Tuesday, January 28, 2014

5 Tips on How to Invest Wisely in the Nigerian Stock Market

The Nigerian stock market is one of the most profitable stock markets to invest in the world with some investors smiling away with more than 40% annual returns on their investments. Stock prices of most shares on the Nigerian stock Exchange are fairly or lowly priced as at December 2013 making them ideal targets for medium to long term investments. But when it comes to investing in stocks of Nigerian quoted companies an ordinary investor needs to be careful not to make critical mistakes that could ruin their investments such as buying on impulse or because it’s what’s trending or taking advice from people who know little or nothing about investing in stocks – many Nigerians lost their fortunes investing in the Nigerian stock market in 2008/2009.

Tips on Wisely Investing in Nigerian Stocks
It’s not rocket science but stock market investment in Nigeria is as simple as applying common sense approach to buying stocks. Here are a few guiding tips;

Decide what your investment goal is
The first and perhaps the best advice anyone should give a novice investor in the Nigerian stock market is to know why they want to invest in the first place. Some people invest in the stock market to acquire a property such as a house or a plot of land. So they buy stocks continually over a period of say 5 years then sell it off as a lump when the price must have appreciated over time. Another reason could possibly be for University Education for the kids or even for pension. In other cases it might be part of a retirement plan in which case the investor might choose to purchase stocks for say 15 to 20 years continually on a monthly basis then depend on yearly dividend payout as retirement income.

Define your investment Strategy
Your investment strategy should be determined by your investment goal. A good strategy for investment could be the buy and hold strategy in which an investor buys stocks to hold them for a long time in order to profit from capital gains and dividends on the long run. Another strategy is cost averaging whereby an investor buys a particular stock with a certain amount monthly and then gets an average cost of the shares overtime before deciding whether to sell or hold. This strategy is less risky and is good for medium term investing. There’s also the more popular day trading where the emphasis is merely on buy low then sell high which is best for short term investing.

Pick a reliable Stock Broker
A stock broker can to a large extent determine how easily or not you can buy or sell your shares. If the stock broking firm isn’t professional they could poorly handle your transactions making it you buy late at a higher price or sell late at a lower price than you intended. Also ask how liquid is the firm? A good stock broking firm should be financially stable and made of highly trained and well rounded staff.

Open a CSCS Account
With a Central Securities Clearing Systems Account opened for you with the Nigerian Stock exchange through a stock broking firm you can easily convert your share certificates into a tradable online account. This means

Purchase the right kind of stock
Some stocks aren’t right for one to purchase because they might not offer the kind of returns that favour your investment goals and strategy. For instance you might have a long term goal to steadily generate piece meal income from dividends for decades to come that would naturally mean an investment in blue chip stocks that are relatively more expensive than growth stocks may not favour you. On the other hand growth stocks have the tendency to be highly rewarding on the long run although they don’t offer the high income yield that short term investors are looking for but in terms of capital gain; share bonus, price increase and dividend on the long run they are suitable for small scale long term investors. But for more advice to aid you in your investment decision, hook up with a reliable financial adviser such as a stock broker.

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