The past two decades have seen steady growth in the popularity of stock market investing.
However, the fluctuation in the market remains an area of concern. These fluctuations could seriously impact investors’ portfolio if he/she is a beginner and intend to invest funds in the stock market. It is essential to recognise that investing in stocks includes risk.
The Nigerian Exchange (NGX) Limited welcomes interests from Nigerians and non-Nigerians alike on its platform. Over the years of operation, the NGX has evolved into a highly accessible market for both investors and dealing members.
Investing in the NGX has undergone a thorough process of simplification over the years, many thanks to technology.
The stock market refers to public markets that exist for issuing, buying, and selling stocks that trade on a stock exchange or over-the-counter. Stocks, also known as equities, represent fractional ownership in a company, and the stock market is a place where investors can buy and sell ownership of such investible assets.
An efficiently functioning stock market is considered critical to economic development, as it gives companies the ability to quickly access capital from the public.
The stock market serves two very important purposes.
The first is to provide capital to companies that they can use to fund and expand their businesses. By offering stock shares instead of borrowing the capital needed for expansion, the company avoids incurring debt and paying interest charges on that debt.
The secondary purpose the stock market serves is to give investors, those who purchase stocks, the opportunity to share in the profits of publicly-traded companies.
Picking Best Stocks For Investment
There is no single approach to picking the best stocks to invest in. It depends on a few factors, such as the outcome one is trying to achieve, one attitude to risk, as well as the time and capital one has available.
Research
This includes fundamental and technical analysis to determine the fair value of a stock, as well as understanding the prospects of a business to make sure it’s aligned to your strategy and goals
Use a mixture of quantitative and qualitative stock analysis to build your portfolio. By doing this, you can create an approach that works for you
Avoid emotion when making investment decisions. Do not simply buy stock because there is hype around it and do not rush into any buying or selling decisions
Make sure you spread your risk by diversifying your portfolio
Analysts at Coronation stated that, “the performance of Nigerian equities over the past three years challenges the behaviour of Nigerian pension funds, which have low allocations to equities, and that of retail investors who hold very little money in Equity Mutual Funds. If 2023 turns out to be another good year for equities, they may miss out again on returns superior to T-bills and FGN bonds.”
They added that, “in order not to become overvalued, a market’s principal listed companies need to increase earnings per share at least in line with market performance. And so long as: the market is not overvalued; there is a reasonable expectation of earnings growth; and other mainstream assets (T-bills and Naira-denominated bonds) do not become much more attractive than they are currently, then it is reasonable to expect that the equity market will perform well.”
Meanwhile, many investors prefer stocks that pay dividends, because they can be reinvested to increase the size of a holding. The result is that the return on investment is not only based on the capital growth relating to the initial amount deposited, but also on any dividends that are accumulated while the position is open.
Others are less concerned with dividends, and like to pick stocks with strong fundamentals, following the value investing style of Warren Buffett.
