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How Not To Invest In Shares

How Not To Invest In Shares

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Shares, invest

Meet Bright, the “intrepid” investor

 Bright thought it was time to get into the stock market business and decided to open an account with a stockbroker. He quickly asked for a list of stocks that he could buy and then sell for “huge” profits as quickly as possible.

The following six months were like a roller coaster ride as he entered and exited stocks at will and without fear. How in this world had he missed this “business”? After all, all he needed to do was to buy a stock and then sell as soon as the price appreciated to his sell target. He hardly knew the companies he was buying, or what they even did to make money.

Many get into the stock market with this sort of mindset. While many make money this way, they often times fail and when they do, they do so, woefully. The stock market is erroneously seen by many as a place to stake bets without understanding the underlying principles behind how it works.

Types of investment principles & investors

Just like in other businesses, investing in the stock market requires that you understand which principles work best for you, and stick to them.

Growth and Value Investors are perhaps the two most popular types of investors in the world, along with their respective principles.

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[Read Also: A guide to how Mutual Funds work in Nigeria]

Growth Investor: Growth investors are predominantly interested in high growth companies. They believe companies that have the potentials to grow very fast present the best opportunities for them to increase their returns on investments.

 Most growth investors rely on technical analysis, basically the study of share behaviour with the aim of anticipating future movements. They rely on charts and other aspects of share activity to predict how share prices would swing.

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They, therefore, lay a lot of emphasis on seeking out stocks with potentials to increase their share prices within the shortest possible time. Growth stocks also have very high P.E ratios of 25x and above, as the market places a very high premium on their share prices.

Growth stocks also report high revenue growth, even if they are not commensurate with profits. They grow their revenues by over 100% annually and sell products or services that are eye-catching and fairly new in the market.

[READ MORE: Infrastructure: Tapping into pension fund – a step in the right direction?

Value Investor: Value investors seek out stocks with high intrinsic values, often higher than the market prices that they are sold for. They like to buy stocks that are perceived to be undervalued, believing that very soon, the market would recognize their true values and then price the stocks accordingly.

They can be very patient and unlike the growth investors, prefer stocks with lower P.E ratios (often single digits). In seeking out these value stocks, they rely on fundamental analysis, a method that relies on the financial statement of a company, its management, competitive advantage and ability to outsell its competitors in deciding whether to buy shares in a company. This is a painstaking technique and requires countless man-hours, poring through financial statements and researching the company behind a stock.

Which is better?

There have been different researches as to which investing method provides the best investment results over the years. Some even utilize a hybrid of the two with very impressive results.

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Choosing between the two depends on your strengths and ability to make the right decisions by relying on either or both.

[Read Also: Nigeria’s real estate industry attracts foreign investors ]

What shouldn’t you do?

Speculation: What you should thus avoid is buying shares like you are gambling. Even people who rely on technical analyses spend a lot of time analyzing trends and movements in stocks to determine when they buy, sell, or hold. You should therefore not buy shares in a company because everyone else is buying (herd mentality) or simply because someone recommended it to you.

Many who speculate in share investment claim that it is very profitable, however, what they probably won’t tell you is that it is also the fastest way to lose money. You can lose all that you have made during a year-long’s bullish spree in a matter of days.

Margin Lending: This is basically borrowing money from the bank to invest in shares which should also be discouraged if you do not dedicate at least 90% of your business time in investing in shares. It is a sure way of getting bankrupt.

When you invest in shares, you have basically taken a decision to buy a part of a company. Even when a friend offers his car for sale, apart from negotiating a price, you go ahead to test drive the car and ask your mechanic to check its condition. If you can take that much time in deciding whether to buy a car or not, then why not do same for shares?

You must understand the company you are investing in and what it does. Find out who members of the management team are and review their competencies. Ask yourself if what they sell is something you will like to buy.

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[Read Also: How to use profits to determine what stock to buy]

Back to Bright…

Bright ended up losing nearly all his investments in the ensuing stock market crash of 2015, as he knew little of most of the companies that he had bought shares in. Stocks he bought at N2 per share have remained at the rock bottom price of 50 kobo per share, years after.

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This article first appeared on Nairametrics on March 24, 2014.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

7 Comments

7 Comments

  1. Anonymous

    July 23, 2018 at 11:54 am

    Can you in posts like this give examples of company/companies whose stock fall in these categories (value or growth stock). Thank you for the write up

  2. godswill

    August 3, 2018 at 8:40 pm

    if i want to invest in stock, how will i start?

    • Onome Ohwovoriole

      August 6, 2018 at 8:43 am

      You would have to open an account with a stockbroker. You can get a list of registered stockbrokers at sec.gov.ng

  3. Startupback

    January 28, 2019 at 8:17 pm

    Would you still advise someone to invest in Nigerian stocks this 2019?

    • Stanley

      September 23, 2019 at 10:25 am

      I will advise you seek out the value stocks as per the article. Most stocks including value stocks are currently available at discounted prices due to the low level of economic activity in the country which is also discouraging many foreign and local investors. Some companies are still producing good results, paying dividends consistently despite the poor perception of the market, hence identifying such value stocks and buying them now is not a bad idea. But you should be very patient. And content yourself with dividends for now. But surely, with time, optimism will return to the market and those value shares will be the ones many investors will go for the most , resulting in a rally and capital appreciation for those patient dogs who had bought during the downturn.

  4. Douye otoworo

    February 5, 2020 at 5:47 am

    Axa mansard insurance company,is it a good insurance company and can it be used for a long term investment.

  5. Adetuberu Yinka

    February 24, 2020 at 7:42 am

    My challenge is how does one obtain metrics like forecast eps growth, forward p.e ratio, hence peg and other important growth valuation metrics for all the stocks on the board  without stress if I want to follow a growth investing strategy. Many equity reports i have read automatically assume value approach  calculating intrinsic value through dcf.I will appreciate direction.
    Thanks .Adetuberu Yinka 

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Personal Finance

6 things you must not do with your money

Money can go as fast as it comes, but you might just get to keep it for a long time if you follow these tips.

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Coming across this, you probably thought to yourself “what an interesting topic, I wonder what it has to say”. Well, we are right there with you. There are a lot of things you shouldn’t do with your money and even without reading further, you can probably outline about 20 things, (go ahead if you’d like to).

Trust me you’d have fun doing that because it was quite fun coming up with this list and we’d like to present to you the top 6 things we believe you must not do with your money. Have a fun read.

DO NOT BE UNINTENTIONAL WITH YOUR MONEY

Intentional living is important and it is something that has caught on over the years. To be intentional means to be deliberate in your actions and decisions. Basically, what you must understand from this is that you should not be impulsive with your money, whether in your spending, savings, and investment decisions, you must be deliberate. There is a popular saying that goes “failure to plan is planning to fail”.

It is necessary to always have a plan/budget for your money. Never leave your money to chance. Be intentional, be deliberate, and do not be passive with your money plans. To get started, you can focus on three steps; have a vision, create a plan, set limits. You can decide to be intentional with your impulse buying as well. When you create a plan and set limits and you do not go over that limit, even when you decide to splurge, you would still be on track to achieving your goals.

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DO NOT MAKE LARGE PURCHASES WITHOUT CONSIDERING THE FULL COST

Part of being intentional with your money is to avoid large purchases if possible. Things like buying a car or land/homeownership should not be taken lightly. Even if you can afford the down-payment at that time, you have to consider the other charges and fees attached. If you can meet up with maintenance and servicing then, by all means, go ahead. Otherwise, it’d be best to review that decision. One way to achieve such purchase though, if your current earnings aren’t sufficient to support an extravagant purchase is to have a savings or budget plan for it.

Even if you cannot afford a financial advisor, there is a good number of mobile apps that would help you make such a savings plan. If you are the type of person that whenever you come upon ‘windfall’ or unexpected income, you’re already thinking of how to spend it extravagantly, you need to have a change of perspective. Before you think of buying that private jet or getting that car, you need to ask yourself if you are fully capable of maintaining it. Making rash purchase decisions can lead to regrets later.

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DO NOT CASH YOUR PAYCHECK RIGHT AWAY

With the advancement in technology, most employees have the option to have their earnings paid directly into their bank accounts, rather than collecting cheques or cash. But no matter the form you collect your money; you must make provision for part of that money to be saved. Do not spend it immediately. You can automate payments such that a percentage of your monthly income goes directly into your savings account.

This helps to avoid the temptation of dipping into that fund because, “if you don’t see it, you won’t spend it”. Some companies provide retirement savings plans for their employees, a system whereby a portion of their salaries are deducted and paid directly into their retirement account. One such plan is the 401k, of which the Nigerian alternative is the Nigerian Pension Scheme, governed by the National Pension Committee (PENCOM).

(READ MORE: Cashless goes nationwide)

DO NOT PUT ALL YOUR MONEY IN ILLIQUID INVESTMENTS

While investments are fun, and a good way to build wealth, it is important to diversify and have variety. Remember the saying, “do not put all your eggs in one basket?”. The difference between liquid and illiquid investments is simply this; the ability to exchange something for cash. So the rate of liquidity is determined by how easily an investment can be converted to cash. Do not tie up your money by investing in illiquid investments. Your investment portfolio should be diversified.

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DO NOT SHOP EMOTIONALLY

The fact that we are biological beings does not mean we should not make logical decisions. Do not fall prey to ‘retail therapy’. Retail therapy is a term that is used to describe the action of shopping to improve one’s mood. It is also referred to as “comfort buys”, often acquainted with individuals who buy during periods of depression and stress. You are allowed to get emotional and you are also allowed to deal with that emotion, but talking to a sales representative or clerk just to make you feel better is not healthy.

Their job is to make sales, not your welfare. This is not intended to paint anyone in any sort of way but rather, to educate you. Instead of making that trip to the store or browsing that online catalogue, it would be better for you to call up a trusted friend or family member and talk with them. You’ll thank me for it.

DO NOT SIGN A CONTRACT YOU DO NOT FULLY UNDERSTAND

A contract is an agreement between two people that is legally binding. Four essential elements that make a document legally binding are; an offer, an acceptance, an intention to form a partnership, and a consideration that usually involves money. It can be oral or written. When it is oral unless recorded, there is no solid proof that an agreement was made, but, once it is written there is enough proof.

So before you go ahead and sign that piece of document, you must be fully aware of the terms and conditions of your agreement. Yes, a contract may, however, be considered invalid for specific reasons, but the bottom line is that you should avoid any situation that would put you in any money problem. It is more rewarding to get professional advice than implicate yourself unknowingly.

With all that’s been said, the crux of the matter is that you must be intentional with your money. Only then, can you plan, only then can you learn from your mistake, only then can you track your money movements, be deliberate, make decisions and take actions with a purpose. Develop a relationship with it (a healthy one of course), get to know your money, go on money dates and your financial health will bless you for it.

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MSME

FG says 174,574 successfully register for N75 billion MSME survival fund in 48 hours

174,574 persons have successfully registered for schemes under the Nigeria Economic Sustainability Plan.

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FG releases new details on MSMEs support scheme, budgets N200 billion for loans, FG says 174,574 successfully register for N75 billion MSME survival fund in 48 hours

The Federal Government has disclosed that a total of 174,574 persons successfully registered for the N75bn National MSME Survival Fund and the Guaranteed Off-take Stimulus schemes under the Nigeria Economic Sustainability Plan, within 48 hours.

The disclosure was made by the Minister of Industry, Trade and Investment, Ambassador Mariam Katagum, during a media briefing on the update of the schemes, on Thursday, September 24, 2020.

Mariam Katagum, in her statement, said: “As at 8.30 am this (Thursday) morning, total successful registrations stood at 174,574 with the following states having the highest applications as follows: Kano, 19,895; Kaduna, 13,575; Lagos, 13,640; Katsina: 8,383; Federal Capital Territory, 8,085.”

She stated that the registration for the MSME Survival Fund commenced on September 21, 2020, at 11 pm, and within 24 hours, approximately 138,000 individuals had logged on, created profiles and completed the first stage of registration with Kano, Kaduna and Lagos as lead states.

(READ MORE: Nigeria’s external reserves up by 7% in 21 days, currency speculators to lose over N10 billion)

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Going further, Katagum said, “All successful applicants received SMS and email verification with a list of requirements for the second stage of application which would commence on October 1, 2020. Applicants will be required to upload details supporting their applications which will be verified and if successful, approved for disbursements.”

The minister further disclosed the states that recorded the highest numbers of applications within the first 24 hours of registration; these are Kano, which recorded 16,880: Kaduna, 11,438; Lagos, 10, 530; Katsina, 7,354; and Bauchi, 6,622.

Explore the Nairametrics Research Website for Economic and Financial Data

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She also stated that registration for other tracks would start next with the hospitality industry coming on September 25, 2020, by 10 am; payroll support (others), September 28, 2020, 10 am; while artisan/transport grants would start on October 1, 2020.

Nairametrics had two days ago reported the opening of the portal for its N75 billion Micro, Small and Medium (MSMEs) Survival Fund and Guaranteed Off-take schemes with effect from 10 pm on Monday, September 21, 2020.

READ: Delivering mass housing as a path to Nigeria’s economic recovery

These two MSMEs initiatives namely MSMEs Survival Fund with payroll support track and the Guaranteed Offtake Scheme which are at the core of FG’s N2.3 stimulus package in the Economic Sustainability Plan, were introduced by it as part of the efforts to help businesses overcome challenges posed by the Covid-19 pandemic.

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MSME

How to register for FG’s N75 billion MSME survival funds

FG released guidelines to access the N75 billion MSME Survival Fund.

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MSME, How to register for FG's N75 billion MSME survival funds, Small Businesses in Nigeria

The Federal Government (FG) has released the guidelines to access the N75 billion Micro, Small and Medium Enterprises (MSME) Survival Fund and Support Initiatives, which took effect from September 21, 2020.

The scheme, which is the core of the N2.3 trillion stimulus package of the Nigerian Economic Sustainability Plan includes the N60 billion MSMEs Survival Fund and the N15 billion Guaranteed Offtake Schemes.

This disclosure was made in an official statement by the Federal Government through a series of tweet posts on its official Twitter handle.

READ: FG to provide financial support for 1.7 million businesses, individuals in next 3 months

The statement from FG read, “As the portal for the registration of prospective beneficiaries of Survival Fund opens, interested Nigerians in the Payroll Support Scheme are to note that the site will be open from 10 pm Monday, September 21, 2020.”

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The statement says that the registration for the payroll support will start with the educational institutions at 10 pm Monday, September 21, 2020, and will be followed by businesses in the hospitality industry by 12am Friday, September 25, 2020.

The portal will also open for other categories of small businesses from 12am, Monday, September 28, 2020. It should be noted that the scheduling of the registration for prospective beneficiaries is to ensure that the process is seamless and hitch-free. The registration of every sector is to continue until Thursday, October 15, 2020.

READ: FG to save N1 trillion annually from petrol subsidy removal

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To register for this initiative, the Federal Government has also provided a portal for entry. Potential beneficiaries are advised to log on to https://survivalfund.ng to complete their registration.

As part of the registration process, the beneficiaries are expected to provide personal registration details, activate their account, register their organization after they have successfully activated their account.

Corporate Affairs Commission (CAC) Number, Bank Verification Number (BVN), SMEDAN Number, a Tax ID (optional) and the organization’s bank account details will be needed.

Completing the Payroll Support Registration, beneficiaries’ first name, last name, email, mobile number and Password will be required. Also, their Date of Birth, residential address and residential Local Government Area will also be provided.

READ: FG releases new details on MSMEs support scheme, budgets N200 billion for loans

These 2 MSMEs initiatives namely MSMEs Survival Fund with payroll support track and the Guaranteed Offtake Scheme were introduced by the FG as part of the efforts to support businesses overcome challenges posed by the Covid-19 pandemic.

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The MSMEs Survival Fund scheme is a conditional grant to support vulnerable micro and small enterprises in meeting their payroll obligations and safeguard jobs in the MSMEs sector. The scheme is expected to save at least 1.3 million jobs across the country and specifically impact on over 35,000 individuals per state.

READ: Nigeria’s external reserves up by 7% in 21 days, currency speculators to lose over N10 billion 

The scheme will be implemented over an initial period of 3 months and is targeted at employees of MSMEs and self-employed individuals with 45% for female business participation and 5% for special needs participation

The Guaranteed Off Take Stimulus Scheme is expected to perfect and sustain the income of vulnerable micro and small enterprises from the economic disruptions of the Covid-19 pandemic through the implementation of various initiatives aimed at boosting the production capacities of small businesses as well as the provision of grants.

The duration is also for an initial period of 3 months and is targeted at micro and small businesses registered in Nigeria.

 

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