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Anyone who’s going to score big wins with this sort of investment has to understand how it works. The alternative is handing the whole business of managing their portfolio to a professional. But even if they do this, it’s still important that they know what the stock market is and how their funds are being allocated within it. If you would like to invest in stocks and aren’t sure how to begin, you should find this article helpful. In it, we’ll lay out the steps you can take to select stocks that deliver great returns over time.
Why Should You Consider Investing in the Stock Market?
Holding a stock means owning a share of a company. Having several different stocks in your portfolio means you own a share of the various companies in question. When those companies do well (i.e. post impressive sales growth or beat revenue expectations), the value of your stocks will tend to rise. The stock market is a mechanism for assembling capital from the public and channelling it to businesses that utilize it for growth. The investing public gets a share of returns from those businesses if they perform decently enough. This reward manifests either as an increase in share price or periodic dividend payments to shareholders. Across the world, stock markets are regarded as a good way to grow personal and institutional wealth. In 2024 alone, the NGX (Nigeria’s stock market) grew 37.65%. Some stock valuations surged by as much as 500% within that period. Granted, 2024 was probably anomalous in this regard, but careful investors can reap gains even in challenging times. In summary, stock markets in Nigeria (and others, like the United States) are often a decent place to invest in. But here’s a warning: if you don’t know how the market works, you risk losing a lot of money to bad calls.Where Can You Invest in Stocks in Nigeria?
As we mentioned earlier, it’s now easier than ever to get involved in stock markets. In Nigeria, there are some mobile apps that allow you to do this. They include:- Chaka
- Bamboo
- Trove
- Optimus by Afrinvest
- Yochaa
- I-invest
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Most of these allow you to buy, hold, and sell Nigerian and international (especially US) stocks. You will need to register with them to use their platforms. But it usually only requires a few identifying documents (e.g. government-issued ID and utility bill), plus your name and a set password. You might also need a minimum starting balance for investing, but it usually isn’t much.
How to Pick a Stock
The following are steps you can take to invest in the stock market.Be Clear about Your Goal
Why do you want to invest in stocks? Do you want to build up funds for retirement? Are you keen on preserving your wealth against inflation? Are there things you’d like to do with the money you make, such as buying a house or creating a financial head start for your children? You need to be clear about why you’re delving into equities. When you’ve determined this, you’ll be able to organize your investments in ways that help you achieve your goals.Know What Kind of Investor You Are
Some investors seek capital appreciation. They will therefore buy shares in companies with significant growth prospects. Others are more interested in wealth preservation and will go for stocks from larger and more stable businesses. A good number of people are after dividends, so they’ll look for companies that pay them out every quarter. Decide for yourself which of these types of investors you want to be, and act accordingly.Hunt for Investible Companies
A good approach to follow here would be to invest in businesses whose products and operations you understand (and maybe even use). It’s easier to tell whether a company has good growth prospects if you know what signs to look out for. However, if you aren’t already familiar with the inner workings of an industry or specific business, you can always learn about them. Do this by reading business news websites, journals and blogs that cover them. After a while, you may identify a few outstanding organizations.Explore Exchange Traded Funds (ETFs)
Instead of putting all your money in a set of standalone stocks, you could spread your risk by investing at least some of it in Exchange Traded Funds (ETFs). ETFs are aggregations of stocks in a specific industry or from across the market. They are often an effective buffer against the volatility of the stock market, as losses in some stock valuations may be offset by gains in others. ETFs are a recommended starting point for beginner investors. Sometimes, they even deliver better returns than a lot of managed individual stock holdings (as we saw in the NGX in 2024, for example).Learn Investment Metrics
There are several criteria for picking stocks. An example is the Price-to-Earnings Ratio (P/E ratio), which is a way to determine if a stock is overvalued or undervalued. Another is the Debt-to-Equity Ratio (D/E ratio), which indicates whether a company derives more of its financing from debt than equity, or vice versa. If you know how to evaluate the quality of potential stock picks with these metrics, you may land some really good choices.Review Corporate Presentations and Financial Reports
It’s a good idea to look up the financial statements of companies to see how healthy they are before committing any money to them. Again, if you don’t know how to do this (or what indicators to watch out for), there are lots of online resources that can help. For instance, if you are reviewing a company’s balance sheet to determine its financial state, you could compare its debt to equity, and weigh its asset performance.Invest
Having worked through various options, you may come up with just one or a few company stocks. Whatever you choose, remember that you can always adjust your portfolio and investing strategy at any point, for better results.Register to attend the CN Business Mixer
Final Words
On how to pick a stock, there’s a promise of impressive returns for people who are smart and meticulous about it. However (as we’ve already noted), you could also skip the hassle of detailed business evaluations and just invest in one or a few decent ETFs. Whichever way you choose to follow, ensure that the industries you’re settling for have strong fundamentals. That’s a necessary basis for positive and stable stock performance over the long term.Did you find this article useful? Contact us: editor@connectnigeria.com
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