Nigeria Archives - Page 23 of 25

Behavioral finance and the science of voodoo

I just had some argument with a PhD researcher about the value of behavioral models over the up-till-now traditional financial modeling. You see, behavioral finance is a growing field of financial science and came into prominence after the last catastrophic implosion of the global financial market. Obviously some greedy folks went berserk and all the fancy market models developed to understand them were obviously on vacation (read Fama, French, Sharpe, Markowitz, Merton Miller and a bunch of others. I can’t even imagine that some people actually got a Nobel for this type of rubbish. In a world where Obama can get a Nobel for Peace in anticipation of peace, anything can happen!).

From the behavioral finance people’s point of view, financial and capital models are crap and can’t model how the financial world will behave as it is based on what is called the rational model (players will behave according to expectation) but can’t understand the primordial human instincts (greed, fear, ego, etc.) which ultimately always upturn things.

This is actual bone of contention. We both agreed that the current models are capital BS but I believe that the financial and capital behavior can be modeled. What we don’t have now is enough attributes to put into the model to factor things in. Another thing is to redefine what a rational attribute is. Purchasing an equity based on PE ratio is a rational behavior but it doesn’t even rank as much as buying because of fear! Or why would the experts spend so much time wondering that the Weekend Effect is all about?

This is what luxury good purveyors have known for centuries, people don’t buy because a purchase makes sense, they buy for all manners of reasons and that is what we modeler need to figure out.

Can fear be modeled? Yeah! Same for herd behavior, for greed, for revenge, etc. What I dont know is if a smart dude is going to figure it out in a year, decade or century but I can put my bet on 2 decades out there. What do you think we are going to use all those powerful computers to do? Turn them into Precogs while the world reenact Minority Report. So between now and then, I will advice my fancy research to go find another job; behavioral finance career is about to hit a dead end.

The economy of enforcement

Lagos is a mad place. Chaos incorporated. Although that isn’t enough to make me do the Andrew Method (run away) . Apart from security and electricity, traffic is the biggest problem we have. It takes X number of hours to move from point A to B. I know that LASTMA was created to solve this problem but they are more interested in shafting drivers than resolving the road logjam. But that is a story for another day or symposium like Abami Eda would say.

Another tangent to this post is that all tiers of government are broke, my dear Lagos inclusive. Fashola is rolling out tax laws faster than Usain Bolt could complete a 100m dash. That itself hasn’t worked well.

Talking about the traffic palaver, even though we have bad roads, 80% (don’t ask for the source of data!) of the gridlock is caused by bad drivers: Danfo drivers picking passengers; vehicles moving against traffic; impatient drivers not giving way at junctions, etc.

It came to me that government could augment its income with loads of law breakers roaming the street. I know LASTMA has gotten away with not doing much because government wasn’t expecting much from them. But say LASTMA has a target of catching 5,000 offenders a day with average fine of 10,000. That is some 50M per day and almost a billion in one month. Well, maybe that is an exaggeration but come on, if LASTMA can generate enough fines to pay for its officers, what is wrong with that? When people know that the cost of breaking a traffic offence is so much, they start behaving and then traffic is better and ultimately there is going to be need for fewer LASTMA officers.

Same crooked (smile) idea could be applied to building codes (those converted shops cause more evils that you can imagine) and to companies messing up the environment. Think of the glee of fining offices that block drainages with N100K or the premises get locked down. When it becomes so expensive to break the law, the government can spend less money unblocking those drainages.

And hopefully, they would have more money to pave the road and a smooth road makes it easier to escape LASTMA in case I get caught. Now, I think you get the point.

Blackberry is hurting Nokia in Nigeria

Nokia is definitely the largest maker of any type of phone in the world, from the penny pinching Nokia 1100 to the super sexy N900, the mainframe of smartphones. While market penetration is good with the cheaper phones, the more expensive smartphones offer more profit margins.

Look at it this way, in Nigeria the cheapest of Nokia phones go for about N3,900 ($26) retail price from which Nokia, the distributor and retailers must have eke out their profit. I can only imagine how much each can get out of that phone: It is probably a game of numbers. The bread and butter is from the more expensive phones. Analysts have opined that Nokia makes as much as 25% margin on the more expensive phones. Generally profit margins on smart phones that can play movies and send e-mails can be 10 percentage points higher than standard devices.

Then Blackberry came to the party.

Blackberry was launched in Nigeria circa 2006 with Glo. It was so expensive that only large organizations could give them to their very senior executives, who were only able to connect to the enterprise email servers. But Blackberry was smart; in time, they lowered the cost of devices, expanded to all GSM operators (is MTEL an operator?) and then brought in the democratic Blackberry Internet Service (BIS). The BIS allows anyone to have a Blackberry which connects to free email services such as Yahoo, Gmail, Hotmail, and just any other POP enabled email address.

Unfortunately for Nokia, the traditional high end buyers, who normally trade in their expensive phones after every 9 to 12 months, are selling out instead of cross selling. Blackberry has become the new fad as sales are ramping up massively; so if you don’t have a Blackberry, you don’t know whatzup. Every Blackberry sold is at the expense of Nokia phones.

Mobile Internet and email are the primary reasons why people are migrating to Blackberry (save for the few senior executives who are entitled to official Blackberry devices). What Nokia is not doing is to push these capabilities in their phones enough. In my own opinion, on a good day, a Nokia phone will tromp a comparative Blackberry device any day, feature for feature, value for money.

How this would play out in the end is left to Nokia. Considering that Nokia has done so much in Nigeria, it is going to be sad if it allows Blackberry to eat its dinner.

The Nigerian Website Traffc Ranking

The most popular Nigeria website is Nairaland as declared by Alexa, the number 1 website ranking site on the internet. it is the 14th most popular destination for Nigerian web surfers.

Among the media houses, Punch newspaper website, www.punchng.com came first at number 19 easily beating Sun Newspapers (The King of Tabloids) at 30, Thisday Online at 44 and the Guardian at 46. Guaranty Trust Bank lead the banks’ website at number 32, Zenith is second at number 38 with no other bank hitting the top 100 list again.

The investing public has been getting served financial information at Cash Craft (36) Nigerian Securities (55) and Proshare (65). Trophies or no trophies, we all love Arsenal (35) more than ManU (40) (Chelsea fans, where are you?)

To read more about the list, visit Alexa Nigeria internet traffic ranking.

Smart Organizations: The Buck Stops with the Executives

In continuation of my analysis of smart organizations, I have since discovered the importance of leadership. The leadership defines the direction the organization goes. Great organizations are known to have great leaders. They define the direction and determine what is important, the culture and the future of their domain.

Until the leadership of an organization knows the benefits of creating an efficient system and work towards it, efforts by the underlings would never amount to anything. Sometimes it is easy to go for strategic meetings (very boring meetings!), create policy documents but until words can be matched with action, nothing comes out of it.Smartness and the desire to be efficient is not enough to create a smart workplace, it must be a defined Organizational culture. It drives better than policy frameworks. Culture taps into the emotional fundamentals. Do you think people are crazy about Apple products because they are the best? No! They create good products but the culture and the hype (Reality Distortion Field) drives the buzz! In Nigeria, you can easily know bankers that work with old generation banks from new generation banks by the culture, the drive to excel, the aggressiveness, the can-do attitude. This is what the leadership needs to create an attitude of wanting to be the best; not only in the market, but in how things are done. In being the smartest organization!

Why wouldnt the leadership of an organization create an efficient environment? Are they clueless or too busy to focus on the fundamentals?

Most of the current executives are not young enough and could have missed out of the smart revolutions that the internet and new technologies have introduced. Many of them went to prestigious schools such as Harvard, Yale, Oxford, etc for MBAs but the impact of that on revolutionary ideas has not been felt in majority of these organizations. Would things get better when the new crops of young executives start to take over or would they also have missed out on the new waves that would be defining how businesses are run in a few years?

The Nigerian economic space is developing fast, with the financial services sector on the forefront. By the end of the year when all financial organizations would have the same year end; new avenues must be exploited for growth in an insanely competitive space. While excellent marketing skills would bring in required growth in assets, smartness of the organization would determine the profit that can be eked out.