How to invest in stocks

When it comes to investing, financial experts often mention ‘stocks’ as an option. Unfortunately, for many people, the idea of investing in stock is like an attempt to become a professor of mathematics. They don’t think they can comprehend it.

But experts say the truth is that the process is pretty much straightforward and with the right approach tales of success, and not woes, will be the outcome.

Also, experts say the option of investing in stocks is often put on the table because not only can it be very profitable, it is easy.

For those who want to invest in stocks, experts say it is important that they gain basic understanding of the stock market and how it works.

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One of the things an individual needs to do before investing, according to experts, is to save money. Surely, without money to spare there will be nothing to invest.

Experts, therefore, stress that it is important for people to ensure that they have built up some form of savings and have  stable sources of income before they start investing, especially in stocks. This, they explain is because investment in the capital market is best viewed from a long-term perspective and not as a short-term or get-rich-quick perspective. It will be unwise to invest in stocks with the intention of pulling out the investment after just a month.

Get information

Information is important. Experts explain that there are many people who have invested in stocks without having a clue what the stock market is about and what a stock is. Such people have little or no knowledge about basic terminology and when they get information, which ordinarily should be very useful to them, they can’t make sense of it. And they will not bother to seek clarification from professionals.

Understand the investment purpose

The Managing Director, Enterprise Stockbrokers Plc, Mr. Rotimi Fakayejo, says the first thing an individual who wants to invest in stock should consider is to think about why he or she is investing.

He says, “The important question is,why the person wants to invest. Is it for capital appreciation or for dividend? Some people want something that will generate an average dividend for them on constant basis.

“There are some that actually invest for the future. The future in the sense that they want something that can bring good returns and also a stock that will grow. So, the investing purpose is the number one question that each person should ask.”

After determining why you want to invest, Fakeyejo explains that it is important to determine if there are sectors in which you have preferences. He says this is because certain people, as a result of their beliefs, are averse to investing in certain companies or sectors.“There are some people that say they cannot invest in a brewery. Some won’t even do banking as well. Those ones can look into the foods and beverages sector or consumer goods sector, among others,” he says.

Get professional help

In investing in stocks, Fakayejo and other experts say professional help is vital. While the process of investing is simple, there are technical aspects that an investor may not understand and need not be bothered with. This is where the professional comes in. “Basically, they need to invest with someone that can properly guide them into it,” Fakayejo stresses.

The process

According to Fakayejo, once an individual has decided the purpose of the investment, what sector, he or she wants to invest in and saved money for the investment, he or she needs to approach a stock broking firm.

He explains, “The firm would open a stockbroking account for you, and an account with the Central Security Clearing System. When that account is opened, just like a normal banking account, you will need to make deposit with the stockbroking firm. And then you agree with them on what you want to buy.

“When all that is in place, they go ahead and buy shares for you and after about three or four days, the stock would have reflected in your account after which you will get a CSCS statement and also the contract note for the transaction. And whenever you want to buy again, all you need to do is deposit the amount you want to use to buy stocks, and then you specify the stock you want for them; if you don’t want them to make a choice for you.”

He notes that share certificates are no longer issued. “What they will give you is a CSCS statement, which is equivalent to what used to be called certificate,” he says.

Diversify your portfolio

This is to help the investor reduce risk.

To diversify your portfolio, Fakayejo says it is important to note the preference you have for a particular sector. If there is no preference for a particular sector, he stresses that it is always better to diversify the sectors. He says this does not mean buying the shares of different companies.

He says, “You don’t just buy the shares of Access Bank, Zenith Bank, UBA, and GTBank and think you have diversified your portfolio. You look into each of the sectors and you pick the best of those sectors. “That way, if anything happens to any particular sector, at least you can still remain afloat as you have reduced your risk. Then also, as much as you are buying into established companies, there are those that are just coming up; you can also put your money in them.”

Don’t follow the crowd

One mistake people make in investing in stocks, according to experts is following the crowd. Fakayejo warns against this.

Talking about things people should avoid when investing in stocks, he says, “They shouldn’t just follow the bandwagon in buying shares, rather they should find out about the particular stock they want to buy; ask questions and look at the trend; whether they have been doing well.

“Even if it is an upcoming stock, they should look at the management profile of the company and the board of directors; because those are the people who make decisions for the company. So, wherever the companies end up, those people would be responsible. If they are people who have a track record for doing business successfully, then there is the chance that the company will do well.”

-Simon Ejembi/Punch

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