As we discussed in a previous post that establishing multiple income streams through saving and investing is important, buying shares in Nigeria is one way to achieve that.
Investopedia explains that when you purchase a share, you buy a portion of ownership in a publicly traded company. This means that as a shareholder, you have a fractional stake in that particular business.
In this blog post, we’ll discuss how to buy shares, the benefits and risks of buying shares in Nigeria, and some Nigerian companies with high-performing shares to help you make an informed investment decision.
The Nigerian Stock Exchange (NSE)
The Nigerian Stock Exchange (NSE), formerly the Lagos Stock Exchange, was established in 1961 for different functions. One of which is to ensure that people who buy shares profit from it primarily.
The Securities and Exchange Commission of Nigeria regulates the NSE, the only stock exchange in Nigeria. Both local and foreign investors can access the 176 listed companies within the NSE.
Benefits and Risks of Buying Shares
Buying shares can be a great way to grow your wealth and achieve long-term financial goals. However, like any investment, buying shares has benefits and risks.
Benefits of buying shares
Shares have the potential for high returns.
Buying shares can offer high returns compared to other types of investments such as bonds or savings accounts. If the company performs well, the value of your shares could increase significantly, allowing you to earn a substantial profit.
Shares give you an opportunity for diversification.
Buying shares helps you diversify your investment portfolio. Investing in shares from multiple companies across different industries can spread your risk and reduce the impact of any single stock’s performance on your overall portfolio.
Shares give you ownership and voting rights.
Buying shares in a company makes you a shareholder and part-owner of the company. As a shareholder, you can vote during important company decisions, like the election of the board of directors.
Shares help you earn dividends.
Some companies pay dividends to their shareholders periodically to distribute profits. This can provide a regular source of income for investors.
Risks of buying shares
The stock market is volatile
The stock market is subject to fluctuations and can be volatile at times. This means that the value of your shares could decrease, potentially leading to a loss.
Company performance affects the value of your shares
The performance of the company whose shares you hold can also impact the value of your investment. If the company performs poorly or experiences financial difficulties, the value of your shares decreases.
There’s no guaranteed return
Unlike some other investments, like savings accounts or bonds, there is no guaranteed return on your investment when you buy shares. This means that there is a risk that you may not earn a profit on your investment.
You do not have management control
As a shareholder, you have a say in important company decisions, but you do not have control over the day-to-day management of the company. And so if the day-to-day management of the company does favour the increase in shares, you share in the outcome.
How to buy shares
Buying shares can initially seem complicated, but the process can be broken down into simple steps. These steps include:
Research and choose a Stockbroker
You’ll need a stockbroker to buy shares. A stockbroker helps investors buy and sell securities like stocks, bonds, and mutual funds in the financial markets. They are the intermediaries between buyers and sellers, and they execute trades for their clients. Research and choose a broker that suits you.
Open a brokerage account
Once you’ve chosen a stockbroker, you must open an account with them. This involves filling out an application, providing a means of identification and funding your account.
Choose the stocks you want to buy
Research companies and decide the stocks you want to buy. You can get information from financial news websites, company annual reports, stock screeners, family, friends and colleagues.
Decide the number of shares you want to buy and place your order
Depending on your budget and investment goals, decide the amount of shares you want to purchase. Then place your order online through your stockbroker’s trading platform. You’ll need to provide the stock symbol, number of shares, and the price you want to pay.
Monitor your investment
After you’ve bought your shares, it’s important to watch how they’re doing. Check the stock price regularly and stay informed about the company’s performance.
Nigerian Companies with high-performing shares
Nigeria has a lot of companies with opportunities to buy shares. After buying shares from a company or corporation in Nigeria, you acquire a percentage of ownership in that company. Your ownership stake is proportional to the number of shares you buy. As a shareholder, you may be entitled to a portion of the company’s assets and earnings.
These companies can either be public or privately held. Private companies are owned by a few individuals, like founders, managers, or private investors. On the other hand, public companies allow individuals i.e. external investors outside of the company’s founders, or board of directors to hold ownership stakes.
Shares held by external investors are called outstanding shares. For example, if a company has 100,000 outstanding shares, and you own 10,000 shares, you own a 10% stake.
Here are some Nigerian companies with available and profitable shares.
- Guinness Nigeria PLC
- Honeywell Flour Mills PLC
- Royal Exchange PLC
- Morison Industries PLC
- United Capital PLC
- University Press PLC
- Vitafoam Nigeria PLC
- Courteville Investments Plc
- Cutix PLC
- Skyway Aviation Handling Company PLC
Asides buying shares from Nigerian companies, you can also buy foreign shares. Global brands like Amazon, MTN, Facebook, Alibaba, Microsoft and Apple etc sell shares to the public. A financial coach I listen to mentioned in one of her webinars that she buys shares of every product she uses. She has shares in MTN, Facebook and Apple because she uses their products. Now, that is something to learn from.
General Guidelines for Choosing Companies to Invest in
Some companies do better than others in terms of profit. Buying shares in companies with the potential to do better than others gives you a chance to have a higher return on your investment. These are some guidelines for choosing companies with a potentially high return on investment.
- Research companies with a strong track record of performance and growth
- Consider the industry in which the company operates and its potential for future growth
- Investigate the company’s financial statements, including revenue, profits, and debt
- Check the company’s management team and its track record of success
- Research the company’s valuation and whether the stock is currently trading at a reasonable price
Buying shares in Nigeria can be a great way to grow your wealth and achieve long-term financial goals. However, it’s important to understand the risks involved and carefully consider your investment options before deciding. By understanding the benefits and risks of buying shares, you can make an informed decision on the shares to buy. Also, it is important to diversify your investments and have a long-term perspective.
Disclaimer: Please note that this isn’t financial advice. Check with a financial advisor or analyst before making any investment decision.