1.0 Problem definition:
Given a grant of 32, 000USD (N5, 000,000) I intend to make a comparative analysis on preference of investment. Anticipated return from my investment in terms of futuristic monetary benefit will define my preferred path.
2.0 Feasible alternative:
The feasible alternatives are as follows:
1. Investing in landed properties for purpose of re-sale (Land Speculation)
2. Investing in share in the Nigerian stock exchange
3.0 Develop the outcome for each alternative:
Analysis of feasible alternative 1 (Buying landed property in an undeveloped area for re-sale as development advances)
The chart below shows land value in Igbo-Etche area of River State, Nigeria from 1999-2007.
Fig 1.0 Chart showing land value in Igbo-Etche area of River State, Nigeria
This chart projects a 400% increase profit margin on an Acre of land purchased between 2002 and 2007 at Umuchoko.
Analysis of feasible alternative 2 (Investing in Nigerian stock exchange market)
The melt down in the Nigerian capital market makes it less attractive to investors. Its market
capitalization has nose-dived from an all time high of N13.5 trillion in March 2008 to less than N4.6 trillion by the second week of January 2009 and never recovered. Besides, the All-Share Index has also plummeted from about 66,000 basis points to less than 22,000 points in the same period. A number of factors have been blamed for this sorry state of affairs and they include: A Global Phenomenon, Pull-Out of Various Foreign Investors, Lack of Infrastructure and High Production Costs, Impact of Commercial Banks following the forced capitalization of banks to a minimum of N25billion, inability of the Federal Government to plot a Bailout Option among others.
capitalization has nose-dived from an all time high of N13.5 trillion in March 2008 to less than N4.6 trillion by the second week of January 2009 and never recovered. Besides, the All-Share Index has also plummeted from about 66,000 basis points to less than 22,000 points in the same period. A number of factors have been blamed for this sorry state of affairs and they include: A Global Phenomenon, Pull-Out of Various Foreign Investors, Lack of Infrastructure and High Production Costs, Impact of Commercial Banks following the forced capitalization of banks to a minimum of N25billion, inability of the Federal Government to plot a Bailout Option among others.
The meltdown of the Nigerian capital market characterized by the crash of the market capitalization from a record high of N13.5 million in early 2008 to less than N4.5 trillion in the corresponding period of
2009 has manifested the following cost and consequences: Loss of confidence in the Nigeria economy, as many investors prefer to convert their naira to foreign currencies, Mega losses by investors in the capital market whose total losses are not below 2/3 of their investment before the meltdown, inability of stock broking firms to settle their clients for securities sold amongst others.
2009 has manifested the following cost and consequences: Loss of confidence in the Nigeria economy, as many investors prefer to convert their naira to foreign currencies, Mega losses by investors in the capital market whose total losses are not below 2/3 of their investment before the meltdown, inability of stock broking firms to settle their clients for securities sold amongst others.
The result of 3 alternatives test (run test, partial and autocorrelation) reveals that Nigeria stock market is efficient in the weak form and follows a random walk process. This information implies it is useless to select stock based on information about recent trends in stock prices.
Fig 2.0
4.0 Acceptable Criteria:
Acceptable criteria will be based on justification on which of the two alternatives brings appreciable returns on investment.
5.0 Analysis and Comparison of alternatives:
The random walk process indicates increase risk and how unpredictable returns on investment can be, while investment on landed property indicates appreciable returns on investment over time.
6.0 Selection of preferred alternative:
Land speculation is more attractive from analysis above.
7.0 Performance Monitoring & Post Evaluation of result:
I will continue evaluating the rise and fall of the stock market against investment on landed property for re-sale to justify selection of my preferred alternative
References:
Olisaemeka, A.G. (2009). The Meltdown of the Nigerian Capital Market: Causes and Consequences
Retrieved from http://www.nairaland.com/241080/meltdown-nigerian-capital-market-causes
Godwin, C. O. (2010). Stock market prices and random walk hypothesis: Further evidence from Nigeria. Journal of economics & international finance, vol. 2(3), pp. 049-057. Retrieved from http://www.academicjournals.org/jeif/pdf/pdf2010/Mar/Okpara.pdf
Iyenemi, I. K. (2007). Distortion of Land Value Trends and Growth Pattern in Rural Communities in the Niger Delta Region of Nigeria.
Retrieved from http://www.fig.net/pub/costarica_1/papers/ts20/ts20_02_kakulu_2461.pdf
Too bad you aren't seeking out help, Ibraheem. You followed our step by step process very nicely, at least up to Step 4 and your citations were spot on, BUT, I have to reject this posting again... Why?
ReplyDeleteHere are my comments:
Step 2- Why didn't you include the option of purchasing gold or silver along with the baseline of putting money in the bank? You need to look at ALL feasible alternatives, not just one or two.
Step 3 was done correctly, EXCEPT that you missed some very basic and IMPORTANT alternatives.
Step 4- what is your minimum acceptable attractive rate of return (MARR) How did you calculate or determine that?
Step 5- What I should see here is a summary (usually in the form of a table) which compares your 4 options against the criteria from Step 4. Which one(s) make it and which ones don't.
Step 6- is fine, but you missed at least two feasible alternatives.
Step 7- this relies on the answer you got from Step 4 along with validating any assumptions you made in the calculations.
Bottom line- I hate to say it, but I have to REJECT this posting and can only urge you to seek out the help of Austin or one of the others who have been getting AWESOME comments on their blogs.
When you repost, please label it "W2.2_Ibraheem_Land Speculation"
BR,
Dr. PDG, Jakarta