Ways to safeguard your investments

Ways to safeguard your investments
Goddy Egene

Some years ago, many Canadian investors were bombarded with advertising promoting mutual funds and other investment opportunities. The promotions left many potential investors more confused.

They were confronted with questions such as whom should you trust? What should you invest in? How do I keep track of my assets? Where do I get information?, among others.

In order to assist investors get answers to some of their questions, Canadian Securities Administrators, an umbrella organisation of Canada’s 13 provincial and territorial securities regulators, offered 10 tips to help safeguard their investments.

CSA then advised investors to shop around for securities dealers or advisers and if possible ask friends for referrals.

It also urged investors to check with the provincial or territorial securities authorities to see if the dealers or advisers they had chosen were registered. CSA also advised investors to verify whether the dealers had a record of misconduct.

Investors were equally urged to compare the costs of services offered by the firms they wanted to do business with.
CSA said, “Make sure you understand the fees and the way your adviser makes money. Clearly define your investment goals and determine your tolerance for risk.

Diversify your investments: don’t put all your eggs in one basket. Read the prospectus of any company in which you are thinking of investing. Ask questions and take notes of your conversations with your adviser.

In the event something goes wrong, these notes can protect you. Periodically, review your portfolio. Give clear instructions to your adviser on the trades you want to make (name of security, number of shares, prices among others.

While this advice was given over five years ago, it is still very relevant and very suitable for the Nigerian present situation.

Currently, the primary segment of the Nigerian stock market is very active. Investors have many offers to choose from. Apart from the offers by Fidelity Bank Plc, First City Monument Bank Plc and Japaul Oil and Maritime Services Plc, there are two mutual funds also competing for investors’ attention.

They are the Bedrock Fund and Anchor Fund being floated by Cashcraft Asset Management Limited and the one by Union Trustees Limited.

According to market operators, having decided on which stocks to invest in, it is important to safeguard the investments. Many investors have lost their investments to fraudulent practices in the market.

However, the Managing Director/Chief Executive Officer of Central Securities Clearing Limited, Dr. Onyewuchi Asinobi, says that the CSCS had introduced ways investors can safeguard their investments.

He explains that one of the ways is for investors to monitor their investments in the CSCS online. According to him, the good news is that it now costs only N2,500 annually for individual investors to subscribe to and enjoy this service.

“While it may be difficult to totally eliminate fraudulent practices in one day, it can be prevented. That is one of the reasons the CSCS introduced the online monitoring of stocks. By this, investors can get stock account statement as at when needed and have access to their portfolio from any part of the world. This service, costs only N2,500 annually for individual investor.,” he says.

At present, investors are at the mercy of their stockbrokers to obtain their stock positions. But Asinobi explains that investors could now have direct access to their account statements online, monitor stock position regularly, monitor stock prices and certificates deposit details, evaluate their portfolios and ascertain the ones that are performing and those not performing.

This service is open to investors who have CSCS stock accounts. The CSCS account itself is another way of safeguarding investments.

Shares in the CSCS are those that have already been verified and ready to be traded. This gives the advantage of quick sale, which means you can easily take advantage of price movements. It is safer because once it is in the CSCS, the possibility of defacing it, stealing or misplacing it is remote.

According to Asinobi, investors can subscribe to this service through stockbroker or directly by visiting the website of the CSCS (www.cscsnigerialtd.com).

Apart from the online service, investors can also monitor their investments via the Trade Alert.

This was introduced in 2005 as a security device that protect investors against unauthorised transactions in their shares. It is fashioned in a way that investors are informed (alerted) through SMS messages on their GSM phones once there are transactions on their shares.

To safeguard investment through this device, investors have to send their GSM numbers to the CSCS so that whenever there is any transaction, they will be alerted.
Goddy Egene ( Punch)

What is your networth?

What is your net worth?
Daniel Ochefu(Punch)

Just as companies take stock of their performances at annual general meeting, individuals can also begin to take a retrospect on their financial positions.
Experts believe that an assessment of an individual’s net worth helps to meet his goals.

Mr. Austin Nweze of Lagos Business School, says, “Your net worth is the value of your assets, minus the total of all your liabilities. Put another way, it is what you own minus what you owe.

“If you owe more than you own, you have a negative net worth. If you own more than you owe you have a positive net worth.”
According to him, taking a retrospect at one’s net worth can help in meeting one’s goals.

He says net worth enables one to examine and to know his financial status at every given point in time.

“But in Nigeria, not many people take stock of their performances. This has resulted in many unaccomplished goals,” says Mrs. Rachel Apine, a trader in Lagos.

She notes that an assessment of net worth helps individuals to stay within their budget limits.

“Don’t always keep buying what you want. It will get you in trouble,” a certified financial planner Mari Adam agrees with Apine.

She says living above your means is the financial equivalent of slow carbon monoxide poisoning.”

“It makes pre-existing financial problems worse and can be the cause of headaches and shortness of breath until you address the source of your problem,” Adam adds.

Besides, Adam says positive net worth can be achieved when people spend less on cars.

Money Magazine has estimated that driving less expensive cars could yield an additional $180,000 over 30 years, assuming savings are invested.

“Remember, in addition to your monthly payments, you will be paying for insurance, fuel, maintenance and repairs,” the magazine says.

It states that net worth is a measure of assets minus your liabilities.
“But all assets are not created equal. Hanging on to assets that don’t do much for you may hurt your net worth long-term,” the report adds.

Sometimes, you should “move an asset from one point to another where it can produce more income. Monetise something that’s not monetised,” says certified financial planner Adam.

She cites a case of a couple in their 70s who were house rich but cash poor, down to their last few thousand dollars.

According to her, they chose to sell their house, bank the money and let it produce income while they rented another.

That saved them money in the long run since they otherwise would have needed to take equity out of the house to make ends meet. “Net worth is one thing, but cash flow is another. That’s where people go wrong with real estate.”

While it is never smart to be penny-wise and pound-foolish when making important investments like buying or renting a new home, it’s also never smart to think, “Oh, what’s another hundred thousand dollars when I’m already spending more than I ever have?” says Adam.

CNN Money recommends as a general guideline that it is best not to spend more than two and half times your income on a home.

According to CNN Money, your total housing payments should not exceed 28 per cent of your gross income while total debt payments should come in under 36 per cent.”

Adams says it will be wise to review your stock portfolio.

“Don’t buy and forget” or “own and ignore. Your inertia could be costing you. So, look at everything with a fresh eye. And ask yourself, What does this do for me?” she notes.

She also advises that individuals should consider their stock and bond investments,” she says.

“Do they still fit with your investment plan? (Do you even have an investment plan?) Maybe you have old stocks whose growth days are past and which may be trading at a loss from when you got them eons ago.

“In that case, you might harvest your tax losses. That will offset your capital gains now and in the future, thereby reducing your tax bill. And it will free up money to be invested more profitably.”

Besides, she says it is pertinent to consider cash holdings.

“If you have tens of thousands of dollars, or more, sitting in low-rate savings accounts or certificates of deposit, “you’re just giving money away,” Adam explains.

Stocks as Preferred Investment Options

Stocks as preferred investment option
Goddy Egene

The Nigerian Stock Exchange All-Share Index, which measures the aggregate growth of equities in the stock market recorded a growth of 61 per cent as at Wednesday, rising from 33,189.30 at the beginning of the year to 53,759.80.

This simply means that the stock market has given an average return of 61 per cent in the last seven months, a return that is by every standard, commendable.

Comparatively, the stock market return is better than the 13.5 per cent that a fund placement for 180 days in the money market fetched investors in the same period under review.

The performance of each company is a great determinant of what the company gives to investors. Some gave more than 300 per cent returns to investors in the first half of the year.

The bullish nature of the market has attracted more investors to the market. Members of staff of some companies who belong to cooperative societies are withdrawing their funds, which are being invested in stocks, while others obtain loan facilities to buy public offerings.

For instance, Miss Eunice Okoye, who is currently completing her studies at the Nigeria Law School, has vowed to stake all her fortunes in the stock market.

According to her, she used to put her money in fixed deposits accounts and get a return not up to 10 per cent annually.
“But when I bought the shares of Fidelity Bank Plc, it appreciated by over 30 per cent within two months. Currently, the value of my investments in that bank has grown by 200 per cent within three months.

I never knew I could make such money in such a short time. I have decided not to invest in any other instrument for now apart from shares of companies,” Okoye said.
According to the Managing Director of Networth Securities and Finance Limited, Mr. Azu Odita, Okoye is not the only investor who has taken the decision to focus mainly on stock market.

He said many of his clients who used to put their funds in other forms of investments, had decided to stake a higher proportion in the stock market..

Odita said, “The stock market is having the best of times now and investors are benefiting from the current state of the market. More investors are showing interest in the stock market and the reason is not far-fetched.

Apart from the fact that the market is currently returning impressive returns to investors, there are other reasons why investing in stocks is a better option.”

According to him, the market takes care of both investors who have high appetite for risk and those that are risk averse.

“The market is divided into equity and debt sectors. Investors who can take high risks play in the equities sector of the market because the returns are higher.

But for those who do not have the heart to take high risk, the bond market, where the Federal Government is currently active, is there,” Odita said.

The stockbroker explains that though investments in the government bonds give an annual return of between 10 per cent and 17 per cent, the returns are safe and fixed.

“That is why I said that investors who do not want to take high risk prefer to play in the segment of the market because he can stake his money on bonds and go to relax, hoping to get his fixed return every year,” he said.

He explains that apart from the capital gains investors enjoy when they invest in stock market, they also enjoy other benefits. The common benefit, according to him, is dividend, which is paid at the end of every financial year.

According to him, in some markets like Australia, companies have dividend reinvestment plans, where they issue additional shares to their shareholders (often at a slight discount and without brokerage fees), rather than paying out dividends in cash.

“Many companies make Rights Issues that give their existing shareholders the opportunities to buy more shares in the company at a discounted rate and without the need to buy through brokers, thereby saving on brokerage fees.

Companies do this as a way of raising more capital for expansion, and it provides you with an opportunity to increase your holding in the company at a discounted price if you are confident of its potential.

Even if you decide not to take up their offer, you can sell the right to buy the discounted shares to someone else,” he says.

Odita explains that compared to other investments like property, shares are very portable.
“Shares can be bought and sold quickly, and the brokerage on the transactions is lower than for a property transaction.

Unlike selling a property, you can sell part of your shares,” he explains.
Another advantage of patronising the market is the diversification of investments.

The Networth Securities and Finance boss says that the market has various different companies operating in various sectors of the economy, thus giving an opportunity to diversify and spread risks.

“But the benefits investors do not take advantage of is getting discounts as shareholders. Some listed companies, usually retail, hospitality/entertainment or financial services, offer generous discounts to shareholders when they buy goods or get services from the companies or their subsidiaries,” he says.

The President, Association for the Advancement for the Rights of Nigerian Shareholders, Dr. Faruk Umar, says that he prefers the stock market to other investments windows. Although he agrees that the risks are also high, he maintains that if you have a good professional around you and stick to the principles of investing you can harldly get it wrong.

According to him, the first principle is not to be greedy. “In stocks investments, greed is very dangerous. An investor should not look for too much.

Once you have recorded significant returns, you can sell and invest in another stock or wait for the price of the stock depreciate before investing in it again,” he said.

He adds that an investor should also not be afraid.

According to him, “An investor must not panic if prices of stocks are dipping. Once you have confidence in a company, hold on to the stock before it will bounce back.

But if you sell out of panic, there is every tendency that you will lose your investments.”

Punch

Setting up an Investment Club

Setting up Investment Club

What is an Investment club? Investment clubs have been in existence for decades around the world. Investment clubs are formed by friends or colleagues who pool money together periodically and meet to decide how the money will be invested.
They exist as a means for members to grow their personal wealth and learn about investing.
In Nigeria, less sophisticated forms of investment clubs known as 'ajo' or 'esusu' have flourished in many of our societies for generations even till the present day; staff of many corporate organizations operate the same scheme with several variations. The participating members will pool together a fixed amount each month and the money is paid to individual members in turn. The incentive of participating in 'ajo' is the enforced discipline of deferring the gratification of spending money today for a lump sum payment in the future. However, 'ajo' or 'esusu' does not take the time value of money into consideration; in other words, the first couple of people who collect the pooled funds are probably the only ones who really benefit from the scheme. Subsequent collectors are essentially lending money to others interest free and bear the additional risk of default from other members.
Why join an investment club?
An investment club is an effective way of achieving the investment aims of its members. Unlike 'ajo' or 'esusu' where contributions are given to one member to spend as he/she wishes whilst the others wait their turn, members of an investment club contribute and invest the contribution in several investments available in the capital market. By so doing, compensation for choosing to invest rather than spend their money now is shared amongst the members. This compensation will usually come in the form of interest and dividend payments as well as appreciation in the value of their investment. Additionally, investment risk is also shared by the members. Participants can either invest or collect the return on investment in accordance with the laid down guidelines set by club members. Furthermore, ownership of common funds and proceeds is based on each member's level of contribution.
You may want to take advantage of the benefits of an investment club if:
•
you are new to investing and looking for a way to get started
•
you are a seasoned investor and want to share ideas with like minded individuals
•
you have limited resources/money to spend on investing each month but would like to build your nest egg
Steps to set one up:
•
Get together a group of people who are interested in starting an investment club. It is advised you keep the number between 6-15 people to keep the group discussions manageable.
•
Write an operating agreement stating responsibilities of group members which will include information on important issues such as your investment philosophy, how members can liquidate their investments, how dividends will be distributed, and even mundane issues such as how snacks will be provided.
•
Conduct investment club meetings and delegate roles to each individual. Meetings should be held once a month with each member coming up with research and recommendations for investments that are in line with what has been agreed in the operating agreement.
•
Decide on how you will utilize and obtain external advice. This should include selecting a broker to facilitate your transactions, a bank to manage the cashflow, an asset management firm for a more holistic approach to investing, a lawyer for legal matters such as drawing up your agreement or incorporating your investment club.
Although ajo or esusu has helped a number of people to cultivate the habit of saving, investment clubs provide a more effective way of growing wealth.

-Business Day News Paper

Common Mistakes Investors must avoid

Common mistakes investors must avoid

By Ayo Olesin, Punch

The wealth of the world’s richest men is usually tied to the value of the stocks they hold, so it was no particular surprise that the Mexican investor, Carlos Slim, displaced Microsoft’s Bill Gates as the world’s richest man a few days ago on account of a recent 27 per cent surge in the share price of Latin America’s largest mobile phone network, America Movil.

Slim holds a 33 per cent stake in the firm and he is now worth about $67.8bn compared with Gates’ $59.2bn.

Such tales of immense wealth built on investments in companies are largely fascinating and it is the big investors, like Slim and institutional fund managers that make the news usually because of the size of their investments and returns.

But there are millions of others that have built relatively modest riches on account of investments in stocks of both small and large companies, and the potential for small investors to make huge returns in companies that are not even heavily capitalized or liquid is always there.

The advantage a small investor has really is that he has all the time in the world to research and focus on companies that will deliver value and superior returns over time, compared with fund managers who are under pressure from clients to perform.

Unfortunately, this is not usually the case, as small investors tend to follow the bandwagon, placing their bets, based on sentiments, in shares rising in value rather than seek out undervalued companies.

However, for an investor to avoid being lumped in the group of underachievers and boost potential for high returns over time, there are a few common mistakes, which must be avoided.

The first is market timing. This simply means being able to predict how share prices will move within a short time frame so the investor can buy low and sell high.

If this were possible, all investors would be rich in no time. Experts point out that stocks behave in a random manner within a short time frame with prices swinging up and down for no apparent reason. Monitoring stock price movements on the Nigeria Stock Exchange for just a week will prove this.

Any investor that tries to time the market could actually make some quick gains, but also make equally quick losses since his actions are made at random and there is no underlying strategy.

It is always better to focus on investing in companies that are selling at a significant discount so that expectations of good returns are realized.

Another mistake small investors make is discountenancing the cost of making trades. Fund managers and stock brokers are in the business of making money through the fees they charge. The beauty of their business is that they make money whether you buy or sell shares. Fund expenses, trading commissions, account management fees, and the spread between bid and ask prices on stocks are money spinners for such institutions and if there is any profit left after trading on your account, the government still collects its cut in withholding tax on dividends.

So any discerning small investor should always be aware of fees or commissions that come with trades, which effectively translate into lower returns for the investor. It is advisable to hold onto stocks that are performing. What real gains could be made in selling off shares in Zenith Bank to buy UBA, for example, when both companies are in the same industry, with similar market capitalization and growth potential? However, some fund managers will not hesitate to do that since they will get their cut.

Looking beyond the hype helps an investor avoid serious losses. Investors in the infamous Dot.Com bubble can attest to this. Many people bought heavily into Internet firms that sprang up about a decade ago, in an industry where business models are in constant flux. Some companies did well, most did not. Those that did well such as Google understood the market, and were able to see the future.

In Nigeria, the financial services sector is seen as the key growth area, and there is the hype that even insurers must necessarily do well just as the banks. Investors will help themselves by looking at company specifics and ask themselves if the company they are interested in has any real competitive advantage over others in the same sector.

Gambling. People gamble largely for entertainment, not as a source of income. An investor can buy a stock, which he knows nothing about and make money, fine, but he should not gnash his teeth in distress if he loses money.

Stock experts stress that investors should not buy based on speculation or sentiment.

The rule, especially for value investing is “buy because you understand the company and recognize that it’s selling at a discount to its fair value.”

Here, an investor should always have a good grasp of a company’s fair value, its growth strategy, and the challenges it is likely to face going forward.

Value expert opinion. Many investors would ignore advice of an expert not to buy into a stock that is rising fast on the market, but the truth is that stock markets are subject to cyclical movements. Boom and bust cycles characterize the market and any investor caught in between could have his fingers burnt, especially if he takes a position as the stock price is peaking, just on the verge of a downward slide.

An investor should realize that by purchasing stocks, he has become part of the company, and has entrusted his investments to the managers who are expected to generate profit and give returns periodically in form of dividends, bonuses or capital appreciation.

So it is better to get in when a company is young, as the stock market does not defy nature, it needs to grow. Also, it is better to buy stocks on the decline, not when it is rising.

Investment analyst, David Meier, points out that investors have to be able to identify some characteristics of stocks and use available information to take advantage of investment opportunities.

One can draw from the concept of the stock market according to the father of value investing, Benjamin Graham, who postulated that “Over the short term, the market is a voting machine; over the long term, it’s a weighing machine.”

He pointed out that a simple way to access stocks is to assume that the Return on Invested Capital is the key variable that the market uses to weigh a company’s stock price for it to rise over the long term.

If this is so, he says that it could be assumed that stocks with falling prices and falling ROIC are in turnaround or stocks with rising prices and falling ROIC are in the danger zone.

Also stocks with rising prices and rising ROIC are probably in for good times while stocks with falling prices and rising ROIC are value opportunities.

However, these are mere assumptions. The key issue is always to get expert advice and avoid joining the bandwagon, which could result in short-term gains, but subsequently result in serious burns. – Punch

Why Investors Lose in the Stock Market

Why investors lose in the stock market
By Bosede Olusola-Obasa

I have found that if you control losses when trading, the profits will tend to look after themselves. If I could only tell beginners what the destructive behaviours are before they start, they might be spared much financial pain,” says a renowned financial analysts, Colin Nicholson, in one edition of his articles published on the web.

Nicholson, who has written nearly 200 articles and columns about technical analysis, trading and investing since the 1990s, identifies some ways people set about losing money in the stock market. He faults the following ideas and urges caution in adopting them:
- Learn to pick the tops and bottoms.

Trading with the trend is for wimps. No wonder they don’t become rich, they leave too much on the table. You can capture it all, buy the low of the trend and sell the high. Yes, buying a new low is trading against the trend, but you do know when the trend is going to change.

- Take profits quickly and hold on to the losers
It is no wonder traders lose. They keep leaving their winnings on the table where the market can grab them back. They are just greedy. Better to take them straight away. But not the losers, after all, they say, a loss is not real until you sell. Besides, the experts tell you stocks always go higher after a fall.

- Do not waste time developing a plan of action
After all, everyone knows that he who hesitates is lost. If only you had bought a particular stock when it listed you would be very rich now. The problem with most people is that they know too much about the market and so confuse themselves. Since you know that most businesses fail for lack of a sound business plan, then it is not safe to go on without a sound-trading plan.

- Look to trading to provide the action you crave.

To succeed, you only need to get free of all those irksome restrictions. The market is a way to get free of all the things that have always held you back.

Even though many stock market professionals agree that an investor might not get it right all of the time, but with adequate attention paid to relevant market factors, a greater fortune awaits investors.

For instance, in his book: Timing the Stock Market, renowned author, Colin Alexander, provides a guide on how to identify when to buy, sell and sell short. To him, risk-conscious future traders would not think of trading without using timing techniques, adding that some professionals at times reject or ignore timing mainly because they do not understand timing or because they do not know how to use it.

He cautions against impulse investment while encouraging information-based investment decision-making, adding that fundamental and technical factors must be considered about a stock before funds are staked in it.

Before taking a step to purchase a stock therefore, he says the investor should attempt to find out about what he wants to buy, when to buy or sell it, the difference between it and the nearest alternative. He advises investors to take personal responsibility for his investments.

The Chief Operating Officer, CentrePoint Investments Limited, Mr. Jire Oyewale, asserts that many people have created wealth from the stock market because they were business minded in their approach to their investments.

He stresses that one of the pitfalls to avoid in stock investment is playing the absent investor who does not care about price movements, time and their implications. That way, he says, people easily lose money. He adds that a carefree attitude should be avoided rather there should be a desire to become more intelligent about the workings of the market.

He recommends that:
-You should avoid bandwagon effect, which is the syndrome of following the crowd in investment because it could lead to loss of money. This is because the buyer only bought because others were buying, refusing to understand its historic background, and possibly the expected performance because you are buying into the future of the company.

-You have to carefully consider your entry level (the price at which you are buying). You should avoid the mistake of thinking that a stock will continue to rise simply because it is currently rising because it is not always like that.

-You also need to consider when to exit (sell). The safe way to go is to learn to exit a stock when you discover that you have made a reasonable profit margin on a particular stock. You can exit it and reinvest in other good stocks that are trading at a lower price.

It is better to exit and make considerable profit than to eventually lose everything.

-It is better to trade in a stock with high price but with sound fundamentals and strong prospects than one trading at a lower price but lacking the prospect to turn your investment around.

Four tips for picking a Fund Manager

Four tips for picking a fund manager

1. Find out if the fund manager has a system. In other words, can the company run without the presence of the Managing Director (MD)? Put differently, if the MD is not around, can his subordinates take decisions on your investment? It may be time to change a fund manager if you have to deal with the MD all the time.

2. Does he invest his own profitability? You must ask for testimony. A fund manager who has done well with his own money is likely to pull the same magic in managing your investment. The reverse is also true: if he has no testimony he may be using you as a Guinea pig. It may be a costly adventure for you.

3. Be 100 per cent sure that his firm has a clean bill in terms of credibility and that his company has not been sanctioned by the regulatory authorities: Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE). You can obtain the information from the Exchange or SEC directly. Once there is no clean bill of health, it may be wise to look elsewhere.

4. Find out if the company you want to use has fulfilled all legal requirements in terms of registration with SEC, NSE and the Corporate Affairs Commission (CAC). Please demand registration particulars. Don’t ever compromise on this.

Wish you guys all the best.