Saturday, June 03, 2006
My Uchumi loss
My shares portfolio has just lost about 10,000 shillings in the form of 500 Uchumi shares. I am comfortable with my loss, because I understood the risks, but I feel bad for others who bought Uchumi shares on my advice, as well as for others who borrowed money to buy Uchumi rights.
Mine is especially painful because I did not buy during the rights issue, but after when it appeared that the re-capitalised company had turned round and was now on the path to recovery. I bought at about 20/=, based largely on the persuasion of the new management and one investment bank report that predicted/priced Uchumi shares at about 33 shillings.
Investors are looking to the compensation fund for redress, but I don’t see anything coming out of it given that enough information was made available to the public about Uchumi’s precarious position. And to make payment in this case will undermine the entire premise of risk taking on the NSE – Will investors start suing when share prices drop in future?
At the company’s last AGM, long time shareholders turned their wrath on the auditors when they were told that the company’s previous management were basically off the hook for the company’s record losses.
All fingers are now pointing to the now discredited expansion strategy of the company. Take a look back at the rosy beginnings of the strategy (in this 2001 interview with the then new MD of Uchumi), which was immediately challenged by a sceptical reader.
I have friends who bought Uchumi rights and have spent the last two months trying to cash in their profits at 16, 20, 15 shillings etc. - they hade no warning, premonitions, or tips about Uchumi’s demise, - they just wanted to invest the money elsewhere. At first they were told that Kengen IPO made it difficult for other shares to be traded, and then they were told nothing. Maybe their broker was incompetent, maybe they were not aggressive enough with their broker though they were certainly persistent as they called him almost every other day up till Wednesday May 31 to ask how, with Uchumi trading almost a million shares a day no one bought their shares!