Managing your investments in stocks

Just as it is easy to invest money in the stock market, it is also easy to lose the funds in the market if proper care is not taken, ADEMOLA ALAWIYE writes

Investing in stocks and bonds is a good long-term investment. However, you must first understand how to invest to avoid losing your hard-earned money.

Many shareholders blame the losses they have recorded in recent times on the economic recession. But before the recession, people still made huge losses. While the poor returns can be attributed to inept management, experts say the losses recorded by many people are self-inflicted.

According to them, in their quest to cut corners and make profit quickly, many investors make a lot of costly mistakes.

Some of those mistakes are explained below:

Ignoring relevant information

One of the common mistakes shareholders in a company make is that they do not properly read the information coming out of the company in which they are shareholders.

The Chief Executive Officer, Trinity Investment Company Limited, Mr. Olayiwola Yusuf, says by ignoring this information, many shareholders end up complaining only after the company makes mistakes.

He says, “In my view, shareholders in that category need to be more involved in the affairs of a company; there is no need waiting for a mistake to be made before you exercise your right. You need to monitor what the management of the company is doing, especially if you are really depending on your investment.

“That is why the Nigerian Stock Exchange says companies should be sending their quarterly returns and the regulators require monthly returns. So, all these returns are there if you take the effort to look at them; and you must follow and analyse these results.”

Relying on your own analysis

Experts say even when shareholders monitor reports from the company, some of the information contained in the reports may be too technical for them to understand, hence they need to discuss with their brokers. However, Yusuf observes that a lot of shareholders do not do this.

Rather, he says, “They take decisions based on their own expectations and their own reading of the company.”

He explains that while there is so much information that shareholders should follow up to know what is happening in the company, they may not have the technical know-how. As a result, the best thing for them to do is to move closer to their brokers or financial advisers because those ones will monitor what is going on in the company and advise them appropriately.

Refusing to pay for professional help

This, according to Yusuf, is the biggest mistakes shareholders make.

He explains, “Nigerians don’t like to pay for services; they like to pay for physical goods that they can see. So, when you say, ‘go to your professional adviser for help as a shareholder,’ they say, ‘oh, these people are just trying to make money for themselves; by the way, I know what they are talking about.’” According to him, in other jurisdictions like Europe and America, before you buy shares in a company, you go to your broker to advise you and then you get to the broker to give you constant reports on that account. “So, advising you is not a one-off thing; it has to be a continuous thing, maybe a monthly thing. To be able to do that, the broker has to do some research and probably pay some people in the process,” he stresses.

Experts say professional help is not restricted to brokers; lawyers and accountants are also professional advisers.

In this regard, Yusuf says, “If you are buying shares in a company and you want to know your rights in the company or what you can do with your holdings, your lawyer would probably advise you. If you are buying shares in a company and you want a deeper analysis of the accounts for instance, you will need an accountant. If you want to know how the market is reacting, when to sell and when not to sell and how to be on the board for instance, your broker will advise you.

“So, it is a question of value; as a shareholder, the question you should ask yourself is, ‘Am I getting value? If as a result of hiring this professional I can sleep well, my money can be protected and my rights will be secure, then it is worth me paying him.’”

Experts warn that without using professionals, shareholders risk losing all their money.

Taking a short-term view

Before the recession, experts say many people thought that the market would continue to go in one direction and it would always be in the positive. So, many people wanted to put in money today and expect returns in one to two months. According to Yusuf, a professional will probably advise a potential investor to take a long-term view. This, he notes, is not easy as, “Many Nigerians will insist that they want a stock in which they can put N50,000 today and get N100,000 in one month. And when a broker tells them it is not possible, they will say the broker is not good and go to some high-risk company, where they will lose everything.”

To avoid this, experts say shareholders and investors must listen to professionals.

“A broker will tell you that if you want to invest and get returns in one month, let me put the money in fixed deposit for you or in treasury bills; that one has a guarantee because it is the government you are lending to,” says Yusuf.

But if you are willing to wait longer – say for six months or more – then the broker will give you a basket of investment options and build a portfolio for you.

Dealing with the wrong ‘professionals’

Experts say many people muddle things up when they decide to seek professional help. Instead of dealing with the firm, in their quest to cut corners, they deal with marketing officers of the stock broking firm. Yusuf says this is a mistake that has cost people so much.

He says, “If you ask a lot of people that have lost their money, they will tell you that somebody just walked up to them and says he is an employee of a stock broking firm and they did business with the person instead of the firm.”

He stresses that “there is a difference between a stock broking firm and an employee of the firm,” adding, “It is not everybody that works in a stock broking firm that is a stockbroker.”

“Your broker should be the firm and the professional brokers running the firm, but a lot of people just get some of the marketing officers and take advice from them, mistaking them for stockbrokers, and when they lose everything, they blame it on the broking house,” he observes.

To avoid this mistake, he advises stakeholders to deal directly with the company. “Make sure you are dealing officially, do not try to cut corners by dealing with an individual who might just be a marketing officer,” he says.

Copyright PUNCH.