09/09/2024
A Beginner's Guide to Making Money Through the Stock Exchange - Episode 1
Good day, everyone! Welcome to this series on how to make money through the buying and selling of shares. One of the greatest things that one can do for himself or herself is to invest in shares, one of the greatest things our fathers did in those days (90's) was to invest in shares and hold onto them for years. I remember my dad buying shares from what was then a small company, which eventually grew into a massive enterprise. When he needed those shares, they had significantly appreciated in value, turning into a substantial asset.
What Are Shares?
When we talk about shares, we're referring to units of ownership in a company. By buying shares, you become a partial owner of that company. Shares allow you to participate in the companyโs success, either through dividends (a share of the companyโs profits) or capital gains (when the value of your shares increases).
Types of Shares:
Common Shares: These give shareholders voting rights in company decisions and the potential to earn dividends. However, they are more volatile and come with a higher risk.
Preferred Shares: Shareholders receive fixed dividends before common shareholders and have priority during company liquidation, but they usually don't have voting rights.
What Is the Stock Exchange?
The stock exchange is a marketplace where shares of publicly traded companies are bought and sold. It provides a platform for investors to trade stocks and securities, facilitating the exchange of ownership in companies.
How to Make Money via Stock Exchange
There are two main ways to make money on the stock exchange:
1. Dividend Payments
A dividend is a portion of a company's profits distributed to its shareholders, typically on a quarterly (every three months) or annual basis. For example, if you own 1,000 shares of MTN and the dividend payout is โฆ10 per share, you would receive โฆ10,000. Importantly, your original investment remains intact, and dividends provide additional income.
Not all companies pay dividends. Companies that do are often referred to as "blue-chip companies" (e.g., BUA Cement), while those that reinvest profits to grow the business instead of paying dividends are known as "growth companies" (e.g., Tesla).
2. Value Appreciation
Value appreciation occurs when the price of the shares you own increases over time. For example, if you buy shares at โฆ1 each and they rise to โฆ10 each, you've made a profit of โฆ9 per share. The key to success with value appreciation is patienceโholding onto your shares until they grow in value. Companies like UBA, Dangote Group, and FTN Cocoa have the potential for value appreciation. However, share prices can fluctuate, so there's always some risk involved.
Creating a Stock Brokerage Account
To start trading shares, you'll need to open a stock brokerage account. Here are the requirements:
Personal Information:
Name, date of birth, gender, etc.
Proof of Identity:
NIN, driver's license, international passport, etc.
Proof of Address:
Bank statement, utility bills, waste bills, etc.
Bank Details:
Your bank account (this is where you'll receive payments), BVN (Bank Verification Number).
Additional Information:
If youโve invested before, number of years invested, etc.
Recommended Stock Brokerage Apps:
AfriInvest 2.0 (only for Nigerian stocks)
Bamboo (only for US stocks)
Trove (both for Nigerian and foreign stocks)
These apps are available for free on Google Play Store or Apple Store.
How to Know Which Company to Trade With
When selecting a company to trade with, consider the following factors:
Trade Value: In Nigeria, if a companyโs trade value is below โฆ2 million, it may not be performing well. You can check this information through a quick Google search.
Products/Services: Assess what the company is selling. Are their products or services in demand? For example, Apple is known for its iPhones, which have a strong market presence.
Competitors: Understand who the company's competitors are and how strong they are. For instance, Apple's main competitor, Samsung, is formidable but not a significant threat to Apple's dominance.
Expert Opinions: Research what experts are saying about the companyโs prospects. For example, experts often praise Apple for its innovation and consistent growth.
Investing in the stock exchange is a powerful way to grow your wealth. Every successful person has investments, and you don't need to wait until you have millions to start. Begin now, even with the small amounts you can afford, and watch your investments grow into something significant.
Stay tuned for our next series, coming up on Wednesday, where I'll teach you how to check traded values for Nigerian companies.
