MTN Ghana is currently trading at GH¢0.70 per share, 6.7% below its IPO price and about 25% below the highs it reached last year. This price slump is despite an impressive financial performance which included a 30% increase in data revenue and 34% increase in mobile money revenue, two of the strategic growth areas that attracted me to the company.

Given the fall in the share price, many people have asked me if MTN is a bargain stock and whether I recommend buying the stock. Instead of addressing the question only with respect to MTN, I think it would be more useful to the larger audience to explain what goes into my decision of which stocks to buy.

Stock picking is a notoriously difficult activity, and the easier it seems, the more wary you should be. It is not by accident that the world’s largest mutual fund, Vanguard Group, got its success by advocating the tracking of a total index of stocks rather than picking stocks. (You should read all about this investing philosophy here.) 

I do not believe in stock picking as a viable strategy for the ordinary, individual investor. Too often, the stock market pitches individual investors against large fund managers with a tonne of cash and an army of analysts. If you are buying, someone is selling and vice versa. Also, there are professional sell-side analysts whose job is to get you to buy any stock, because their interest is to get you to pay a commission on the trade. And then there are those whose objective is to sell you signals of which stocks to buy or sell or to teach you a secret, foolproof trading strategy for a fee. In summary, someone is always trying to take your money.

But this does not mean that one should not own stocks, in fact, not owning stocks can be a costly mistake because of their huge potential upside. However, I believe that one should not trade stocks i.e. do not buy today hoping for a rise tomorrow so that you can profit. 

I am an advocate of purchasing mutual funds with an equity allocation as the best way to invest in stocks as far as the Ghanaian market is concerned. The reasons include mutual fund managers being likely more trained than the average investor, they having several analysts to provide them information, and the fund suffering less from the failure of an individual stock than an individual investor would have. You can find many more reasons here. 

BUT if you insist on buying stock, be it MTN or any other, it should be for only one reason – you want the stock in your portfolio for the long term. This means that you should decide that after carefully evaluating the risks of failure, you are willing to tolerate that risk over a long period based on your belief in the long-term viability of the business. If you are looking at MTN stock for example, do not look at the likelihood that its stock price would move by 30-40% or anything like that in the coming months. Rather, think about whether you believe MTN has a good chance of remaining a profitable company for the next several years and whether you can live with the risks of this not happening.

In essence, treat stocks as a ownership in a business not abstract financial assets to be bought and sold. If you believe a business would be viable in the long-term, buy it. If you do not believe so, do not buy it. With this philosophy, you will be less worried about how the price of a stock swings. However, if you do find yourself constantly worried about a particular stock, it means that your allocation to that stock is too much and you should consider reducing it.