The Accountant Nov-Dec 2016

Finance and Investment
CPA Frederick Ukongo, ukongofrederick@yahoo.com
ARE WE PROTECTED
FROM PYRAMID
SCHEMES?
The print, electronic and social
media is awash with adverts
on investment opportunities.
This goes a long way to show
the availability and appetite
of Kenyans in consuming investment
opportunities. Indeed the investment
appetite for Kenyans is unparalleled, or so
it would be presumed. When we hear of an
investment opportunity that is attractive in
terms of returns, we do not think for long,
but invest. Often we do not think about
the risks inherent in these investments. We
are left to learn from our mistakes on many
occasions.
However the question is; must we let
some few unscrupulous individuals take
advantage of innocent Kenyans? Usually,
in the name of providing investment
opportunities, only to disappear with their
hard earned cash. This is done in schemes
that are well organized and directed. Some
of these schemes are crafted by or on
behalf of well connected individuals. They
are ordinarily executed just before general
elections. They often, promise high returns
because our nature is to anticipate the
highest form of returns, we very quickly
land into the trap. We often forget that
for every expected return there is likely a
corresponding risk. Frankly speaking all
returns are in one way or another affected
by risk. Risk is defined as variability of
returns or the probability that the returns
will not be exactly as expected. The
outcome doesn’t mirror the expected.
We remember well the infamous
pyramid schemes preceding the not so
famous elections of 2007. The returns
promised were out of this world.
Speculators and innocent citizens out
to make a kill, were conned out of their
hard earned money. To date no one has
answered for this heinous crime. Now that
we are approaching another electioneering
period, isn’t it prudent to rethink any
investment promising heaven on earth?
An investment is motivated by the
promised return but one should not just
focus on the return. The expected return
is a function of the promised return, risk
and time factor. Information disclosure
and full disclosure for that matter is and
should be a requisite before one invests.
The unscrupulous individuals will not
share with the investors the negative side
of the story. The marketing strategy is to
promise the highest return and turn a blind
eye on risk.
Honesty is a good policy, and definitely
it creates sustainability. Education to
the fact that every investment has a
corresponding risk would go a long way
in creating a good sustainable saving and
investment culture. However when heaven
on earth is promised and at the end of the
day the investors cry all the way from their
bank as opposed to smiling all the way,
then we have a problem. This will mean
that even a well meaning business that has
created a market beating portfolio, will be
looked at with suspicion. Definitely once
beaten twice shy.
Regulation and control would be best
placed to create a favorable environment for
well informed investment opportunities.
However, proper regulation is often put
in place when a lot of damage has already
been inflicted. We are a reactive rather
than proactive society. The question that
26 NOVEMBER - DECEMBER 2016