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STOCK DEFINITION This might be a little different from what your definition of stock is. Stock definition is really plane and simple, stock is a share in the ownership of a company; It represents a claim on the company assets and earnings. As you acquire more stocks, your ownership stake in the company becomes greater. People all over have different name for stock, some call it equity while others call it share and people just like me and you call it stock. This is all the same thing. |
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HOW YOU BECOME AN OWNER Once you buy a company's stock, it authomatically makes you one of the owners (shareholders) of that company and as such you have a claim (which is usually small/big depending on your input) to all that the company owns. Yes, this technically means that you own a piece of the company's furniture, every trademark and every contract of the company. as an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the stock. You are part of the decision makers. |
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ADVANTAGE OF SHARE CERTIFICATE A stock represented by a share certificate. This is a fancy piece of a paper that is proof of your ownership. In today's computer age, you won't actually get to see this document because your broker keeps these records electronically, which is also known as holding share "in street name". This is done to make the shares easier to trade. In the past, when a person wanted to sell his or her shares, that person physically took the certificates down to the broker. Now trading with a click of the mouse or a phone call makes life easier for everybody. Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead one vote per share to elect the board of directors at annual meeting is the extent of which you have a say in the company. For instance, being a unilever shareholder doesn't mean you can call up to the MD and tell him how you think the company shoud be run in the same line of thinking, being a shareholder of a company doesn't mean you can walk into the factory and grab a free case of their product. |
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THE IMPORTANCE OF A SHARE The importance of a shareholder is that you are entitled to a portion of the company's profit and have a claim on assets. Profit are sometime paid out in the form of dividend. The more share you won, the larger the portion of the profit you get. |
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DIFFERENT TYPES OF INVESTMENT Ordinary/Common Shares Ordinary shares represent ownership in a company and a claim (dividend) on a portion of profits. Investor get one vote per share to elect the board members, who oversee the major decision made by management. Over the long term, ordinary share by means of capital growth, yield higher returns than almost every other investment. This higher return comes at a cost since ordinary shares entail the most risk. If a company goes bankrupt and liquidates, the ordinary shareholder will not receive money until the creditors, bondholder and preferential shareholders are paid. Preferential Shares Preferntial share represent some degree of ownership in a company but usually doesn't come with the same voting right. (This may vary depending on the comany). With preferntial shares, investors are usually guaranteed a fix dividend. This is different from ordinary share which has variable dividend that are never guaranteed. Another advantage is that in the event of liquidation, preferential shareholders are paid of before the ordinary shareholders. Preferential shares may also be callable, meaning that company has the option to purchase the shareholders at anytime for any reason (usually for a premium). Some people consider preferential share to be more like a debt than equity. A good way to think of this kind of share is to see them as being in between bonds and ordinay shares. Bond(Debt) The term bond is commonly used to refer to any security that is funded on debt. Bond purchase involves lending to a company or government in return for interest and paying back the money. The main advantage of bond is its relative safety. In Nigeria, various state governments have been inssuing bonds in order to raise fund for projects. Bonds are virtually guaranteed or risk free and as such little returns compared to other securities. Mutual Funds Mutual funds is a collection of stocks and bonds. Buying a mutual fund involves money with a number of other investors, and managed by asset or fund managers with a distinct focus to either buy large stocks, bonds, from government. The advantage here is that the money is being managed by professionals. Examples of Mutual Funds Managers are: 1. The Discovery Fund 2. IBTC Nigeria Equity Fund 3. Fidelity Nigeria Fund 4. Corel Income Fund 5. A-Z Mutual Invest Inform 6. Center Point Unit Trust |
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HOW TO TRADE IN STOCKS Most stock are traded on exchange, which are place where buyers and sellers meet and decide on a price. Some exchanges are physically located where transactions are carried out on trading floor, you've probably seen pictures of trading floor, in which traders are widely throwing their arms up, waving, yelling and signalling to each other. The other type of of exchange is virtual, composed of network of computers where traders are made electronically. |
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PURPOSES OF STOCK MARKET The major purposes of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risk of investing. Just imagine how difficult it would be to sell shares if you have to call around the neighborhood trying to find a buyer. Really, a stock market is nothing more than a super sophisticated market linking buyers and sellers. Before we go on, we should distinguish between the primary market and secondary market. Primary Market: The primary market is where securities are created [by means of IPO] while, in the secondary market, investors trade previously issued securities without the involvment of the issuing companies. Secondary Market: The secondary market is what people referring to when they talk about the stock market. It is important to understand that the trading of a company's stock does not directly involves that company. Example The Nigeria stock exchange, house the stock operating market in Nigeria. It is where buying and selling takes place currently, the NSE is with stock like GTB, UTC, NBL, UBA, UAC, CADBURY, SKYE, FCMB, ZENITH, FIRSTINLAND and DANGOTE Cement and Sugar etc. SEC: Security Exchange Commission is a government regulatory agency, set up by government to monitor the activities of the operation in the market to ensure adherence to trading and security practice. C.S.C.S: Central Securities and Clearing System is a warehouse body set up by government to keep records of all holdings in the stock market to ensure proper accountability. |
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BUYING STOCK You have now learnt what a stock is and a little bit about the principles behind stock market. There are many ways to buy shares. 1. Initial Public Offer [IPO]: This is advertised at a low price. Forms are picked at Banks, stock brokerage firms/Agents etc. There you pick the number of shares of your capacity and send it to the main agent for compilation after which allotment announcement will be published in Newspaper. Subsequently certificate will be sent on compilation of the public offer. 2. Private Placement: Information that are passed through your stock broker to alert you of private placement going on at a particular time for a company asking for equity. 3. Central securities clearing: CSCS, which would be obtained from your stockbroker or CSCS office on payment of a broker. 4. Using a broker: The most common method to buy stocks is to use a broker. Broker comes in two different ways. Full-service brokers are engaged to manage your share portfolio and advice on the movement of your share portfolio. The advice on when to sell and not to sell. Give expert advice and manage your account, they also charge a lot. Discount broker offer little in the way of personal attention but are much cheaper. At one time, only the wealthy could afford a broker, because it was very expensive. When the Internet came, we have the explosion of online discount brokers. Thank to the advancement in technology as everybody can now afford to invest in the market. 5. Drips & Dips Dividend reinvestment plans: [DRIPS] and direct investment plans [DIPS] are plans by which individual companies, for a minimal cost, allow shareholders to purchase stock directly from the company. Drips are great way to invest small amounts of money at regular intervals. |
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TYPES OF BROKERS There are different types of investment brokers. They range from the full service brokers [which is very costly] to the online brokers [which is very cheap]. If you are not educated about stock before you invest both types can be very costly when you loose your money as a result of lack of knowledge. 1. Registered Brokers: They are stock brokers that have their fixed charges for their services and make recommendation on stock to buy. They have in-house research team. This type of broker is highly recommended because of their reputation and goodwill. And their equities are registered by Nigeria Stock Exchange. See the list on the prospectus of advertised stock. 2. Discount Brokers: Most of these brokers are not registered by NSC but are but some of them are good and honest. It is not the duty of an investor to investigate the type of broker to be approached. Discount brokers usually charge very low. 3. Online Brokers: These are the newest form of brokers. Their services are run online. You are given research, charts and investment. Recommendation of stock to research is sometimes given. They are usually the cheapest to purchase investment, but you must know investment basics before you can use their services. |
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THE BULLS AND BEARS Bulls market is when the economy is buoyant, when there are jobs, when gross domestic product is growing and stock keep rising [remember Dangote] stock pricing during bull market is easier since everything is going up and could lead to stocks being overvalued. While a bear market is when the economy is bad and stock prices are falling. It is tough picking profitable stock. One solution is to make money when stock are falling adopting a technique called short selling alternatively wait until the bear market come to an end, only buy in anticipation of a bull market. Though the bulls and bears are constantly at odds they can both make money with the changing cycles in the market. "Bulls make money, bears make money, but pigs just get slaughtered". |
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TYPES OF STOCKS There are many types of stocks. Here is a list of the most popular types to give you an idea of availability. 1. Blue Chip Stocks: Consist of the oldest continously profitable companies that are more than a hundred years old. Also, this includes some of your lowest risk stocks, based on their history. 2. Growth Stock: Are those that have expected superior earnings. They usually don't pay dividend because they reinvest their earning for growth. Their share price can grow dramatically while in their growth stage. When they have a set back on bad news or some other problems, their share price can also go down dramatically. You must be prepared for these possible price fluctuations. Examples of growth stock from the decades of the 90's include Nahco, Eternal oil, Dangote sugar etc. 3. Speculative Stock: When a new investor thinks of stock as "risky" speculative stock is usually considered here. Your chance of loosing a lot of money is great and your chance of making a lot of money is small. |
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STOCK RESEARCH Before you purchase a stock do research, research and more research. What about hot stock tip from a friend who says, "Buy now or you will lose big-time . On the other hand, you don't buy the stock just because a professional recommends it. Buyers beware, if it sounds too good to be true, it probably is. You purchase a stock only because you have done your research and it fits your criteria as a viable stock as well as professional brokers advice. Though, research is the single most important thing you can do before purchasing a stock. After research, you should know every available fundamental facts about your company, its history and its future plans. Use the interactive stock/quot box at MsFinancialSavvy. Com fo the stock and mutual research, use the drop-menu's at the top of the chart. You can get information on variou time frames for your security, earning per share (EPS), dividends paid and indices NSE. |
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RETURNS ON STOCKS All investors expect returns to be paid to him for his investment. These benefits (returns) are in the form of dividends, Bonus or Script and Capital Appreciation. Dividends: This is the most popular type of returns on investment. It is a claim on a portion of the profits. Over a long period dividend becomes important as per annum dividend stands well above the initial outlay in absolute returns. Capital Appreciation: This price of share is fixed on the day it is issued. After then, it continues to either appreciate (geometrically) or depreciate in value depending on the fortunes of the company in quest, i.e. a share issues at N2 could appreciate to N5 or N6 at the end of a business year. Scrip (Bonus Issued): Is when a company decides to give every of its shareholder, extra shares. Hence you find expressions like "a bonus issue of one for every one share, one for every four shares". It is pertinent to note that the new shares ranks as equal with the previously held shares. |
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WHAT IS A PENNY STOCK These types of stock are those whose share price is below N5.00. Most companies coming to the market for the first time were listed below N5.00. Investors can make good money buying qualitative Penny Stocks, Below are some tips to guide an investor towards buying Penny Stock. 1. Know the business which the company is involved in. 2. Find out about its management team i.e. if they are professionals. 3. Assess the company's annual account for the two or three years. 4. Evaluate the company's ability to compete with its peers. 5. Avoid companies with high operational cost. 6. Avoid companies that are been investigated. 7. Avoid compnaies with huge outstanding shares. |
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THE FIVE SKILLS REQUIRED FOR ALL BUSINESSES 1. Basic money management skills: While you don't need to hava a lot of money to start a business successfully, you do need the ability to make the most of the moeny you have. Being able to focus on the botton line and pay attention to the numbers is as essential as the abiliity to your products and make sure you collect payment for the work you do. If you are lacking in this field, you can get training in business courses, books and so forth. 2. A marketing mindset: You aren't truly in business until you have business. No matter how much you product service in demand or how great a job you do, if people don't know about you, you won't have much business. You must be able to make your business visible to the poeple who need it, and tthis means understanding marketing. 3. Self management skills: To make your own, you must become a goal-directed and self-motivated individual. You must be able to get yourself started each day, stick to business and close the door on work at the day's end. 4. Time management skills: In your home business, you will need to wear many hats, from chief executive officer to janitor. You will have to do the business, get the business and run the business. This means you will need to manage your time effectively to make sure most important and urgent things get done in a timely fashion. 5. Basic office organisation: Since one of the roles you will probably play is that of your own office administrator, you will need to be able to organize, equip, and manage your office space so that you can work effectively in it, having a place for everything in its place so that you can find it easily when you need it. |