Investing in Stocks

One of the best methods of safeguarding and multiplying your savings or investing a windfall or unexpected money is through the stock exchange particularly the Nairobi Securities Exchange (NSE). The NSE is a very small market with only 64 counters. The listed companies are called counters in the stock market language. Of the 64 companies listed, there are about 25 counters which are active. Safaricom controls more than half of the activity in NSE. Do you remember the much-hyped Safcom IPO after the 2007 bungled general election? I am one of the naive investors who invested in the counter in readiness for a huge financial gain without any due diligence.

 

It is note-worth stating that a lot of money is made at the NSE daily by smart traders. The activity there is purely a market activity.

 

Buying and selling stocks

Those with shares come to sell and those who want to buy (otherwise called speculators or investors) come to the market to see what is on offer and place bids. The price is determined by market forces: the Principle of Supply and Demand rules the day. Trading is done through listed brokers.

 

How does one start trading in shares?

There are two levels of trading shares: as an active trader who buys and sells for cash-flow, capital gain or long term trader capital growth and dividends. Either way, you need to know how to pick stocks. People who are not financially literate at wealth consolidation stage should start as active traders in order to learn the rules of the game.

 

5 levels of financial freedom

Financial analysts aver that there are 5 levels of wealth creation: navigation, multiplication, accumulation, consolidation, estate and succession planning. Thus, investing in shares or stocks is one way of multiplying our savings.

 

To start trading in shares all you require is an account with the Cental Depository and Settlement Corporation (CDSC). The CDSC account is opened with a registered stockbroker by spending some money to buy, for example 1000 shares, the minimum being 100 shares at any given time.

 

Safcom bull-surge

At the beginning of 2017, Safcom was trading at kshs. 15.9 per share while at the end of 2017 it traded at kshs. 26.75. A whooping appreciation of kshs. 10.85 per share in 12 months!

If you invested kshs. 10,000, you would have bought around 600 Safcom shares and sold them at around kshs. 16,700 making a profit of around kshs. 6,000 exclusive of transaction/brokerage charges. Talk of passive income i.e. money working hard for you while you are doing something else.

 

How do you choose which stock to buy?

1. You look at the company's strengths,
2. Its growth prospects,
3. The strength of its management,
4. The projects the company is getting into (future programmes).

 

Some speculative investors have bought Safcom because:

1. Telephone technology is a growth sector all over the world. In Kenya it's just evolving.

2. It is leading in data and intent; the smartphones are just beginning to gain traction.

3. Mpesa acceptance and roll out went across continents. Likely to get better.

4. It rolled out _Lipa na Mpesa, Mshwari , KCB-Mpesa , M-kopa_ and many other Mpesa-based money apps.

5. They branched into surveillance cameras in Nairobi with a 15B contract.

6. Being an election year, in 2017 Safcom was relied upon by IEBC for election results' streaming in from remote corners. However, this annoyed Nasarites who contested the presidential results culminating in the resistance of Safcom's products albeit with, arguably, little success.