THERE is a generic scam which was perpetrated with such annoying frequency in various parts of our homeland Zimbabwe that when viewed in retrospect, it was almost inconceivable.

It was almost as if all the trainee tsotsis used the same template. The circumstances, methodology and geography varied through the years but the common thread which ran through each con was that a seemingly rational person was promised that their money would double after some nimble finger shuffling ritual performed behind the public toilet by the tsotsi.

Somewhere along the process, the money would disappear leaving a sobbing supposedly rational person at odds to explain how it happened.

To glean a better understanding of how something like this can happen, we have to appreciate the psychology of money and how we relate to it. Many of us will publicly profess that money is not important in our lives but the distance and effort we have put to look for it indicate otherwise. Once we have acquired it, there is need to be extra careful how we preserve and grow it.
 
Unfortunately, the eight lost years of savings that occurred in Zimbabwe which I alluded to in my previous article has given many Zimbabweans in the Diaspora a hysterical urgency to make up for lost time in investment. This increases our financial vulnerability which unfortunately will lead us to mistake financial recklessness with an aggressive investment strategy. Since we all seek to increase the money we have, it means we remain susceptible to confidence tricksters.

Over the years, I have learnt that when it comes to money, you do not trust any person, not even yourself. With the interest rates at record lows in many countries, straying into the stock market for building a retirement nest egg seems to be one of the few options available.

It is quite important to determine whether in your stock market investments, your mindset is that of a gambler, a trader or an investor?

To gamble is to risk money on the outcome of something involving chance. They say you are a gambler if you do little or no research on the stocks you buy and buy stocks on a hunch or on tips you’ve heard at end of year parties. You buy on gut feeling and like the victim of the scams, you hope to hit the big time and double your money by buying a great stock.

Gamblers do not consider investment horizon, and when their stock goes down, they double up or buy more of that stock just to recover losses or prove to themselves that they were right. You experience highs and lows in your psychological or emotional state depending on the performance of your stocks, and when your stock goes up, you believe it is because of you, or something in you, that it went up.

If you have a mindset of a trader, you watch your trading account and portfolio’s performance almost everyday and you view your stocks as instruments you hope to sell to someone for more than you paid for. You do not consider yourself a part owner in a company you hold shares in. You are motivated to trade by short term movements in stock prices, and you place importance on quarterly earnings numbers and would consider selling your stocks if the company reports below-consensus quarterly earnings.

When you buy something, you are already thinking about what you could sell it for and dividends play little or no part in your investment decision. When you buy something, you are already thinking about what you could sell it for and your trading activity is high as you continually switch in and out of stocks.

Traders are prepared to buy any stock that looks cheap. I remember more than ten years ago there was a stock called Trans Zambezi Industries (TZI) which I bought on the Zimbabwe Stock Exchange because it was very cheap. Unknown to people like me who did not research stocks, the company had been stripped of all useful assets by the previous owners and had been left with bad assets and a huge debt.

The local press was busy gushing over the new black major shareholder, one Edwin Moyo, who had bought into the company. He was treated like he could walk on water and was the key to turning the fortunes of the horticultural sector in Zimbabwe. That was the last we heard of our sweet investment.

When it comes to hard earned money and retirement funds, the focus ought to be on investment not on trading or gambling. Investment implies to putting money to use in something that offers a profitable return. As an investor, you consider yourself a part owner in an actual company. You research a company thoroughly by reading annual reports and research reports, doing industry and competitor analysis, before you actually buy a stock. You consider the company’s financial history as well as prospects for the future.

An investor always plans to hold a stock for at least three to five years. An investor is interested in receiving dividends in addition to possible capital growth in the share price. You understand and expect that share price growth will track earnings growth in the long term, and you follow the performance of the companies you own but only sell stocks if there is a shift in the long term prospects.

An investor considers qualitative factors in the investment decision like pricing power, competitive advantage and quality of the product or service offered.

Understanding yourself and your frame of mind when you make key decisions about your future helps you in crafting investment decisions that will help you build your own retirement nest egg.

Ideally, investing for retirement should be regular and must continue throughout your whole life. If you have had many gaps, then it is important to be a little aggressive but certainly not reckless.