Investing in shares

By Lanre Oyetade

There is indeed a growing awareness and interest on the part of the typical Nigerian on the activities and benefits inherent in investing in the stock market compared with the relative apathy that pervaded the populace some years back, even among the so-called elites.

Much of this awareness is attributable to the huge publicity given by banks to prospective investor about the market in the process of advertising their public offers following the Central Bank’s 2004 requirement that banks recapitalize by the end of 2005.

However, despite the generally increased awareness about the market in recent times, the level of education on how the stock market actually works is still considerably low, even among investors in the market as is evidently indicated by the kind of questions I receive regularly in my mailbox about investing in the market, both by existing and prospective shareholders.

And herein lies the considered necessity for this week’s write-up: To throw more light on the market’s operations for the benefit of both existing and prospective investors and also to create increased interest in matters of the market among the more apathetic.

Shares and stocks defined
A stock, security or equity for all practical purpose, may be defined as the separate legal entity or name under which a business is being carried out for the purpose of making a profit. Thus, Unilever, Nigerian Breweries and Nestle give good ideas of what a business concern or stock is.

A share, from the point of view of company law, is ‘the interest of a shareholder in a company measured by the sum of money contributed into the company’s share capital.’

The Oxford Advanced Learner’s Dictionary gives the meaning of a share as ‘any of the equal parts into which the money of a business company is divided, giving the holder a right to a portion of profit.’

While the term ‘stock’ depicts a larger connotation than ‘share’, which may be understood as the several units into which a stock is divided, the two terms are often used interchangeably.

The stock market/Nigerian Stock Exchange
The stock market is any arrangement under which stocks are traded i.e. under which the demand for and supply of shares are effected. The Stock Exchange, on its part, is the institution that facilitates the process of this trade (of shares). Again, these two terms are often used interchangeably.

Contrary to what many people think in this country, the Stock Exchange is a private establishment.

Stockbrokers
Stockbrokers are professionals with a mandate to interface between the investing public and the Stock Exchange. Their primary role is to assist their clients-investors in the purchase and sale of shares of listed equities, which currently number over 200 in the Exchange, for a fee of about 1.5 per cent of total consideration i.e. of the total value of transaction made.

To locate stockbrokers, perhaps the best bet is to obtain a copy of the latest edition of the Nigerian Stock Exchange (NSE) ‘Fact Book’ from the Exchange. One can also get a list of stockbrokers from the Chartered Institute of Stockbrokers (CIS). Both the NSE and the CIS are currently located in the same building at 2/4, Customs Street, off Marina, on Lagos Island. While the CIS is located on the 15th floor, the NSE can be contacted through either the 8th or 9th floor. The Exchange also has branches in some other areas of the country, including Kaduna, Port Harcourt, Kano, Onitsha, Ibadan, Abuja, Adamawa, Ilorin and Benin. Several books that handle the issue of investing in shares also carry lists of available stockbrokers. The NSE can also be accessed through its e-mail address (nse@nigerianstockexchange.com) or through its website address (www.nigerianstockexchange.com)).

Returns from the stock market
Returns from the market, especially on stock investments, are gotten through three major ways, namely capital appreciation, dividend payments and bonus share issues.

Capital appreciation refers to an increase in the prices of shares between when they are bought and when they are sold, while dividends are the portion of profits paid by the company to its shareholders as their own portion. Bonus shares are ‘free gifts’ of extra shares to investors by the company from its capitalized reserves and are usually given as a ratio of existing holdings of shares.

The Nigerian stock market is one of the most profitable in the world, going by available records. Typically, it is not inconceivable that annual returns from good stocks in the market would average between 10 per cent and 35 percent of invested funds, and even higher.

How prepared are you for the Ibadan Expanded Investment Summit coming up on Saturday, April 05, 2008 at the Jogor Center on Liberty Road in Ibadan? I advise you plan and prepare for that encounter for it’s going to be a wow!

Cheers!