Why your Investment Group is Stuck

Many people are in Investment Groups or Chamas. These groups are often started out with very solid intentions i.e. to make money or create wealth. Along the way some are very successful whilst others are not. I have had the chance to work with many investment groups at both ends of the scale. I cannot comprehensively cover everything that makes them work in this short article but I would like to cover three main points to get you thinking about your investment group and be honest about where it is truly headed. At the end of each point I have included a tip from the successful investment groups on how to resolve this problem.

1) Execution: An investment group is like any other business. You can have grand plans for it but if it is not broken down into an action plan that is executed and followed through there will be problems. What does an Action Plan entail? Agreement on what you want to achieve as an Investment Group, Assignment of specific tasks to individuals and setting of timelines for those tasks. This is the typical scenario that happens. Group X, made up of 10 people, has its meeting on Saturday afternoon. The members then agree that the Kes 500,000 that is sitting in the bank will be used to buy shares. They note it down. They all go back to work on Monday morning and get caught up in their professional and personal lives. A month later they meet again. The Kes 500,000 is still in the bank. The shares that they would have bought have now risen in value by 10%. They would have made Kes 50,000 but because no one was assigned the specific task to do it they lost out. Some groups may have assigned someone to follow through on it but on Monday the assignee gets caught up at his or her job and maybe only gets round to it three weeks later, just in time for the next meeting. These scenarios sound familiar? TIP: Start looking for someone who can handle the day-to-day business of your investment group. You may make the decision but you don’t have to be the one executing. Outsourcing this or hiring someone to do this in the long run is cheaper than the opportunity cost of delayed execution.

2) Equality: There are two types of equality issues I want to address here. The first one is equality in decision-making. Say in Group X, all 10 people have to agree on which share to buy. How long do you think it is going to take them to arrive at a decision? You may have bought shares on the stock exchange. Do you get calls from the company’s management seeking your permission to expand into a new location? The meaning of the saying that “Too many cooks spoil the broth” is what I am getting at here. You will get nowhere if all of you are trying to decide which specific share to buy on the stock exchange. The second equality problem is with money. The concept of “Equal contributions” will kill the growth potential of your group. It is inconceivable that in Group X all 10 members will be at equal financial standing throughout their lives. As people’s incomes grow allow for those who can to contribute more. If your Kes 100,000 will make my Kes 10,000 access investments that will give my Kes 10,000 a higher return why not? Tip: Based on skills empower certain people to make decisions on behalf of the group that are in alignment to the agreed strategy of the group. In a company structure this is referred to as a board. With a board in charge of decision-making allow for unequal contributions where the people contributing more have a larger ownership or more shares in the group.

3) Saving what you can afford to loose: Say Group X started three years ago with contributions of Kes 5,000 per person. What would happen if they are still contributing the same amount? Chances are that their incomes have increased. The Kes 5,000 is money they spend easily on entertainment. Would that really drive them to commit to spending their precious time on a weekend or weekday evening meeting or to put extra effort into execution? I don’t think so. Three years ago Kes 5,000 may have meant something to them but not anymore. When you are saving money you can afford to loose you will just not walk the extra mile into making it work. When the amount causes some level of pain, you will do your best to making it work. This point also goes hand in hand with the non-equality concept. Group X may have some people who have the capability to invest more. Keeping these people confined to a standard contribution will make them look elsewhere for investment avenues and it sometimes can be even in another group. They will keep contributing but their interest and commitment will wane over time. TIP: Regularly review your contributions. Even if you work with unequal contributions have a minimum requirement that is regularly increased.

In summary, if your Investment Group has a business agenda (and creating wealth is a business agenda) you have to run it professionally like any other business. Do not treat it like a “side hustle”. Shift your your thinking to the fact that this is a business that could even one day be sold and start setting up the right structures for that kind of growth.

Centonomy runs a program called Centonomy Chama Clinics that works with investment groups to help them structure and plan the groups finances & investment strategy.  For more details visit  https://centonomy.com/about/centonomy-chama-clinics/ or call 0700036433.

Question and Answer

I have been reading your articles regularly and they are very insightful. I have never invested (or even put aside money) in my life despite having been working for the last 5 years. Every time I want to do it I simply freeze or procrastinate and don’t do anything. There are so any options and I just don’t know where to even begin. I am even ashamed to ask for help because I should have had considerable investments for me. Can you help me find a starting point?

You are right there is a lot of information these days about how you can invest. Before getting too caught up in the information it looks like you first need to cultivate the habit of putting money aside. Don’t wait to have a perfect investment that makes perfect sense before you start. I would recommend starting with an amount you think you can work with and put it aside every month even in a savings account. After you’ve done this for even three months you will start gaining some confidence in yourself to actually be consistent and can start evaluating other options. This will also get you away from the belief that you cannot do it. During these initial months as you cultivate a savings habit, use the time to ask yourself what you would like an investment to do for you. Is it to grow, generate income, or preserve the value of your money? Then depending on your answer you can start learning and zoning down to the specific investment you would like to start with. Also consider taking a course on investments, which will break down the technical language into a way that can easily be understood.

Waceke Nduati

Email your questions or comments to Waceke her at waceken@centonomy.com|

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