Investing in the Nigerian Stock Market
With new issues and many more banks and other companies positioning themselves to absorb the excess liquidity (some commentators say the second round of banking consolidation is on; the big banks are aiming to cross the N100Billion ($1Billion) mark), the market is expanding to absorb the excess liquidity. When a state of equilibrium is reached, and things settle down, the bulls will calm down a bit, and company performance, financials and return on investment will drive prices rather than demand and supply.
When this happens, some speculators will start giving money back to the market. The market giveth, the market taketh. If you are a speculator (spell gambler), you need to meet Kenny Rogers' old tired gambler on an evening train ride from nowhere, and heed his advice;
You got to know when to hold 'em,
know when to fold 'em,
Know when to walk away
and know when to run.
You never count your money
when you're sittin' at the table.
There'll be time enough for countin'
when the dealin's done.
In stock market parlance
You've got to know when to enter (the market)
Know when hold 'ur stock
Know when to sell 'ur share
and know when to leave (the market - run!)
You never calculate 'ur networth (based on stock prices)
When your money is still in the market
There will be time enough to calculate
When the money's in 'ur bank.
To be an investor, you have to understand what you are investing in. You need a thorough grasp of the industry. The first place to start is investing in your education. Study how to analyse company results, financials, accounting etc. Those massive slab of financial figures are telling a story, and only those who understand the language will understand the story. If you are knowledgeable enough, you can detect when some things dont add up, and if the books are cooked, the cook must be very good to deceive you.
From a company's fundamentals, you can determine it's optimum share price. That will guide you in determining whether a stock is under priced or overpriced.
If a stock is overpriced, no matter how bullish it is or how far it goes up, it will correct itself sometime. If you are looking for a one-night stand, you can enter and take your leave before it peaks.
But if you are building long term wealth, and one day aspire to have a say in the company, you need to choose wisely, and enter when the stock is under priced.
Studies have shown that long term investors make more money in the long term than speculators (gamblers). In the short term, gamblers seem to be having a ball. But if you look at a 10 year span, they spend so much in transaction fees (to the delight of their stockbrokers, SEC, NSE, CSCS etc), and they lose when the bears stage an unexpected comeback. The market giveth, the market taketh. The net effect is sometimes a loss, or marginal gain. A string of wins makes a gambler careless, and he increases the stakes hoping for a bigger win.
The investor gets a steady dividend payouts, bonuses plus capital appreciation. On top of that, he does not waste money entering and exiting the market every week/month as a speculator. And in a bear market, he does not panic and jump. More often that not (well, in Nigeria), the bulls always return in time before the registrar closes the register, if the company does well, and is paying more dividend than last year.
The best way to invest profitably in the Nigerian stock market is to know what your long term investment goals are, and picking the right mix of stocks to take you there.
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