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Investment Tips

What bad stocks have in common with bitter relationships 

The feeling you get from marrying the wrong partner is similar to that felt after buying the wrong stocks.

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I have always argued that stocks cannot be summarised into one statement for a newbie, until recently when a friend told me that it could.  

“Simply put, buying stocks can be likened to relationships, he said.  

did not immediately agreebut over the next few minutes, he explained to me what he meant, and drew several analogies to back his claims.  

While he is no expert, I understand that he has drawn his conclusion from his experience buying stocks for himself over the past 5 years, so I took his points seriously. These points have been summarised in this article. 

READ MORE: Cocoa prices melt lower as COVID-19 weakens demand 

When it crashes, there is no telling how far it can go  

My friend mentioned of some company’s stock he bought in 2016 in the hope of selling short-term. At the time he bought, there was a dip and he expected things to pick up within some months so he could sell-off.  

Two years later, the stock price had plummeted 50% down from the price at which he bought. Without saying, he became a long-term investor because he was not ready to sell off at a loss.  

READ: Jumia plans to spin off logistics and payment unit in a bid to become profitable

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How does this liken to being in a bad relationship?

As the value plummets, you keep hoping it will rise again and then before you know it you are stuck for the long haul. Same thing can happen with a wrong partner. You remain there hoping things will be better but it gets worse. 

It could happen sometimes that a company’s stock market price comes crashing and it never goes back to where it was againThe factors which triggered its fall, may not even be able to return it to its starting price.  

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READ: Why investing in Airbnb might be worth it

The stock price is not indicative of the company’s profitability 

For some reason, there are company stocks market prices that remain low year after year despite the billions declared in profits, and the dividends paid out to shareholders.  

Sometimes, the stock market price could still slump even when the company has positive records in its financials. Market experts are not always able to explain this, but it remains true. Some of the most profitable stocks are undervalued.  

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READ: Nigeria Spends N60.37 billion on Fuel Subsidy in November

You can never take stocks at face value

That a stock has been on an upward trend in the last few months does not mean it will remain so. One must always consider several other factors before purchasing a stock.  

While it is important to look at past performance, there are other things that could point to the likely future of such stocks. 

READ: Ripple jumps by 4% as investors intensify buying spree

Say, for instance, the company has just announced a new board chairman who was implicated in some fraud cases in the past. It doesn’t matter how well the stocks have performed in the last 365 days, or the chairman’s competence, the stock prices are most likely to slump due to loss of investor confidence.  

There was a recent case where the CEO of an internet service provider company was alleged to have been involved in sexual harassment, and was eventually pressured by shareholders to resign. The pressure came not necessarily because they thought he was guilty, but because of the implications on the company.  

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You have to probe to discover the real qualities.  

READ: Guinness Nigeria finding it hard to refinance its loans due to dollar scarcity

The most expensive stocks are not necessarily the best. 

If you ever heard a stock described as under-priced or over-valued, then you should understand that the price you pay is not necessarily suggestive of the value.  

Some great stocks, with good potentials, high liquidity, good company profile and adherence to corporate governance ethics, are not as expensive as they should be. While some other stocks are ridiculously overpriced, even when they do not have as much promise. Some of these overpriced stocks could still be basking in past glory or just positive media hype.  

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READ: Mutual Benefits Assurance Plc to raise N4.8 billion through private placement

This explains why investors must conduct due diligence before putting in their hard-earned money. Sometimes the media hype around a company’s stock might not be giving you all the information you need to make a decision, so you necessarily have to go the extra mile.  

Subscribe to newsletters from financial news websites if you need to, take courses if you have to, but ensure to learn all you can.  

Remember price is what you pay for the stock, but value is what it is really worth, and there is no law stating that one must justify the other.  

READ MORE: Global stocks records astronomical gains in Q2 2020

When you get the wrong stocks, you get stuck! 

You know that feeling when you are sure that you have made the wrong choice, but also know that there is no way out? That’s the feeling you get when you marry the wrong partner, as my friend said. And that’s the same feeling you get when you get the wrong stocks.  

You simply get stuck.  

READ: When Jumia’s successes compel naysayers to change their positions

No returns. No dividends. Probably, no way to sell either because no one else is interested in buying from you. And if you do succeed in selling off at this point, you would most likely be doing so at a loss.  

If you study trends in the stock market, you will see some dormant stocks that have remained stagnant for long periods of time. No rise in share price, no fall in share price, and no share is being traded either.  

READ ALSO: Best time to make money trading BTCs

It is not a nice position to be in, and that is why you want to be sure of the company, its management, and board members who take the decisions before you decide to buy or not, even more so when you are a long-term investor.  

And even then, with the wrong stocks, you could suddenly find that your proposed short term investment of 6 months will run into years because you keep waiting for things to pick up before you sell.  

Ruth Okwumbu has a MSc. and BSc. in Mass Communication from the University of Nigeria, Nsukka, and Delta state university respectively. Prior to her role as analyst at Nairametrics, she had a progressive six year writing career.As a Business Analyst with Narametrics, she focuses on profiles of top business executives, founders, startups and the drama surrounding their successes and challenges. You may contact her via [email protected]

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Exclusives

In a hyperinflation economy like Nigeria’s, these are the best investments to consider immediately

A deeper review of investments to consider amid the prevailing high inflation in Nigeria.

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Where to buy Real Estate in Lagos in 2021, Nigeria's Real Estate Sector recorded positive growth after three year low, Real estate: Declining credit reflects underlying weakness 

Let’s face it, Nigeria’s rising inflation plus lower options for high yielding investments are already driving a significant number of investors away from Africa’s leading frontier market. This is coming at a time when Nigeria’s top performing investment asset class for 2020 is currently having a year-to-date return of around -3.30%.

Recent data published by the National Bureau of Statistics (NBS) reveals Nigerian inflation rate surged to a 33-month high, as it rose further to 16.47% in January 2021 from 15.75% in December 2020. This is marks 17th consecutive month of rising inflation in the country.

Consequently, Nairametrics interviewed selected financial experts on the investment options best suitable for such macro.

That being said, it’s important to note that there are no guarantees when it comes to investing during high inflation. At best, such investments may be inflation-safe, but returns can never be guaranteed.

READ: The Nigerian economy is increasingly dollarized but there is a way-out

Debo Adejana, MD/CEO, Realty Point Limited, Chairman, REDAN South West Zone.

At 16.5% inflation rate as of January 2021, the obvious is that there are very little short-term investments that can outperform that especially in the short term. So, that being said, my traditional conservative disposition of the fact that the best investment term is the long-term.

To make returns that will consistently be higher than 16.5% in short term investments will require very good knowledge of the asset class and share dedication.

If that is clear, then by my own understanding, the following are some of the possible investment areas or strategies to adopt with real estate being my most preferred asset class anytime:

  1. Financial player in a JV Property Development Scheme. This helps to save time and gives faster turnover of investment fund.
  2. Buying distressed property now, renovate, rent-out for 2years of more just to hold if necessary and sell after.
  3. Crowd owning/funding property deals
  4. Guaranteed rent discounting
  5. International property investment for positive cash flow and to enjoy foreign exchange appreciation

All the above can be done as a large ticket investor or little fractional holder using a well-structured and regulated vehicle.

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READ: Real estate sector GDP positive in Q4 2020, but still in the woods

Darlington-Morsi Onyemaka, Co-founder, Quba Exchange

Inflation means that prices for things are rising, and as such the same amount of money buys less over a certain period of time. This in itself is especially not good for cash savings as the best way to manage inflation is by investing in instruments that give you a return higher than the current rate of inflation or at least one that keeps up with it.

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The best kinds of assets to invest in during inflation are tangible assets that have fundamental values and as such, their worth measures up together with inflation. These assets include real estate, growth stocks, and commodities like food, crude oil, and gold (especially gold).

On the flip side, one should avoid long-term fixed-income investments. This is because the value of the underlying security falls as investors tend to focus on higher-yielding alternatives when the interest rates of that instrument start rising.

READ: FG says Finance Bill 2020 will check inflation

Thelma Ugonna Ohiri-Anyanwu, CFA

Inflation is the increase in prices of goods over a period of time, where a specific amount of currency will be able to buy less than before.

In as much as inflation erodes the value of funds, this should not deter one from investing as some investment’s types are great hedge against inflation and helps to preserve capital. Some of such investments are Gold, REITs, real estate, commodities and a well-balanced stock portfolio.

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Silas OZOYA, Founder/CEO SUBA Capital

Inflation in many ways affect the general health of a countries economy and her citizens literally and the only way out of inflation is continuous and increased investments in local production, expansion of existing local businesses and enacting fiscal policies that would strengthen the currency of such country.

To mitigate this, increased and persistent investment from all angles in Agriculture, local processing, and increased export would do a positive dent on our inflation rate and keep us far away from recession through job creation, wealth growth, food, and cash crop production at scale.

Nigerian’s home and abroad should consider investments that support economic growth through investments in Agriculture and agro-allied ventures.

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Agriculture from my experience is one of the very few sectors that puts food on the table, employs people, and grows the value of your money against inflation all in one value chain.

The general public, high net worth individuals, and Nigerians abroad should consider holding at least 20% of their asset portfolio in Agriculture and agro-allied investments.

Angela Aya, Head, Institutional Sales at Alonati

There are a lot of investment opportunities for both the wealthy and not so rich investors in Nigeria, investors desiring to get an income or return on investment. Some are the FGN Savings Bonds, Stocks, Real Estate, Gold, Cryptocurrency, Agriculture etc. However, below are some investments that offer inflation protection:

Real Estate

Investment in real estate has been profitable and remains lucrative especially in Nigerian urban cities.

This investment however requires medium to high capital. Nigeria is still a developing Country in the world and the need for housing to match the Country’s increasing population size remains critical, as urban-rural migration continues to increase due to the neglect of development of the rural areas by the States and Federal Government.

The value of land and property has continued to rise and will continue to appreciate due to the margin between demand and supply as the need for residential and commercial buildings in major cities remains high.

Gold

Investing in gold has remained an agelong golden income space. The value of gold has continued to appreciate over the years because of the importance attached to it all around the world.

Gold remains an important symbol of wealth and affluence, and can be purchased as bars, coins or jewelries and resold at a higher price over time.

Bottom line

A disciplined investor can hedge against inflation risks by investing in the following asset classes that often outperform during high inflationary climates.

  • Debo Adejina – Real Estate,
  • Darlington-Morsi Onyemaka – real estate, growth stocks, and commodities like food, crude oil, and gold (especially gold).
  • Thelma Ugonna Ohiri-Anyanwu, CFA – Gold, REITs, real estate, commodities and a well-balanced stock portfolio.
  • Silas OZOYA – Agriculture and agro-allied ventures.
  • Angela Aya – Real Estate & Gold.

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Investment Tips

Retail franchise investment next gold mine for Nigerian investors- CIG

Retail franchise investment curbs unemployment  and create buffer for people looking for side hustle

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The Choice International Group (CIG) has tasked both unemployed and employed Nigerians to embrace retail franchise investment, as the initiative would curb unemployment in the nation  and create buffer for people looking for side hustle.

In line with a recent FBDS Study, there are over 450,000 Nigerian career professionals with minimum investible funds of N1 million, looking out for investment opportunities.

In the majority, these funds are looking for franchise type opportunities for ease of venturing and minimal failure risk.

As far as CIG chairperson, Diana Chen, is concerned, such investor should look no further but consider the group’s retail franchise investment opportunity, which offers Nigerian community mouth-watering offer of owning Gree & Lontor retail stores.

According to him, Gree is the world’s residential air-conditioner manufacturer, while Lontor provides high-quality, energy-saving and convenient rechargeable home appliances and lighting products for global consumers.

He said, “Both brands have been built by the CIG into a world-class electronic retail chain in Nigeria opening no less than 20 brand shops in Lagos and Oyo over the last 18 months.

“The sales performance of its existing stores in the country makes Gree & Lontor one of the most profitable businesses in Nigeria with yields of an average return on investment of 50% and above per annum.

“CIG is offering investors the opportunity to own any of six regional logistics centres, or any number of Gree & Lontor brand shops in viable locations across Nigeria.

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“It is the decision of the company to open up these opportunities to the investing public through a Franchise Retail partnership.”

 

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He added that the company has mapped out two investment models it says are simple, transparent, and hassle-free.

“The first model involves only six regional logistics centres located across the geopolitical zones in Nigeria.

“Whoever invests in this will require a capital outlay of $1 million, and become a mega distributor partner of the Gree & Lontor brand, and service a network of brand shops.

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“The second investment model involves the Gree & Lontor brand shops – retail franchise stores that require an initial capital outlay of N20 million.

“The investor will secure a store size of 120-150sqm at any choice location, shopping mall, plazas, high streets and even residential neighbourhoods.”

What they are saying

Nigeria is a growth market for franchising and franchise development services.

Gbenga Ajayi, an Entrepreneurship analyst, said, “The retail industry comes second to the food industry among sectors with best franchising opportunities.

“As with other emerging markets, one of the challenges of franchising in Nigeria remains the strengthening of intellectual-property regimes so that franchise companies can transmit knowledge and franchise system concepts with the confidence that such know-how will be protected.

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