Capital Market Nigeria

Many investors buy stocks with no clear investment objectives in mind, in a bearish season, it is such investors that are worst hit. Can you imagine an investor putting all his money in penny stocks or just banking stocks? These are good examples of bad portfolio management. Why a lot of investors have been currently hit by bearish run in the stock market within the past few months is a lack of good portfolio planning and structuring.

But I also believe that the current states of stocks prices in the market will give you a good opportunity to have a rethink on some positions you have taken and also buy into stocks that are currently cheap. Do you even know that there are times that it will be better for you to hold your cash instead of investing in stock market because of a downturn in the market? This is what portfolio planning will help you to achieve.

BUILDING YOUR PORTFOLIO

The following questions will help you in creating investing objectives and also help you in knowing how to diversify your investments among quoted stocks, public offers, private placements, bonds and cash. Ask yourself these questions before investing at any time:

1)    How soon will you need to draw upon your investments? The longer your time horizon, the more weight you should give to stocks. With time on your side, you can afford to ride out the occasional downward movement in stocks. On the other hand, if you expect to begin drawing on your investments in the intermediate or short term, you should consider shifting your emphasis to income and safety.

2)    How concerned are you about inflation? The greater your concern, the more you should invest in quoted stocks. Beating inflation is one of the benefits that stock investments have over other instrument like fixed deposit or government bonds. If you had kept your money in a fixed deposit account yielding a 10 percent return since 1980 by 2006 the value of that investment will have been eroded because our inflationary rate has been measured above 10%.

3)    How important is that your investments not drop significantly in value? If wide price variations are likely to keep you up at night, you should be emphasizing bonds and blue chip stocks. Basically, we have two types of investors; the risk takers and the risk averse. A risk taker is not really affected but short term fluctuations in stock prices and he can also invest in highly volatile stocks like penny stocks but if you are a risk averse investor, I will advise you to concentrate on those blue chip or income stocks which rate of volatility is very low. In that category, you will find the likes of first Bank, Guinness, Mobil, Total, UBA and some others.

4)    Are your investments a source of emergency funds? If your funds will be needed within a very short term, a cash reserve is a good idea for emergencies, so you don’t have to sell your stocks at a loss during bearish market conditions. Cash reserves may come in form of a term deposit which you can arrange with your banker or through treasury bills which matures in thirty to ninety days.

It’s important not to take your investment planning for granted. Once you have decided on a strategy, give it an annual check up, to be certain that you are staying on course.

Every man on earth has been given the law of multiplication: Go into the world and multiply. Multiplication cannot take place until investment is applied. Investment is like a seed; when planted it germinates to produce fruits. You will always bear the consequences of not delivering this potential to the society.
Everyone has been given ability to invest no matter how small their income is. Even the poorest man has this ability. And your status in life is rated by your ability to do investment.

Investment Status
Investment status is the capacity of an investor at a particular point in time to invest. It can be measured financially in terms of cash or in terms of information available to the investor; or in terms of the zeal possessed by such investor whatever the case, it is a proven fact that nothing else can improve your status in life except investment.
As long as earth remains, seed time and harvest shall not cease.

Types of Investment
Definitely there are different classes of investors and the type you belong is a determining factor in your position, in the wealth hierarchy, in the stock market. The types are:

Active Investors
These are the people who trade with their investments. These types of investors are capable of raking in 100% returns from their investments.
This is the millionaire group and only few have been able to tap into this wealth resource.

Passive Investors
These are the people who put their money in stocks or investments and expect excessive interests in terms of dividends and bonuses.
Many small and medium scale investors (SMSI) belong to this group.

Portfolio Builders
These are the people who build their investments gradually for the sake of the future, not minding whether there is dividend or not. Call them pensioners but their generations will never beg in life.

Poverty Victims
These are the people who store their money in investments that yield little or not profit. These sets of investors are characterized by:
(1) Fears of loss
(2) Feeling of “I don’t have enough to invest”
(3) Slothfulness
(4) Wickedness, blaming the economy, blaming their present predicaments on their past misfortunes etc.

The Best Investors
The first two kinds of investors are short-term investors and most times, they are involved in stock trading. The third kind of investor is a long term and he looks to the future.

The fourth kind of person will not always get returns on investment, rather, he gets punishments like inability to train wards in higher institutions, suffering at old age (Retirement), and as the bible puts it, “the little they have will be taken from them and given to those who already have.”
That is why the saying that, the rich will continue to get richer and the poor will continue to get poorer, may just keep a date with you until you change your mindset in the right direction.

And at this point, we open the floor the floor to comments, questions, cheers and jeers. If you have any further tips, share it so we can learn together)

For a quick understanding of the word “Stock Market or Capital Market” lets flash our mind back to the meaning of the word “Market”.

Market as we all know is a place where buying and selling takes places. Market in general has many characteristics of which one of the characteristics is; it must have more that one point of entry.

Like wise stock market has three viable mode of entry:

1) Private Placement Offer (PPO)

2) Secondary Market Transaction (SMT)

3) Initial Public Offer (IPO)

Generally, stock markets trade can be transacted through any of the above medium. Lets explain it one by one.

Private Placement Offer:

This involves a system where by a company approaches a selected individuals or high network investors by the way of invitation to buy stocks in the company. Before a company’s stock will be listed in Nigeria Stock Exchange, certain requirements must have been reached.

One of the requirements is that the company most have at least 300 investors. For a company to achieve this, they must pass through Private Placement Offer. This is the time the rich and anybody who wants to be rich buys their stocks.

The richest man in the world made 80 % of his money through Private Placement Offer.

Secondary Market:

When the company has satisfied all the requirements of the exchange regulatory (which includes private placement), the company will now be listed and to be traded in stock market. Most time, the Listing price is always twice the private placement prices.

Immediately after Listing, wise investors who missed the opportunity for buying private placement then, will now buy more quantity of that stock through Secondary Market.

Public Offer:

Do I hear you say I bought one? Listen, wise and rich investors don’t always buy public offer.

It is a well-known fact that most people that buys public offer don’t know anything about Stocks. 80% of people that buys public offer are doing that for just for buying sake.

This is the time when most people buys their shares while the wise investors use this opportunity to sell all (off-loads) their stocks to the masses.

Most companies use this medium to generate money for themselves wherever they want to expands there branches all over the country. One thing that is not so good about this type of investment is that your money will be tired down for a period of 6 months or more waiting for your share’s certificate. You can’t do anything with the stocks until you get your certificate. Also the price of the stocks here is always on the higher side. Wise investors buys when the price is down and sell when it’s high.

In conclusion, it is a well known fact that stock market is the only instrument that gives equal opportunity to both the rich and the poor to access wealth and multiply income (either by private Placement, Secondary Market or Public Offer).

(Have any tips? Add it to the comment below so that we all can share it together)