Ferdinand Othieno is a practicing scholar in Finance and the Research Director at the School of Finance and Applied Economics (SFAE) at Strathmore University Kenya. He holds a Bachelor’s degree in Finance (First Class Honours) from Maseno University and Masters in Banking and Finance from Moi University.
Mr. Othieno also heads the Transaction Services Division of Centerprise Africa Limited where he offers transaction advisory services from mergers and acquisitions; company valuations and capital raising to due diligence and financial reporting assistance to clients across different sectors in East Africa.
He is currently pursuing a PhD in Finance from the Graduate School of Business, University of Cape Town and carrying out research on the estimation and forecasting of the Equity Risk Premium in Africa.
Mr. Othieno gave his views on investment on the continent to Footprint to Africa:
- The concept of ‘investment’ is often misunderstood. Can you tell us what the word ‘investment’ means to you?
Investment is the commitment of funds (capital) over a time period with an aim to derive future payments/value which is usually higher than the committed capital. The gain, referred to as investment return, acts as compensation to the investor for the time the funds are committed, the expected rate of inflation and the uncertainty of the future payments. An investor can be an individual, government or institutions e.g. pension funds and companies. The return from investment is ‘expected’ because usually it is not known with certainty upfront, so it is referred to as expected return.
It is the identifying of an opportunity where you commit money or capital to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financialderivatives such as futures or options, or the foreign asset , that has certain level of risk and provides the possibility of generating returns over a period of time.
- What criteria should investors look at before pumping their money into industries or markets?
One has to make a financial plan or technically an Investor Policy Statement. This plan aids in identifying and specifying the investor’s objectives and constraints. Investment objectives are desired investment outcomes. In investments, objectives chiefly pertain to return targets and risk tolerances.
Assessing risk tolerance of an individual investor requires balancing between willingness and their ability to take risk.Constraints are limitations on the investor’s ability to take full or partial advantage of particular investments. For example, an investor may face constraints related to the concentration of holdings as a result of government regulation, or restrictions in a governing legal document.Constraints are either internal: client’s specific liquidity needs, time horizon and unique circumstances. Some of the external issues are tax issues and legal and regulatory requirements.
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