What Is A Share?
If you own a share, 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.
Someone who owns one or more shares is called a shareholder.
Shareholders may receive cash flows (dividends) if a company’s board of directors declares that the company has performed well and has enough profit to distribute to its shareholders.
A share in the company gives you the right to vote on decisions affecting the company. Please ensure you attend any meetings called by the company you own shares in because there will be decisions made that affect you and your shares.
You can also call a share, ‘equity’ or ‘stock’.
What Is The Share Price?
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 as was the case with Standard Chartered Bank PLC.
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. Examples include Shoprite, Lafarge, National Breweries and Farmers House.
Factors such as economic and political events also influence share prices.
How Do I Know Which Company To Invest In?
Do research on the stock market through regular reading of financial literature, attending investment courses and seeking a qualified expert’s (like a me) advice.
This will enable you to make educated decisions on which companies to invest in.
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 for 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
Are There Different Types Of Shares And Investment Products?
There are various types of shares and investment products to suit different individual needs, for example conservative or “safe” shares versus riskier shares.
A list of basic share investment products currently trades on the Lusaka Stock Exchange (LuSE) is included below:
Ordinary shares
Preference shares
Other investment products can be added but only if there is sufficient demand from you the client for these products. These alternative investment products include Exchange Traded Futures (ETF’s), Derivatives and commodities such as gold.
What Is Risk?
Risk is the possibility of losing part or all of your initial investment or the likelihood of making a profit that is less than what you anticipated.
Different securities or products have different levels of risk.
Securities that are regarded as lower risk securities include:
Cash in a bank or money market account that earns interest;
Government bonds (an interest-paying debt instrument issued by the government with a redemption date of one year or more after its issuance);
Higher risk securities include:
Shares, warrants, derivatives and corporate bonds
Is there A Risk Involved When Investing In Shares?
Investing on the stock market is riskier than some other investments. The reason for this is that share prices rise and fall all the time as economic and market forces change.
However, the higher risk involved also means that you have an opportunity to make a greater profit. Usually, higher risk means a higher return (profit).
It is important to realize that share trading normally does not make you rich overnight, but that it should be treated as a long-term investment.
Can I Minimize The Risk Of My Investment?
You can minimize your investment risk by diversifying your investment.
To ‘diversify’ or ‘Hedge’ means to invest in a variety of different investments. To protect your investment you should avoid putting all your ‘eggs’ in one ‘basket’ so to speak. When one company’s share price doesn’t perform well, you can still benefit when your other company’s share price does well.
Consider choosing your investments from a variety of sectors, companies and investment products.
To help you with this decision consider regularly reading financial literature, attending investment courses and seeking a qualified expert’s advice like mine which I currently give out at no fee.
IS It Difficult To Manage My Investment Portfolio?
Certain investment products require little or no management. However, always be sure to be aware of how your investments are performing.
Stockbrokers also offer different types of services to help you manage your investments:
Discretionary – all investment decisions are made by the stockbroker without checking with you, but are made inline with an objective.
Non-discretionary – you make all investment decisions, after the stockbroker has given the necessary advice.
Do I Need A Lot Of Money To Start Investing?
You don’t need a lot of money to start investing on the stock market, as there are many investment products available to suit everyone’s pocket.
Stockbrokers don’t always require a minimum investment amount. With the increasing competition, you are able to invest any amount on the stock market via broker.
However, be aware that stockbrokers do charge fees called commission which stand at 1.375% of the total transaction and that it makes sense to invest an amount where the costs that you pay aren’t bigger than the amount you’re investing.
How Do I Gain Access To The Stock Market?
To buy or sell shares on the Lusaka Stock Exchange (LuSE) you need to open a brokerage account with a stockbroker. Some Brokers will charge a fee but with most, it’s free of charge.
You can open a Brokerage account with Equity Capital Resources PLC, Pangaea Renaissance Securities, Stock Brokers Zambia Limited or Madison Asset Management.
Some Things To Consider
Invest an amount that makes sense in comparison to the amount of brokerage fees that you’ll be paying.
Plan your investment objective, exercise self-discipline (commit to your long term investment strategy) and remember to monitor your investment performance. Most Brokers will send out market summaries or reports. Please go through them and make it a point to understand them.
Steer away from borrowing money to invest, especially if you are not sure whether the profit you will be making on the investment will be able to repay your interest on the loan and your loan over time.
Exercise patience and do not become emotionally attached to your investments. Some days your investment will make money and other days it will lose money.
