INVESTING IN NIGERIAN STOCK MARKET

4
1. WHY YOU SHOULD INVEST IN
THE STOCK MARKET
“Let honesty and industry be thy constant companions, and spend one penny less than thy clear gains;
then shall thy pocket begin to thrive; creditors will not insult, nor want oppress, nor hungerness bite,
nor nakedness freeze thee.”
– Benjamin Franklin
e all invest for various reasons. Perhaps you want an alternative source of
income to supplement what your salary. Perhaps you wish to invest for your
children and send them to school in Universities abroad. Perhaps you wish to invest
for your parents and provide for them a regular source of income apart from their
pension. Perhaps you wish to start investing for your retirement now so you would
not have to be dependent on anyone when you are old, or have to rely on a meagre
pension. The fact is, the earlier you start investing, the more money you will make. In
the stock market, time is money.
"The most powerful invention of man is compound interest." – Albert Einstein
Here is an example: let’s suppose that an 18 year old today invests N100,000 in the
stock market towards his retirement, and his investment grows at just 20% annually.
If he does not touch that investment until he is 60 years old, do you know how much
that would be? N211.6 million (Fig 1). A young woman invests N200,000.00 towards
her child’s university education the year her child was born. At 20% interest, by the
time the child is 21 years old, the investment would be worth N9.2 Million - enough
to send the child to school abroad for a Masters Degree.
W
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Fig 1: N100,000 invested by an 18 year old for his
retirement in the stockmarket at an average of 20%
returns.
0
50
100
150
200
250
300
18
22
26
30
34
38
42
46
50
54
58
Millions
Years
Amount In Naira
The stock market is a powerful investment vehicle we can use to meet our financial
goals. The stock market makes the power of compound interest work for you.
Compound interest simply means that the money you invest earns interest, and that
that interest earns interest, and so on. Money that's compounding never sleeps.
Every second of every day, 24 hours a day, 365 days a year it is multiplying. Instead of
you working for the money, the money is working for you.
Here are more reasons
to invest in the stock market
1. The stock market gives your higher returns than investing in bonds, treasury
bills, certificates of deposit (CD’s) or putting your money in a savings
account.
2. Investing in the stock market helps you stay above the inflation rate.
Between 1999 and 2001, the Nigerian stock market grew by an average of
33% while the inflation rate was at an average of 12% within the same
period.
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3. You can invest in the stock market with very little money. Many
stockbrokers will open a stock broking account for N3, 000 or less. You can
buy into a high quality mutual fund for as low as N10, 000.
4. When you own actively traded shares, you can easily sell them and get your
money back in a short time.
5. When you buy shares in the stock market, you get to become a shareholder
or part owner of a public company with all the privileges entitled to
shareholders.
6. You do not need to be an expert in shares or even bother yourself about
which shares to buy. Investment bodies called unit-trusts or mutual funds
can manage your investment for you for a small commission. We will talk
more on this in chapter 4.
7. Investing in the stock market is fun. If you choose to manage your stock
portfolio yourself (i.e. you decide which shares to buy and hold and which to
sell) you will realize that you can make money from the stock market and
have fun doing it. Active stock picking is exciting and (of course) financially
rewarding.
Well we have talked about all the advantages of investing in the stock market.
However note that it is possible to lose money in the stock market if an investor does
not go about investing the right way. The stock market is not a get-rich-quick scheme.
When you invest in the stock market you should be thinking long term. It rewards the
patient, intelligent investor. People who panic are not handsomely rewarded by the
market. Making money in the stock market requires knowledge, patience and selfcontrol.
That is why you are reading this book – to build up your knowledge and
courage so that you can make good profits from the stock market. Do not be afraid
of investing in the market. If you follow the simple rules in this book and are
courageous, you will make it. The principles you have to follow to make money in the
market will be outlined in this book. Someone who is not knowledgeable, has a low
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risk tolerance, or is not interested in buying individual shares, is safer buying into a
mutual fund (unit-trust).
The