How to Invest in Nigerian Stock Market

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Things you need to know include.

What is stock
What is share price
What is the Nigerian Stock Exchange
How to invest in Nigerian Stock Markets.
What is the minimum amount to invest in Nigerian Stock Exchange Market
How to buy and sell stock in Nigerian Stock Market and lots more.

Let start with a Question

What is a Stock

A Stock is a share that signifies that you own a portion of a company. In the same way, you can see your ownership of a company as a slice of pie, cut out of a bigger pie.

So that means you can also call a Stock, Shares or Equity.

So if you own one or more shares in a company you are a shareholder of that company.

As a shareholder of a company you may receive cash flows (dividends) if a company board of directors declare that the company has performed well and has enough profit to distribute to its shareholders.

What is the Share Price

https://youtu.be/wI2Za07JHBQ

The share price is the price at which a particular share can be bought or sold. The share price is determined by the supply and demand for a particular company’s shares.

Factors Affecting the Share Price

When you have more buyers than sellers for a particular company’s shares, share prices usually rise because these shares are in demand.
When you have more sellers than buyers for a particular company’s shares, share prices usually fall because there are more of these shares available.
If a company is very profitable, a share in that company will become more valuable because more people think that it is a good investment.
Factors such as economic and political events also influence share prices.

Why do Stock Price fluctuate so much?

Ok, let’s see here. We have ChiBros Machinery. They make cars and trucks. Over the past 52 weeks, their stock traded as low as $28/share and as high as $39/share.

They have 1.6 billion (bn) shares outstanding, so that means that the market value of Chibros Machinery was as low as $45bn and as high as $62bn.

That’s a difference of $17 billion dollars in value. Now the car business doesn’t really change that much.

You sell plus or minus 5% more vehicles per year. Chevy Silverado is a Chevy Silverado and they’re not figuring out how to replace gasoline for water, or how to by to the moon.

It’s basically, the same business this year as it was last year. So how in the world could the value fluctuate by 17 billion dollars?

And more so, why is this happening with every single company in the stock market?

Was last year an exceptional year of price swings?

Is there something the market knows that we don’t know?

No. So, what’s the explanation? Well, it can be summed up into four short words:

THE MARKET GOES NUTS!

What is the Stock Exchange Market

The Stock Exchange market is the platform where buying and selling of stocks take place.

For example, The place for buying and selling of stock in Nigeria is the Nigerian Stock Exchange Market (NSE).

For you to buy and sell stock in the Nigerian Stock Market, you will need to open a brokerage account with a stockbroker, who must be a registered dealing member of NSE to facilitate account opening and trading.

Meanwhile, to open a trading account as an investor you will need to submit to your dealers, documents that meet the regulatory Know-Your-Client (KYC) requirements (Contact your dealer/stockbroker for guidance)

The Nigerian Stock Exchange

The Nigerian Stock Exchange is where buyers and sellers of stocks (shares) run their transactions. It was founded in 1961 in Lagos.

Meanwhile, for a company in Nigeria to be featured or listed in the Nigerian Stock Exchange Market, there are certain criteria to be met.

You can check the detailed requirements needed to get your company featured on NSE here on their official website, requirement for company listing on Nigerian Stock Exchange market

What is the Minimum Amount to Invest in Nigerian Stock Market (NSE)

This is dependent on the company offering its shares for sale.

Just like in any market, the stock market is also limited to the forces of demand and supply.

For example, whilst a company may have 10million shares outstanding (available on the stock exchange) only a portion of it may be offered for sale by its owners.

Therefore if only 5million of those shares are regularly traded then the maximum you and any other willing buyer can buy is 5million.

How do you Buy Stocks in the Nigeria Stock Market

An individual can’t access the Nigerian Stock exchange market and start transacting.

If you want to invest in Nigerian stock market you must have a brokerage account. And your broker will handle the buying and selling of your stock.

How Can I Invest in Nigerian Stock Market

Anyone can invest in Nigerian stock market. The only challenge in investing in stock is locating a good stock.

Looking for good stocks is a treasure hunt. Identifying an exceptional company is rare, but finding an exceptional company that is on sale is truly a feat.

But the good news is it’s not impossible!

Deals are almost always out there. You just need to know where to look.

It requires some searching, some diligence, and a lot of homework, but it’s certainly worth it.

Discussion Question: Think of things that you spend money on every month (examples: Netflix, Chipotle, video game monthly subscription, new clothes, etc.).

What makes these purchases so “sticky”?

Could these companies make good investments?

Besides investing in companies whose products you use, you can also find fantastic stock ideas by reading reports written by other investors and by doing stock screens (more on what this is later) to search for specific variables. We’ll show you how!

So how do we start finding truly good businesses? Remember back to (Factors affecting the share price).

Start by asking yourself a few questions:

What products am I happy to pay a price premium for because the service they offer can’t be replicated by another? (Brand, Quality).
What services do I continue paying for because switching services would be too costly or a huge inconvenience? (High Switching Costs).
What platform do I use because it is the only one where I can meet up with a certain type of people and because the network or marketplace can’t even be compared to a peer? (Network Effect).
What products have been around for generations – you can picture your parents and grandparents enjoying them and easily picture your grandkids enjoying them as well? (Sustainability, Brand)

Also, be close to your broker to get more insights on what happening on the stock market.

So, if you are interested to invest in Nigerian stock market as an investor (domestic and foreign) who wish to trade on NSE can opt to hold assets domiciled with Central Securities Clearing System Plc (CSCS) directly under their appointed dealer or through a licensed domestic custodian as appointed by them (Please see direct and indirect account structures below).

How do I know which company to invest in Nigerian Stock Market?

Determine how much risk you want to take on, how much return (profit) you expect, and which investment products meet your needs. Consult a stockbroker if you need additional advice.

Try to be committed to this investment objective. Always remember that you should invest in the long run, e.g. have a 5-year investment objective.

Determine how long you are prepared to wait for a return on this investment and be patient. If a share does not perform you may need to review your strategy.

Invest with money that you do not need in the short run and can afford to lose, i.e. your disposable income after all your day to day needs have been taken care of.

Although investing allows you to make a good profit you should also be aware of the risk of losing money in the short run.

The Value of a Business

We’ll only invest in Nigerian stock market in a company in the when the price we pay today is significantly less than the value we will get tomorrow.

Example: The teacher picks a student at random. The teacher holds up a $10 bill and asks the student, “What is the value of this bill?” Ten dollars.

The teacher holds up ten $1 bills. She asks the same question, “What is the value of these dollar bills?” Ten dollars.

The teacher offers to sell the student the $10 bill for the ten 1 dollar bills.

This is a wash so maybe he’ll take it, maybe he won’t. Ten Teacher offers to sell the $10 for only five 1 dollar bills.

Of course, he should take it. Ask the question to the rest of the class at large, “How many of you would buy this?” Do the reverse.

Ask to sell the $10 bill for twenty $1 bills? How many would take this? None of them.

The best investors can snatch up $10 bills when the market is only
asking $5 for them.

But how is this possible? It is possible because

The value is tricky to calculate and
The market is irrational.

Remember the Market goes nuts. Is this a good thing or a bad thing for you? It’s a very good thing.

If all investors based their investment decisions on rational and conservative estimates of intrinsic value, it would be very difficult to make money in the stock market.

Fortunately, the participants in the stock market is humans subject to the corroding influence of emotions.

Many investors will give into the hype around stocks, or people will hop on a trend because they have optimistic views that they can beat the system.

As young investor geniuses, we will always check emotions at the door and buy stocks based on what they are worth.

But how do we know what the value of the company is?

Let’s take Apple. What is the value of the world’s largest business of
consumer electronics?

The value of any business is the present value of all future cash the company will make minus the cash it needs to invest to make this happen.

Ok, that’s a bit of a mouthful, stay with me.

MR. MARKET

Let me tell you a story. It’s a story that legendary investor Benjamin
Graham told. It is about a business partner of yours, named Mr. Market.

Imagine you own a business together. Now, Mr. Market is a good guy, but he suffers from wild mood swings.

One day he wakes up, and the sky is blue and he is feeling really, really good.

So he offers to buy out your stake in the business for way more than it is worth.

Ten the next day, he wakes up and it’s raining, he’s feeling desperate, and he is screaming that the world is going to end.

He offers to sell you all of his stock in the company for half of what you paid for it. You take it!

The next day, Mr. Market offers to pay a price that is neither extraordinarily high nor extraordinary low, so you just do nothing.

Now the value of the business didn’t really change from day to day – what changed was the erratic moods of Mr. Market.

In short, Mr. Market is one moody dude. So does this mean that we shouldn’t invest in the stock market, because of these wild swings in the short term?

To the contrary! The fact that we are offered deals from time to time should make us very, very excited.

Our goal is to:

Identify what the company is worth and
To wait for Mr. Market to have a bad day and buy it at a large discount.

Benjamin Graham called this giving ourselves a “margin of safety This is the equivalent of buying dollars for fifty cents.

OK, you’re thinking. This is all well and good. Wait for the market to go crazy and buy below the fair value.

However, there is one problem: How can we be sure that we can even come close to knowing the value of a company?

How can we be sure that our forecasts (a.k.a. wild guesses) are even in the ballpark?

Aren’t there a ton of smart people and computer programs waiting to scoop up a bargain as soon as it becomes available?

Surprisingly, not as many as you think.

QUESTION TO CONSIDER:

Think about something that you got a really killer deal on that you bought in the past, how were you able to get that deal? How is this similar to the stock market?