Don not confuse investing with entrepreneurship
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
22 December 2024
A number of readers got confused by last week’s article on investing in
treasury bills. Their questions boil down this: “Will the Central Bank
of Kenya (CBK) pay you Sh750,000 plus the interest of Sh24,000?” The
answer is NO! The interest is already included in the Sh750,000.
Remember that I invested Sh726,000 and the CBK will pay me Sh750,000 in
January. Thus, Sh750,000 – Sh726,000 = Sh24,000.
After explaining this, one reader wrote back saying that the return is
too low; in his words, “If I put the same in pig farming, I will get
over Sh200,000 profit”. I don’t know much about pig farming so I request
anyone knows to confirm if this is true. Nevertheless, this comment
illustrates a common misunderstanding: many people conflate investing
with running a business.
When you run a business enterprise (like pig farming), you are not an
investor. You are an entrepreneur. An investor puts in money and walks
away to wait for the investment to mature and pay dividends. The
investor does not get involved in the operations of the investment.
For example, when you buy shares in a company like Safaricom, you don’t
get involved in running it. You just sit pretty and wait for dividends.
You are an investor. However, if you open a kiosk to sell Safaricom
products (M-Pesa, Airtime, etc.), you need to go to the shop every day
and run its operations; now you are an entrepreneur.
An entrepreneur is highly likely to make a bigger return than an
investor. The person who only puts in money and walks away is highly
unlikely to make better returns than the one who puts in money plus time
plus effort – obviously! Therefore, it is not right to compare the
returns from treasury bills (investing) to those from pig farming
(entrepreneurship). The two are no alike.
Speaking of Safaricom, the company’s shares are currently trading at
about Sh17.50 each. Thus, you need only Sh1,750 to invest in this
company and start sharing in the billions of shillings it makes in
profits. Again, you don’t have to be a millionaire…
This year alone, Safaricom has paid out Sh1.20 per share in dividends If
you had bought the shares in January when the price was Sh13.60, your
return on investments from dividends only would be about 8.8 per cent.
Add to this the price appreciation from Sh13.65 to Sh17.50 (a 28pc
increment) and your net gain comes to about 37pc.
This looks very attractive but it was not guaranteed. I know people who
bought Safaricom shares at Sh40 in December 2021. They still cry when
alone in the toilet!
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