7 Most Important Factors to Consider
Before Buying Nigerian Stocks
It is common sense that you are supposed to do your homework before you jump to invest your hard-earned money. Unfortunately most people do not take the challenge positively. There are some investors who sometimes don’t weigh their stock-investment decisions before investing. The crashes in the stock market have taught us enough lessons and I think stock investors in the 21st century should be more careful and informed. In Nigeria, you are required to openly buy the stock of quoted companies solely from the Nigeria stock exchange.
in mind, we will now approach 7 of the most crucial questions to ask
yourself before investing
in the Nigerian stock exchange.
1…What type of stock do you want to invest
in the Nigerian Stock Exchange?
Before you even take the next step of locating the best company to invest your money, you need to decide on the type of Nigerian stock you want to invest on. In Nigeria, you can invest in Individual stocks or Exchange Traded Funds. The two stocks can be bought through the stock brokerage account. However, you need to note that the two indices are different from each other. Individual stock usually represents a partial ownership of the company. The exchange traded on the other hand is an investment presented to the public by a company where a number of assets are pooled on which you become a partial owner of a security or an asset.
2…What does the company you want to invest
your money on do?
This is the first question that should cross your mind before you sit down and determine the amount of money you want to invest. This seems obvious but sometimes if ignored can cost your investment. If you are planning to own the shares of a certain company, you should be sure that what the company does is legal and have a clear understanding of how the company makes their money. Why don’t you think of it like this, will you be able to determine whether the investment is good or not if you don’t understand what the company does? You have to do a modest amount of research to get a solid understanding of the company. However, there are some situations where you cannot be able to get a clear understanding of what the company does. Some companies keep their tactics extremely confidential and some others are even cagey about how they get their revenue. In such a situation, the best thing to do is entirely avoid buying the shares.
3…Does the company make enough profits?
This is among the things that drive the company’s stock price. Financial performance of the company is what determines whether you will make money from your investment or you will just be hoping around. The two key figures to look for at first in this case is how much the company brings in and the amount of money the company earns. The higher the profits the better and higher your chances are that you will make money. You have to look further and compare figures from previous years to ensure that the company is liquid and stable enough. Additionally, you shouldn’t just compare the profits but also the earnings per share.
4…Does the company have a clean history?
Although people argue that past track of a company doesn’t predict its future returns, it does influence some part of the company. A long track of a good performance is a good indicator that the company can still be on the market. If you came across some company with a positive track, then you can buy their stock and wait for the returns in confidence. A stock with a shorter track record can be risky to invest in. You should take a look at something to do with the past 10 years of the company if it has been operational for that long. If you have enough time, you can even go further. However, do not try investing in companies with less than three years in operations. In Nigeria, the market is competitive and if the company has not been operational for a longer time, it is capable of exiting the market.
5…Does it pay Dividend?
Dividend is the amount of money paid regularly to the investors by the host company. Some of the companies choose to pay some portion of their earnings to their investors quarterly. These are the payments that are called dividends which can be a passive source of reliable income for you and other investors. On the other hand, some of the companies choose to hold on their earnings and reinvest it with the investors’ authorization. The good thing with companies that pay off dividends is that they tend to be more stable than those that don’t. Choose the company that can guarantee you a quarterly payment. However, if you are far away from retirement, you can opt to those that are really focused on reinvesting than those that are into paying dividends. The decision is yours.
6…Who are the company’s competitors?
Nigeria is a country where healthy competition is encouraged in the private and public sector. Therefore, you can be sure that the company needs to be extra performing to remain in the market. The company should have a moat. In business terms, moat is a drive that makes the company have a competitive advantage over the existing and the upcoming competitors. Choose a company that can thrive in both good and bad economic times.
are just some of the questions that you should ask yourself when investing
in the Nigerian stock market. There are several other factors
that you should take into consideration. Check the company’s balance
sheets and ensure they are clean enough, also check
for the red flags that question the company’s integrity. If
the company positively answers all your questions, then take the step
and cut some portion of your money and invest it in the specific
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