How Stocks Can Help You Build Wealth

The Easy Way To Accumulate And Nurture Wealth With Stocks

Wealth creation can be achieved through a variety of means or a combination of some, but investment in stocks remains a highly attractive option, any time, any day. If you have suffered loses before in a sliding market, you'll probably think I'm nuts or simply not well-informed. Well, I have lost money too, but that has not changed the fact. In reality, such declining market situations still offer a unique opportunity for wealth-building, except when we fail to understand the market. So, whichever way it goes, the stock market is still a potent force to build wealth.

Increasing Growth Of The Nigerian Stock Market
It must be said, from the outset, that many more Nigerians are embracing the stock market, by the day. It is not a chance development. Credit must go to the Nigerian Stock Exchange (NSE) for its spirited effort, in recent years, to draw the attention of the populace to the opportunities that lie in the capital market in Nigeria. This has been multi-pronged: an attempt to lure companies, including small and medium players to the funding opportunities of the exchange and an effort to attract the citizens to the investment opportunities in stocks and other instruments. The massive and aggressive drive of the Nigerian banking sector to raise capital on the Nigerian Stock Exchange has also been a catalyst. Banks needed to meet the Central Bank Of Nigeria induced share capital enhancement to a minimum of N25billion each by December 2005 and had to bring a new verve to the marketing of share issues which made the whole nation take notice. Insurance companies are currently in a similar race, all pointing to more awareness by the Nigerian public. If you add the role of the increasing number of shareholders' associations, you begin to see that the trend can only go up.

Why You Don't Have To Miss Out
Building massive wealth from stock investing is not a new thing. Many big names in America and some of the wealthiest today, either built their wealth mainly from the stock market, or will be seen listed as shareholders in many quoted companies. Even when they've made money elsewhere, the stock market offers a depository to hold and further grow the wealth. Need names? Check out Warren Buffet, Per Lynch, Bill Gates, etc. Locally in Nigeria, some of the richest people around have massive holdings in major public companies. You only need to look at the company registers to see the names (the published accounts, listing directors' and other major holdings, will also give you a peep). What you may not accept is that many of these people started small and gradually accumulated holdings that now count in billions, but that's still a fact. Some have publicly told their stories of how little acorns turned into mighty oaks.

You Can Replicate Their Success
The exciting thing about success paths is that most of what others have done to succeed, if understood and replicated creatively, can bring similar results as those earlier achieved. You can still build wealth in the capital market investing in shares of quoted companies, following the footsteps of the millions who have treaded that path. Interestingly, the Nigerian Stock Exchange has had the exceptional track record, over several years now, of out-performing the major markets around the globe, in terms of average returns on investment.

Why Stock Investing Should Appeal To You
There are many attractions to stock investing, but let's list just four:

1. Generally, the stock market can yield very high returns. Granted that loses do occur, an investor that builds a strong portfolio can hope for better returns than available from, say, bank deposits. While bank deposit rates can hardly exceed 12% P.A. today, First Bank of Nigeria PLC's share has, in the last few months shot up by close to 100%. Annualised, that is possibly above 300% return.



2. Investment in stocks is relatively flexible. If you wanted to invest in real estate, for instance, you'd need a sizeable chunk of money, even to buy a shop. That would tend to exclude a lot of people. For stocks, everybody is a winner. With just N500, you can find stocks to buy on the Nigerian Stock Exchange. Those low-priced stocks have, often, achieved the highest market yields. So, there is no excuse, so to speak. The processes of buying or indeed selling, are also not cumbersome. More importantly, you can sell bits of your holding if you have to. If you buy 1000 units of a stock today and need some cash tomorrow, you can sell 200 units if that will meet your need. With some other investments, it's all or nothing.



3. They're less cumbersome to manage. Some investments will require your direct involvement in running them on a continuing basis. If you opened a restaurant or some other business, no matter how small, you will be tasked to manage it. Even when you engage somebody, the burden of oversight will still bug you. With share investing, you're generally spared these worries. Public companies usually have a competent management team and other staff and an appointed Board to direct their affairs. Granted that you will monitor the market, this is nothing to compare to the challenge of a personal business or other personal investments.



4. You Can More Easily Diversify Out Risk. Even with just N5,000, you can spread your holding into a few sectors of the market to minimise risk. If, on the other hand, you set up a pharmacy shop even with a lot more money, you will still have more difficulty spreading out your risk. A hit on that sector will readily leave a major impact on your fortune. With shares, you can invest some in pharmaceutical companies to benefit from any boom in that sector, while plugging some into other sectors. A hit on the pharmaceutical sector will only affect part of your investment, that is, if you fail to quickly exit.

What To Do To Begin To Reap From Stock Investing
If you've decided that stock investing should figure in your investment portfolio, here are some steps to take:

1. You need a stock broker. Only licensed stockbrokers can buy or sell shares on the Nigerian Stock Exchange. If you must buy shares, you need an account with a broker. Just be careful to select a knowledgeable, honest broker and one that understands customer management. Your broker will also provide a lot of needed investment guidance.


2. You need investment education. This is not to ask you to go back to school. But it means you must begin to take interest in news and information about the economy, stock market and individual companies, which, luckily, is readily available: newspapers, business magazines, TV channels, online, publications of companies and the exchange, word-of-mouth, etc. It will also profit you a great deal to know the basics about stockholding and market behaviour.



3. Set your goals as to what you want to achieve. A long-term perspective will always be a wise approach, but act according to your objectives. If you need help, your broker is a good place to start.



4. Decide and take action. No idea, no matter how brilliant, can get you anywhere, until you begin to take action. Mistakes may be made, but see them as tuition fees if money is lost. Over time, if you have learnt the ropes, you are likely to recover them several fold.

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