Stocks or shares are securities which give an investor partial ownership of a given company they have invested in.
There are two major types of shares. The type an investor prefers depends on their objective:
Ordinary shares: gives ownership and voting rights
Preference shares: gives priority in dividend and settlement in the event of insolvency
Shares can either be bought when a company issues them to the public or purchased from existing shareholders. In Nigeria, the Securities and Exchange Commission (SEC) and the Nigerian Exchange Group (NGX) regulate the buying and selling of stocks.
Investments can be made through registered stockbrokers or digital platforms such as Afrinvest, Trove, Bamboo, and Chaka.
Some investors trade short term, others hold for the long term.
RIGHTS AND RETURNS
Ownership of shares gives the holder the right to vote at general meetings. The number of shares held determines voting power, except where otherwise stated in the company’s memorandum.
Shareholders may also earn:
▪️ Dividends (share of profit)
▪️ Capital appreciation (increase in the value of a share compared to the price at which it was bought)
LET’S LOOK AT STOCK PRICING
A company’s stock can be:
🔹 Undervalued
🔹 Overvalued
🔹 Fairly priced
Investors pay close attention to these states.
The best time to invest is often when a company with strong prospects is undervalued. This is where institutional and high-net-worth investors take positions.
They analyse:
➤ Earnings
➤ Cash flow
➤ Debt levels
➤ Governance
Overpriced stocks are usually risky, as they tend to correct to their true value over time.
FINAL THOUGHT:
Investment in stocks of companies with strong potential is ideal for investors looking to commit their funds for both the long term and the short term.
What is your primary metric when deciding to buy a stock: dividend yield or capital appreciation? Let’s discuss in the comments.
Akinsulere’s Economic Notes
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