.  This process should be about testing ideas to see how the older generation might accept it. So the group can iterate, and see the ideas which need to be rephrased. 

The next stage would focus on using data to select political spaces to compete in. I believe a new Nigerian party needs to focus on Regional and sub-regional power in most scenarios. And most importantly, needs to attempt to gain power in every part of the country—North, South, East and West. Not necessarily in each district or state, but there must be enough activity to avoid being seen as a regional party. Or a Lagos and Abuja party. Now I think data on the results of past elections can show which groups of people are likely to rebel against bad leadership. So data on internal primaries and official elections (though imperfect) can be analysed to see where voter behaviour is not monolithic. This should also be matched against ages of young people etc. Essentially targeting. These are the places that should be marked for direct electoral competition in 2023. 

But we cannot leave the other parts of the country blank and limit political action to a game, just as it has been done in the past. So we need propaganda and we need to show "our working." We need to create both civic and voter education material, and get young people to go across the country sharing those messages. Small town halls online and in every corner of Nigeria. Led by locals who understand and buy into the ideology of our party. On one hand educating people on the electoral process and why they need to vote—without making political promises. On another hand sharing our own ideology of what we want Nigeria to look like. Maybe the civic education can be done through a foundation, and ideological propaganda directly by the party. 

Then, we need to show some working. Before getting into power or attempting to, we need to prove to people in bits and pieces what a society organised by us will look like. This, in my mind, can be achieved by setting up multiple enterprises across Nigeria and actively employing. The party needs money and the young people need jobs. We can set up micro-factories, local tech services. But the focus should be on profit not scale. Profit that ensures sustainability. 

My mind is maxed out right now. But I think this is a good place to start...

Watching black people fight against racism and the oppression we face is the most beautiful thing in the world. The sad reality is that things have reached this point because black people are continuously singled out to be killed unjustly, denied rights and held back by oppressive systems. Just because we are black. 

It's crazy to think about it that black people ACROSS THE WHOLE WORLD face some form of discrimination. Just because they are black. South American Palenque. Indian Siddi. African Americans. Ethiopian Jews. 

What about black people makes people around the world hate us and fear us? Is it really just because we are black? How does only skin colour fuel supremacy?

I mean why have a lot of my favourite business people or business thinkers who inspire me in some way, either studied or taught at HBS? Clayton Christensen, Bill Poorvu, Barry Sternlicht, Jamie Dimon, Sangu Delle and a few others I've forgotten. 

I know about the signal theory. Non-textbook definition: the idea that the school you go to sends a signal about your capability to potential employers. Or the fact that you even get through university, submitting all your assignments on time sends a signal that you can conform to a work environment and complete assigned tasks. The better the perception of your school, the stronger the signal you send. Based on the fact that a few people from a specific university have achieved tremendous things, outsiders tend to assume everyone who attends the same school is capable of achieving similar feats. Almost all the French Presidents in the last 20 years or so have attended Sciences Po Paris and then Ecole Nationale d'Administration (similar to Harvard Kennedy School). Sarkozy's story is slight different. In England, A LOT of Prime Ministers have studied Politics, Philosophy and Economics at Oxford. Now there are a lot of other factors that influence people's outcomes in life. What I wonder is why we assume certain schools are the best places to go to achieve certain career outcomes. Especially, when we know there are hundreds or perhaps thousands of others from those schools with different definitions of success, who haven't achieved the things people we may look up to have. 

Also, these schools are highly selective. They select people who are already motivated to change the world. So do the schools make them or do they make the school? Stupid question but I think it's worth probing. Would a students outcomes in life be drastically different if they studied PPE at Durham instead of Oxford? Should it be so?

Back to HBS, is there something special about that water there or ?