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