By Buky Ikeotuonye
A great man once said, “It is good to have money, but do not let money have you”. I have heard him say it more than once, so it just resonates in my head. It speaks of subjecting your money to your will and making it work for you. Folks who have loads of money live by certain standards which they believe is befitting of their status. The ones who do not have so much also view themselves as underprivileged because of their financial shortcomings. One way or another, a large majority find themselves subject to their money, whether deliberately or inadvertently. Making your money work for you should be at the vanguard of your financial aspirations and I am going to try my best to put this into proper perspective as we go on this journey aimed at dethroning money.
The expression ‘divide the national cake’ is not a pro-corruption gimmick. It is a reminder that even as big as country is, everyone can have a piece of it no matter how small. This is exactly the way investments in shares work. A share is one of the equal parts into which a company’s capital is divided, entitling the holder to a proportion of the profits. What this means is that if you purchase the shares of a company, you become a part owner of that company and can build on the shareholding over a period until the holdings become significant enough to yield sizeable profits from Dividends and Capital Gains ( No worries, I fully intend to elaborate on these terms a little later). It basically enables one to enjoy a piece of the cake of the illustrious business owner, even though you were not exactly invited to the birthday party. Shares of more than one company are collectively called Stock.
The Stock Exchange happens to be the supermarket on which companies are listed to make their shares available for purchase. This is what qualifies a company to be a public liability company (plc) which literally means it is owned by the public i.e. you and I, a.k.a. the cake-eaters. When such companies make profit, they may decide to pay out some of the profit to their shareholders. These payments are called dividends (I did promise to elaborate). The shareholders may decide to trade their holdings through a Stockbroker when the share price of the company has gone higher than their initial purchase price. The profit made from this trading is called Capital Gains. Some investors do speculative buying which means that they are buying with a view to trading the shares (buying or selling) at some point. The speculative investors hardly ever trade to make dividend gains as this will mean they have to wait till dividend is declared. They just actively watch the stock market and pounce when the price is right.
Now would be good time to talk about blue-chip stocks. A blue-chip stock is the stock of a large, well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capitalization in billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. By the way, market capitalization is the value of a company that is traded on the stock market, calculated by multiplying the total number of shares in issue by the present share price. Blue Chip companies have the fundamentals to declare dividends to their shareholders every year and so is the wisest choice when you are buying for dividend gains and long-term outlook.
A penny stock is usually considered a high-risk investment due to its low price, lack of liquidity, small market capitalization and wide bid-ask spread. A penny stock alsogenerally trades below NGN5.00 a shareand is considered highly speculative. This means that they are usually purchased to realize capital gains. These are the stock usually traded by speculative investors as described earlier. I would have loved to give examples of blue chip and penny stocks, but I want to believe that you can make that distinction on your own following this robust lecture (even if I say so myself).
The decision to trade shares (i.e. buying or selling)is affected by various factors like publishing of company results by companies, expectation of dividend payment, company fundamentals (which include debt, cash flow, supply of and demand for the company’sproducts, etc.), share price, socio-economic factors ( which are comprised of age of the populace, religious orientation,family history, race and ethnicity, education, economic status, social /ethnic customs, social/ ethnic taboos, etc.) and to some extent, fiscal policy.
So how exactly do we divide the corporate cake? Purchasing shares of a company enables you get a piece of the action. It qualifies you to ride on the back of the business moguls who are the founders of these companies and enjoy some of the returns they are receiving. Since the average man may not be able to gain access to these industrialists, the best way to tap into their savvy is to invest in their companies, no matter how little. Mind you, some naysayers may try to discourage you by despising your days of humble beginnings but do not forget that a journey of a thousand miles begins with a step. Approach a stockbroker and buy those shares, you can thank me later.
Case closed? Not until you have had some cake!
Buky Ikeotuonye