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.
I did not immediately agree, but 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.
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.
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 again. The factors which triggered its fall, may not even be able to return it to its starting price.
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.
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.
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.
You have to probe to discover the real qualities.
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.
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.
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.
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.
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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.
Retail franchise investment next gold mine for Nigerian investors- CIG
Retail franchise investment curbs unemployment and create buffer for people looking for side hustle
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.
“It is the decision of the company to open up these opportunities to the investing public through a Franchise Retail partnership.”
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.
“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.
Where to invest N500,000 right now
Nairametrics interviewed financial experts on what assets they would invest in if they had N500, 000
Since a full economic recovery this year is off the table, Nairametrics interviewed some investment experts, entrepreneurs, and corporate heads, on the assets they would invest N500,000 in. The responses varied from buying gold to investing in mutual funds or starting a business.
The world economy is projected to fall by 4.4% in 2020, an upward guide from an earlier predicted rate of -4.9% made in June. The IMF projected that social distancing due to the COVID-19 pandemic will linger till 2021, but the transmission of the virus will plunge globally by the end of 2022.
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Temitope Busari, CFA
With fixed income yields at the current levels, my N500k in today’s market will go into a dividend-paying stock or alternative investments.
- Depending on whether or not I can afford to risk some capital and barring timing constraints, I would buy a stock that offers periodic cashflow in form of dividends.
- For alternative investments, I would explore high-yielding fixed deposits in the on-lending space.
Michael Nwakalor, Macroeconomist at CardinalStone Research
- The yields in the fixed income markets are currently on the low and producing negative real returns, the equities market provides a viable alternative to earn a total return above inflation.
- I like stocks in the banking sector, as a number of them remain undervalued by fundamental metrics. Several names are on the course to post near double-digit dividend returns by the year-end. A portfolio that includes the following counters – GUARANTY, STANBIC, ETI, FBNH, and ZENITH, should provide adequate exposure to the sector as well.
Adaobi Okonkwo, Currency Trader of a leading Tier 1 Bank
- With a few things to invest in, the most reliable investment that comes to mind is a mutual fund. The fixed income and money markets are currently experiencing a downturn; hence, investing in them could reduce my income spread.
- However, with a mutual fund, my portfolio of investment in the capital markets is determined by the fund managers with a decent return on investments certainly above the risk-free rate. Gold is a commodity that would yield a good ROI within a specified time frame if I wanted to invest by myself.
Silas OZOYA, President/CEO, SUBA Capital
Though quite a small capital, it might not do much if you want to play the long-term investment game. However, it can set the ball rolling.
- I would invest it in a high yield investment platform that pays at least 5% returns monthly to cover running costs.
- Put the money in a fixed deposit and leverage it as collateral to take a debt fund, with a 6 – 12 months moratorium from a commercial bank for a possible expansion of a profitable business. This way, you gain on the debt and still have your N500,000 intact.
Ugonna Thelma Ohiri-Anyanwu, CFA
With a gift of N500,000, my risk appetite and drive for higher returns,
- I would invest 50% of the funds (N250,000) on dollar and Eurobonds. This is mainly because of my future needs for FX and also as the need to hedge my currency risk.
- I would invest 25% of the balance (N125,000) in Ethereum, which would give me a steady cash flow with medium risk.
- The balance of N125,000 would be invested in Value company shares with low P/E and also stable dividend payments.
The overall investment portfolio allows for diversification, stable cash flow in both local and FX currency, and currency hedge. These would provide a solid mix between ownership of materially underpriced assets and high dividend-yielding assets.
Amid the rising COVID-19 caseloads prevailing globally, the financial experts interviewed above showed significant diversity on the assets they would invest in, coupled with their different appetite for taking risk reflected on their preferred choices made amid a blurry global economy era.
Where to invest $10,000 right now
Entrepreneurs, financial experts and investment analysts suggest what sectors or assets to invest in if you have $10,000.
The upsurge in COVID-19 cases around the world has kept global investors flocking the world’s safe-haven currency at an exponential rate, the high demand for the greenback is coming on the high geopolitical uncertainty prevailing in today’s financial market.
Also, it’s important to note at the currency market, the U.S dollar remains king. According to the International Standards Organization, 90% of currency trading done globally involves the U.S. dollar, most crypto assets, virtually the most liquid commodities are priced in the U.S dollar not forgetting about 40% of the world’s debt is dominated in the greenback.
So Nairametrics felt it paramount to ask a hedge fund manager, entrepreneurs, and financial experts, about what sectors or assets they would invest in if they had, say, $10,000.
Their responses were revealing and diverse as they were varied—ranging from; buying global equities, local stocks, real estate holdings to investing in digital assets.
Gavin Smith, veteran trader, and managing partner at Panxora Crypto Hedge Funds.
I would scale into BTC $2,000 now, $2,000 when it comes off to $10,000, then add $2,000 at $9,000 and another $2,000 at the $8,000 level. If BTC then breaks above $13,000 I would buy any of the above orders that had not been filled of the remaining $2,000. I would put $500 into each of these four DeFi protocols: LINK, COMP, KNC, and OMG.”
DeFi is an exceptionally volatile market and these would need active management, but they represent an opportunity with exceptional upside potential. This is a market our analysts are building a profile in, to advance our DeFi hedge fund later in the year.
Debo Adejana – Founder, MD/CEO – Realty Point Limited.
I follow the investment wisdom that says, ‘invest in what you know and understand’. I know and understand real estate probably more than any other investment asset class.
So, the decision as per what I will invest in with $10,000 which should be upwards of N4m is simply; Real Estate. I will either do rental income property as part of a properly organized shared-ownership structure or speculate on land depending on how much time I have with the money. The reasons are very basic, real estate investments have been known to survive and surpass any and every challenge.”
Darlington-Morsi Onyemaka, Co-founder Quba Exchange Forbes Accelerator Cohort ’20.
One of the main pointers to a good investment portfolio is diversified across multiple asset classes which should be according to the investor’s risk appetite. Looking at my long-term investment strategy, real estate fits in perfectly for Ten-thousand dollar investment. My portfolio is already jam-packed with high-risk assets and Real Estate will do a great job at hedging the risk factors without minimizing profitability in any significant way.”
Francis Obasi Cofounder and CEO of Lead Wallet.
If I have a spare $10,000 right now for investment, first, I’ll invest 55% of the funds into new crypto startups being run by professionals and backed by companies like Coinlist; LID Protocol, and Binance. Second, I’ll invest 20% of the funds into Lead Token as there is still potential for massive growth in the coming months/years. Third, looking at the situation of Nigeria, and not knowing where the current protest (uprising) on #EndSARS is headed, I’ll reserve the rest 25% in USDC/USDT to hold against a potential Naira crash. I’m confident that there is every possibility that the Dollar will become scarce again in the coming weeks/months due to the ongoing protest, thereby returning instant gains for immediate spending on basic needs.”
Dapo-Thomas Opeoluwa Global Markets analyst and an Energy Trader.
“There are so many ways to invest $10,000. The real question depends on the investor. His risk appetite, his investment horizon, when does he or she want to liquidate? The answers to these now limit the options of investments. So for safe and long-term investments, I always advise investing in index funds, Eurobonds or the Nigeria International Debt fund. This is with the caveat that says ‘low risk equals low returns’. Also, I usually would say, invest in investments that beat inflation so you won’t suffer negative real turns.”
Victoria Njimanze Investment Analyst at a Nigerian Investment Bank
Well, off my head I’ll go with Bonds, cryptocurrency, Stocks, and then alternatives. I would definitely make my findings first, but I’ll make a larger portion go into Bonds say 40%, 30% in cryptocurrency, 20% in stocks, and 10% in alternatives like commodity market so as to have a diversified portfolio.”
Akinsola Esan, a credit risk analyst at Nigeria’s Tier 1 Bank.
Basically, the goal is to earn substantial returns on investments – dividends, capital appreciation, and secondly, beat inflation in naira which is currently about 12.85%. With $10,000, I’ll spread my investments across foreign equities such as purchasing and holding stocks of companies like Apple, Facebook, Google, Fastly, Nio, Amazon, to list but a few, and also buy some top-performing dollar-denominated Mutual funds such as Vantage dollar funds and some other ones recommended by Nairametrics. Lastly, I will look in the area of cryptocurrencies by investing as much in bitcoin, Ethereum, and other recognized Cryptos. There are some dividend-paying stocks listed on the Nigerian stock exchange as well, I will consider holding a number of them.
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Due to the present fickle nature of global financial markets, most financial experts interviewed above are unsurprisingly keen on mostly U.S dollar-dominated financial assets, thus reflecting the greenback’s dominance in demand amid the COVID-19 infection exploding at an alarming rate.