Ever hear people use words relating to the stock market in a conversation or in the news? Or you attended an investment training program where stock market terminologies were used and you were wondering what they meant? Well, wonder no more. We have you covered!
Here are some terminologies that will help you understand the stock market better:
Capital Asset Pricing Model (CAPM): The Capital asset pricing model is a model that provides a framework to determine the required rate of return on an asset. It also indicates the relationship between return and risk of the asset.
Arbitrage Pricing Theory (APT): The act of taking advantage of a price differential between 2 or more markets is referred to as arbitrage. Arbitrage pricing theory describes the method of bringing a mispriced asset in line with its expected price.
Efficient Market Hypothesis (EMH): The efficient market hypothesis is defined as a situation whereby all information affecting a stock is immediately and automatically reflected in the price of the stock, including the risks involved. No one can successfully beat the market with superior information. Why? This is because the market is perfect, with no taxes, transaction costs and where investors react the same way.
Random Walk Theory: This theory states that the price of a security at any point does not give an idea of what it would be in the future. There is no serial correlation between security prices over time, either in terms of size or period. The theory basically states that the market has no memory.
Fundamental Analysis: Fundamental analysis is a security analysis technique that attempts to determine the intrinsic value of a stock by analysing the economy, industry and the company.
For the Economy, the GDP, inflation, foreign direct investment, government policies, interest rate, and a lot of other factors are all analysed. For the Industry, the companies in the industry, the market leader and how tough the competition is. For the Company, management, revenues, profits and cash flows, company product amongst other things, are analysed.
Technical Analysis: Technical analysis is a security analysis technique used for forecasting the direction of prices, through the study of past market data, primarily price and volume. While fundamental analysts examine earnings, dividends, new products, research and the like, technical analysts examine what investors fear, or think about those developments, and whether or not investors have the wherewithal to back up their opinions.
Exchange Traded Funds (ETFs): Exchange traded funds are new securities that track indices or an index. They track commodity prices, or a basket of assets but they trade as stocks.
Bell Weather Stocks: Bell weather stocks serve as a gauge of general market performance, or general economic performance.
Price Discovery: Price discovery is the process of determining the price of an asset in the market place through the interactions of buyers and sellers. Price discovery is different from valuation; it is the process which involves buyers and sellers arriving at a transaction price for a specific item at a given time.
Market Maker: A market maker is a firm/broker or dealer that stands ready to buy and sell a particular stock on a continuous basis at a publicly quoted price. The market maker must also quote bid and ask prices for the stocks on which it makes market, and it makes a profit on bid-ask spread on such stocks. The market maker makes profit on the price differential between bid and offer prices.
White Anting: This is a situation whereby companies in the stock market report unsustainable high profits, usually in a regime of high interest rates. It is also known as Paper Profit.
Capital Trade Points: Capital trade points are muster points (where people gather) for people in rural and not so monetized environments to have the opportunity to participate in the business of securities trading.
A Scrip: A scrip is a dividend in kind in the form of extra issues given to existing shareholders in lieu of cash dividends, or sometimes in addition to cash dividends.
Frontier Markets: Frontier markets are markets with low levels of liquidity, turnover, transparency and few institutional controls. They are also characterized by high volatility. Examples of such markets include: Nigeria, Ghana, Cape Verde, Botswana, and Cambodia.
Santa Claus Rally: Santa Claus rally is a situation that occurs when prices rise in January after stock prices have fallen in December to finance consumption for celebrations.
Monday Effect: This is a theory that propounds that the market on Mondays would tend to follow prevailing trends of the previous Friday.
Cockroach Theory: This theory states that once there is a bad piece of information coming to the stock market, chances are that it would be followed by a lot more.
Contango: A contango is a settlement that involves a buyer of a security delaying payment for that security until the next settlement date. He must pay a contango interest for delaying. The buyer usually delays, expecting the stock to go higher so that he can make profit. For someone to do this, he must be a good forecaster. This usually occurs in a bull run.
Backwardation: Backwardation is a situation whereby a seller delays delivery until such a time or date of the next settlement date, usually 7 days. This usually occurs in a bear market where the seller expects prices to drop further. For example, if the price is N10, he hopes it falls to N8 so he can buy at N8 and deliver to you at N10.
Short Selling: Short selling is a situation where the seller doesn’t own the stock, but he borrows or intends to buy later. He anticipates that the price would drop further and delivers at a price less than what was agreed.
Margin Trading: Margin Trading is a situation where an investor buys a particular security through his broker but only puts down about 10-20% of the value of the stock, while the remaining is borrowed on behalf of the investor, in the hope that money will be made if the price rises.
This article was first published on Nairametrics on December 9, 2015.
Proxy Voting: Making Your Voice Heard Inspite of COVID-19
Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf.
One of the privileges of owning shares in a company is the ability to attend the shareholders’ meetings and vote on important issues about the company. In most cases, such issues touch on dividend declaration, election and/or reelection of directors, authorization to fix independent auditors’ remunerations, and the election of members of the audit committee, among others.
It has been observed that shareholders love to attend such annual general meetings in person for the pride of place it provides, as well as the social status it bequeaths to the attendees in addition to the souvenirs they receive during such meetings.
Unfortunately, that era of a social event involving the physical gathering of shareholders seems to be going extinct, thanks to COVID-19. However, in spite of the devastating effects of COVID-19, and the changes it is bringing to our social life, shareholders can still make their voices heard during non-physical shareholders’ or annual general meetings. This they can do using proxy votes.
What is Proxy Voting: Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf. Proxy voting has not been more important than in the present COVID-19 times. In reaction to the pandemic, proxy voting is being used in areas outside corporate governance. For example, the US House of Representatives is pushing for proxy voting as a means of getting things done in the house. In a proposal released by the House Speaker, Nancy Pelosi, US lawmakers would be allowed to cast votes for their colleagues who are not in the Capitol in person. That underscores the advantage and the increasing importance of proxy voting.
Nigerian Companies and Proxy Votes: Proxy voting is not new in Nigeria, especially among Nigerian companies. Whether it has been effectively used or taken advantage of is another question. However, Nigeria’s Corporate Affairs Commission (CAC) has been proactive and forthright in its quest to ensure that companies in Nigeria and Nigerian shareholders alike, take advantage of the proxy voting process in keeping with the social distancing rules put in place by various governments to curb the menacing COVID-19. The CAC has therefore asked companies to take advantage of “S.230 CAMA on the use of proxies in holding their Annual General Meetings.”
In line with the availability of the proxy voting process as a way to give every shareholder a voice and the encouragement and enablement from the CAC, many companies in Nigeria are complying with the advice. A visit to the website of the Nigeria Stock Exchange indicates that all the 30 companies that notified the public about their annual general meetings via the Nigeria Stock Exchange, since April 1, 2020, included notices or indications of the need for proxy votes in such notifications. Many of them even included links to live-stream the events, for those who would like to participate online.
Brace for Change: There is no doubt that COVID-19 has changed and will continue to change the way certain things are done. From the look of things, proxy voting may become the new normal in corporate governance and conduct of shareholders Annual General Meetings.
Shareholders, big and small, should start getting used to voting by proxy, especially those who have not been doing so in the past. It is only by so doing that you will make your voice heard, in the affairs of the company in which you have worked so hard to invest in.
7 common money mistakes I made and why you should avoid them
Don’t plan your wedding with the hope that your uncle will foot the bill. It is setting yourself up for frustration. Uncle also has his money issues that you have no clue about.
On Sunday, March 17th, 2020, Nairametrics Founder, Ugodre Obi-Chukwu, tweeted a question that has over time garnered more than seven hundred interesting responses. His question was about debt and it was straight to the point —”What was the most amount you lent out to someone and never got paid back?”
What’s the most amount you lent out to someone and never got paid back?
Mine is N550k and it’s still paining me till today.
— Ugodre (@ugodre) May 17, 2020
As you can expect with this type of question, the responses were varied and highly personal. The Twitter thread also proved one thing, and that is the fact that banks are not alone when it comes to bad debts. One of those whose responses stood out for this author is Gabriel Omin, a personal finance enthusiast. Interestingly, Mr Omin had earlier written extensively about the 7 money mistakes he made in the past, and lending is atop his list. See below.
Never Ever Lend Money Kept In Your Custody.
There is a reason you were chosen to keep the money. People do not joke with their money and so they carefully choose who keeps corporate funds. Even thieves chose trusted people to keep their money.
When you betray the trust of people for whatsoever reason, you’ve soiled your name. You will lose social capital, which is a very important capital (this is one of those, not everything that counts that can be counted). That is very hard to undo. Whatsoever happened, it’ll be hard for people to forget. My dad will not touch the original money that is given to him to keep. If you numbered your money, you will get it back the same way. Basically, you will get the same notes you gave him to keep except he took the money to the bank.
I learned this the hard way. A friend of a friend came with a need. He told me he had funds in the bank but it did not clear and the next day was a public holiday (this was pre-online banking). I loaned him money that someone gave me to keep. The person who gave me the money to keep, trusted me to the extent that he refused to sign a contract with me because he trusted me. I was supposed to get the money on the next working day, from the friend of a friend. Till today the next working day nefa reach. I had to go to the guy who gave me the money to keep for him, spoke a lot of English and paid back though I missed the day we earlier agreed. It was sad but I learned the hard way.
Avoid Impulse & Unplanned Expenses.
No budget, no spend. Spending without a budget is misappropriation. It doesn’t apply only to politicians. Have a budget & stay on it. This is the epitome of discipline. People will say what they want to say but instilling financial discipline is more important. A budget creates boundaries. Without a budget, you are on the speed lane to debt and debt…s/he is cruel. Plan plan plan. There might be surprises but a plan keeps you in order. It helps you know where you have detoured. You must not buy every AsoEbi. ATM cards are sweet to swipe but hard on the balance.
One of the ways to avoid impulse buying is to hold cash. Yes. It sounds not- so-tech in a tech age but believes me it works. When the cash is finished, it is finished. Sitting down in one place also helps. Yes o. The more the outing, the more the expense. I can feel the envy I am generating with this but na so e bi.
The Money Will Come.
You are old enough now to know that the money will not always come. Things happen. Have a buffer for emergencies. The difference between politicians & business people is that politicians do not understand why the money should not come. Business people work for money. They know that you have to make it happen. Stop planning your expense based on the generosity of strangers.
Spending Based On Other People’s Purse.
Don’t plan your wedding with the hope that your uncle will foot the bill. It is setting yourself up for frustration. Uncle also has his money issues that you have no clue about. Don’t plan to fly business class with the hope that someone else will pay. You are not on welfare. Even if you are on welfare, please bring something to the table. That something is humility.
Responsible people spend within their means. They may not have Rolexes or iPhones but they hardly ask for help on predictable things like house rent, school fees, etc. It takes 9 months to have a baby. It is not an emergency; plan for it. I take God beg you; plan.
Your kids should be in schools that you can afford. People have come to me for fees of school that my kids cannot even attend. I once headed a scholarship board and we set our requirements from day one. But parents kept coming for help in schools that they cannot afford. I mean households that both parents were not earning any income. You see what I mean by the fact that you have to contribute humility when you come to the welfare board?
Don’t buy with the hope that someone else will pick the bill. Try and agree upfront for a joint transaction. For the fact that someone paid upfront might mean that s/he expects repayment. Don’t think s/he is wicked when repayment is expected and asked for. In joint transactions, always think of going Dutch except you are advised otherwise. Err on the side of caution.
Spending Money Before It Gets To You.
Things happen. Until money enters your account, don’t go & pick something with the hope that you will pay when you get the money. That habit will lead you into the red. How about if that money does not come at the end of the day? I try not to make promises to people based on expected money. I see people start piling up debt just because they got a new job. It will distort your balance sheet if you start that way. It never ends well.
Money Sent Me On Errand.
I have seen people who were given a raise, upgrade their lifestyle in a heartbeat. Fly business class by the next day. Buy an expensive toy they never planned for. This is what happens to lottery winners. They pursue the appearance of wealth. The appearance of wealth is demonstrated when you get those things that make it look like you’ve arrived. It is the reason people take pictures sitting on cars; same reason musicians record videos in mansions and nice cars and private jets. Gang stars wear fur coats. Same when people buy TV/stereo set/gadgets with their first salary. Always allow the money to cool down. Take out time to plan what to do afterward. I have a one month rule for windfalls. They stay in the account until such a time that I have decided the way forward.
Depending on the Generosity of Strangers.
This is living life with the hope that somehow someone else will show up in the nick of time to pick your bills. It leads to living in debt and hoping that those you are indebted to will forget the money. These people can come to you with their family to thank you for the debt forgiveness you have rendered them. Meanwhile, you have said nothing of such. They always convert their debt into forgiven loans by themselves without your consent. They are experts at this. They quarrel and get contentious if you do not forgive. Money problems abound.
So, next time you think of doing any of these, have a rethink.
A New Wave: Where to Invest in H2 2020
Some of the industries that are expected to succeed given the changing times are not your usual kinds of investments.
There are two kinds of people in the world: The ‘glass-half-empty’ kind, and the ‘glass-half-full’ people. Where some see problems, others see the opportunities – same glass, but different perspectives. 2020 might have left very little hope to hang on to, but the world is still in motion.
Amidst the chaos, many have found their diamonds in the rubble – and many more will. These people, however, will be those who are willing to adapt to the changing times by repositioning themselves to leverage the opportunities that arise.
The Covid-19 pandemic has proven to be a holistic challenge, bringing to the fore a myriad of issues. It has caused a dent in the revenue/ disposable income of many businesses and individuals alike, shaken the very balance of the economy with many countries heading for unprecedented recessions, and left everyone with so much uncertainty.
Yet, we are at the cusp of a new dawn. Processes are changing, new industries are emerging, and money is changing hands. Flexibility, automation, and sustainability are just some of the words that will make all the difference in the world of business.
Dr. Ola Orekunrin Brown, the founder of Flying Doctors – a healthcare investment company – had, at the Quarterly Economic Outlook Webinar hosted by Nairametrics, offered insights into some of the industries that are expected to succeed given the changing times, and they have been outlined below. But be warned, a lot of them are not your usual kinds of investments.
Investment opportunities to leverage in H2 2020
One of the many trends that emerged in recent times, as a result of the Covid-19 pandemic induced lockdown in many parts of the world, is a huge dependence on internet technology and digital media. Everybody went indoors – and online. The entertainment sector found its home on social media through Instagram Live parties, Tik Tok, and the Houseparty App.
Companies went online as well, leveraging digital technology like Zoom, Microsoft Teams, and Slack. Even the lifestyle industry went online with online gym classes, yoga classes, and even karate classes. Not only have they provided much-needed solutions, they have also come with the additional benefit of convenience.
A good example of this is Eric Yuan, the founder of Zoom, who joined Forbes’ billionaires’ list for the first time as a result of the increased use of Zoom for work meetings. Apptopia, an App tracking firm, reveals that Zoom was downloaded 2.13 million times around the world on 23 March, the day the lockdown was announced in the UK– up from 56,000 a day and two months earlier.
Another feature of the digital economy lies in the education sector. With schools forcefully closed, classes have had to go online. Online courses, training workshops, and even full degrees will become more normal as those who work from home will see these online education courses as an opportunity to develop themselves with little effort.
Investments here will be even more fostered by access to international markets, thereby increasing the market size. ResearchAndMarkets predicts that the online education market is poised to grow by $247.46 billion during 2020-2024, progressing at a CAGR of 18% during the forecast period.
Institutions that are too big to fail
The stock market is expected to be even more volatile, given the overall unfavourable economic terrain and a high level of uncertainty – especially with all the talks of a recession coming. In H1 2020, the more favourable companies to invest in are those that have stood the test of time – the stocks that are too big to fail.
Many of these stocks have been in existence for decades and have been able to attain a level of stability as a result of their large market share and stable structures. You want financially strong companies and the reason is not far-fetched; the goal is to put your money behind the companies that are strong enough to withstand the storm to a good extent.
Another by-product of the Covid-19 induced lockdown is the increased need for internet services. Dr. Ola explains that the use of the internet as well as the move to work-from-home, are some of the megatrends of the times.
Good internet connectivity has proven to be the lifeblood that keeps digital entertainment trends, digital work trends, digital lifestyle trends, digital entertainment trends, and a huge chunk of the communication we have today. As a result of this, companies in the telecommunication industry have begun experiencing growth in revenue and earnings. Investments in this sector will most probably be worth your while.
Distribution & E-commerce
When the Okada ban took place, several motorcycle companies that were affected were forced to pivot from transporting people to moving items as full-scale delivery businesses. While many might have thought that a bad idea, the lockdown has undoubtedly contributed to the development of this industry.
The e-commerce industry is also expected to thrive with trade moving predominantly to the internet. Investments in distribution companies and e-commerce businesses are also expected to be worth your while.
One of the major hits of the pandemic is the Nigerian foreign exchange market which has now become highly volatile. The demand for the dollar far outweighs the available supply and this has forced importers and speculators alike to scramble for what is available in circulation.
Given the challenges with the FX market, international spending on foreign denominated expenses like tuition fees or international loans will come at an increased cost. To mitigate foreign exchange loss challenges, investments in USD denominated equities, and Eurobond funds will help you withstand the storm. While gains here could have you betting against the Naira, having foreign investments in your investment portfolio will come in handy.
The Agricultural industry is an expected gainer. One of the reasons for this is that local supply chains will expand, given the restrictions on the global supply chain as a result of the lockdown and the border closure. While this will also thrive, Dr. Ola Brown, explains that jobs will only be created in the short term.
This is because fewer hands will be required as productivity, better processes, and mechanization systems increase. An example of this is the new trend of robot herders in the United States. This is even more so as we compete with the rest of the world in production. Needless to say, Agriculture will always exist, given the need for food, as well as the rising global population.
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While the Covid-19 pandemic has a direct impact on the healthcare industry, the industry is a complex one. The first reason for this is that, with the healthcare infrastructure deficit in Nigeria, the government will need to invest in it to provide wide access.
With subsidies on healthcare, the free market in terms of investments might not be as lucrative with more people opting for government healthcare. However, given increased investments in the sector and the move to preventive health practices, the industry remains attractive.
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