Investing as a Nigerian
What I am about to share is straight from my personal investment rollercoaster. I have had friends asking me questions about how to dip their toes into the investment pool, especially as Nigerians earning a moderate salary, or aspiring to build wealth in this inflation-stricken country. While I am no Wall Street wizard, I can definitely spill the beans on my experiences and give you a few pointers to get you started. So, buckle up and let’s take a look at the world of investing from my lens!
Investing is a common trait among wealthy individuals worldwide. While popular traditional paths to wealth in Nigeria include; politics, music, sports, entrepreneurship, religion, banking/finance, medical field, and more recently, tech, there has been limited information about investing. The common belief is that excelling in any of these fields guarantees wealth, but the reality is more nuanced. Understanding investing is key to sustainable wealth.
Basics of Investing in the Stock Exchange
To start investing in stocks, it’s essential to understand some key concepts:
1. Stocks: Stocks are financial securities that represent part-ownership in one or more companies. When you buy a company’s stock, you become a shareholder (KotakSecurities, 2023).
2. Shares: A share is the smallest denomination of a company’s stock. So, each unit of stock is a share, and each share of stock is equal to a piece of the company’s ownership (KotakSecurities, 2023).
3. Dividends: Payments made by a company to its shareholders from profits. See it as a “thank you” gift from the company. It is crucial to note that not all stocks provide dividends; this varies from one company to another.
4. Indexes: Groups of stocks from different companies, combined to spread risk.
5. Stock broker: a person, institution or platform that facilitates your transactions on the stock exchange. They can also offer market insights and recommendations on which stocks to buy or sell.
6. Stock Split: A stock split is like cutting the big pizza slices into smaller ones. If you had one of the big slices before, after the split, you’ll have two smaller slices. You still have the same amount of pizza, just in more, smaller pieces. In the same way, a company might split its stock to make the shares more affordable, but you still own the same total value, just in more, smaller shares.
Getting Started as a Nigerian Investor
Investing in Nigerian Stock Exchange
The Nigerian Stock Exchange (NGX), regulated by the SEC, lists all publicly traded Nigerian companies like MTN NG, Total Nigeria, GTCO, and lots more. You can either use Institutional stock brokers like Chapel Hill Denham or invest directly through investment apps like InvestNaira, Wealth.NG, and Bamboo. These apps allow you to fund your wallet, buy stocks and manage your portfolio easily.
Investing in Foreign Stocks
The US stock market is popular due to its many internationally renowned companies such as Apple, Meta, Nvidia, Coca Cola, and lots more. Bamboo is a notable app for Nigerians to invest in US stocks. If you are also a frequent traveller or a Nigerian residing in another country, find out about the stock exchange market in your country of residence and laws guiding foreigner investments, and get your self acquainted with the system.
Investing in a dollar-backed market as a Nigerian often feels like a double win. Why? Because converting your Naira to dollars offers some sort of protection against inflation. Since the Naira is usually compared to the dollar on the foreign exchange market, and local prices are judged by the dollar’s value, your Naira deposit can actually increase in value if the exchange rate rises.
Long-Term Commitment and Fractional Investing
Investing is not a get-rich-quick scheme. It’s about delayed gratification and long-term growth. Also, you don’t need to be wealthy to start; You can buy a slice of a share. For example, a company is selling a unit of share for $200, but you only have $5. With your $5, you can buy 2.5% of the single share, so you own a slice of a full share. Half loaf is better than none, right?
You can start with this and continue investing in the same company until you have the total amount of a share. With the fractional share, you will still experience gains or losses on the shares. For instance, if the unit price of the stocks later rises after your $5 purchase to $250, then your slice is now worth $6.25(2.5% of $250).
Dollar-Cost Averaging
Dollar-cost averaging involves investing a fixed amount regularly, regardless of the stock price. This strategy can lower your average cost per share and reduce the impact of market volatility. Think of it like a subscription service: you invest consistently, irrespective of market fluctuations.
Investing in Stocks vs. Other Investment Products
Sure, there are plenty of other investment options out there that promise a fixed annual profit. Take PiggyVest for example, offering a cozy 10% ROI per annum on your investment. Should you overlook these in favor of diving into the stock market? Well, it all boils down to your “Risk Appetite.” If what you’re investing is your hard-earned life savings and you crave some form of guarantee, then fixed investment products like treasury bills and fixed deposit accounts might be the better bet. I always say, if you can’t afford the possibility of loss, don’t invest it into the unpredictable stock market.
Knowing What to Invest In
When I started, I invested in a lot of companies just because it was cool, saying “I am a shareholder in these big companies” and also out of fear of missing out. Well, a lot of my money got burnt, yielding zero profit. Now I have a very tailored approach before investing in a company, but for you, I will just give a few tips to hit the ground running as you embark on your investing journey.
1. Invest in a sector you have knowledge about: It’s best to invest in a company or industry you have background knowledge of, so you can identify when the company is making the right innovations or falling behind other competitors. Knowledge here is not limited to what you know but also what you understand, including information or news about the company. You have to understand the sector you are investing in.
2. Understand numbers: This is also part of the first tip. You have to understand sale agreements and the metrics the sector uses to achieve success. For instance, social media companies use the number of users and ad profit as major metrics to indicate success or failure, so a decline or increase in those metrics can make or mar the company’s share price. Later on, when you get in-depth in investing, you will need to understand the company’s financial sheet for the year-in-review to understand the company’s profits, and losses before and after tax, to see if the dividend you received is fair enough and if you would like to continue investing in the company.
3. The management of the company: Do your research on who is in charge of the company and their management tactics. A poorly run company is a failed one, so be on the lookout.
4. Trends: Watch the company’s growth over the years to understand the risks involved when investing in such a company and how volatile their prices move in the stock market.
5. As a newbie in the investing circus, avoid crypto for your sanity.
Conclusion
With these fundamental concepts and strategies, you can begin your investment journey confidently. Remember, investing requires patience, research, and a strategic approach. The more informed you are, the better the decisions you make. Always stay updated and seek professional advice if you’re ever in doubt. The best way to learn? Start with what you have!
Platforms I use
- Bamboo for Investing in the US Stock Market.
- InvestNaija by Chapel Hill Denham for Investing in Nigerian Stocks.
Resources I found useful when starting my investing journey
- How does the stock market work — https://youtu.be/p7HKvqRI_Bo?si=ujHGp0mNX_tbAZA3.
- Netflix Explained| The stock market — https://youtu.be/ZCFkWDdmXG8?si=93HYbR1LiT_OThME.
- Always do your own research.
