Today is the last day of the 2010s (except for the most pedantic amongst us) and stock investors in Ghana certainly cannot wait to say goodbye to a decade that has not been generous to them. The Ghana Stock Exchange is only 30 years old and so comparing performance across decades will have any statistician raising questions about the relevance of such an exercise. However for young investors like myself who have come of age in this decade, it is important to understand the kind of market we have had in order to make informed assumptions about what the future has in store for us.
As can be seen in the figures below, the 2010s featured negative stock returns in 5 of its 10 years. This compares with 4 years of negative returns in the 1990s and only 2 years in the 2000s.
| Year | GSE Return |
| 1990 | -29.75% |
| 1991 | -8.18% |
| 1992 | -3.62% |
| 1993 | 113.73% |
| 1994 | 124.35% |
| 1995 | 6.33% |
| 1996 | 13.82% |
| 1997 | 41.85% |
| 1998 | 69.69% |
| 1999 | -15.22% |
| 2000 | 16.55% |
| 2001 | 11.42% |
| 2002 | 45.96% |
| 2003 | 154.67% |
| 2004 | 91.33% |
| 2005 | -29.72% |
| 2006 | 5.21% |
| 2007 | 31.21% |
| 2008 | 58.16% |
| 2009 | -46.58% |
| 2010 | 32.25% |
| 2011 | -3.10% |
| 2012 | 23.81% |
| 2013 | 78.81% |
| 2014 | 5.40% |
| 2015 | -11.77% |
| 2016 | -15.33% |
| 2017 | 52.73% |
| 2018 | -0.29% |
| 2019 | -12.25% |
In determining which of these decades was worst for stock investors, I decided to keep things simple and practical. I assumed someone invested GH¢1,000.00 at the start of each of the decades and looked at how much they would be left with in inflation-adjusted cedis at the end of the decade.
As usual, a number of simplifying assumptions were made. These are as follows.
- No commissions or taxes.
- Holdings are in direct proportion to the components of the stock index and adjustments are made for companies that list or drop out of the bourse.
- No dividends.
With those assumptions in mind let’s look at the growth of GH¢1,000.00 in the GSE in each of the decades. First we will look at the growth assuming there is no inflation.
As can be seen from Chart A, if GH¢1,000 was invested at the start of 2010, the investment barely grew compared to what we see from the 1990s and the 2000s. A GH¢1,000.00 investment at the start of 1990 would have grown into GH¢7,362.64 at the end of 1999. If GH¢1,000 were invested at the start of 2000, it would have grown into GH¢7,569.43 by the end of 2009. But if GH¢1,000 were invested at the start of 2010, it would have grown into only GH¢2,984.96! Quite a pathetic performance!
But wait, inflation must count for something. After all, inflation in the 2010s was lower than in the 2000s and in the 1990s. This means that although the nominal returns in 2010 are much lower, the returns in terms of purchasing power will be better. In fact, this is true as shown in Chart B below.
With inflation accounted for, GH¢1,000 invested at the start of 1990 would be worth a paltry GH¢687.10 in terms of actual purchasing power at the end of 1999. GH¢1,000 invested at the start of 2000 would be worth GH¢1,413.62 at the end of 2009 and GH¢1,000 invested at the start of 2010 would be worth GH¢967.75 in terms of purchasing power at the end of 2019. So with purchasing power accounted for, we realise that an investor at the start of the 2010s decade will virtually have made no money at the end of the decade.
As a summary:
GSE Returns (Nominal)
1990-99: +636%
2000-09: +657%
2010-19: +198%
GSE Returns (inflation-adjusted)
1990-99: -31%
2000-09: +41%
2010-19: -3%
I do not want to end this post with any financial advice. I will only remark that investing is hard and the past tells us very little about the future. As a new decade is beginning I only felt that it was right to share my observation of the past decade with the readers who continuously reward me with their attention.
In the new year, I hope you will continue to join me as we try to learn ways to achieve financial independence in order to achieve success on our own terms.
HAPPY NEW YEAR!