Demystifying the stock market
The two trillion Kenyan stock market popularly known as the Nairobi Securities Exchange, (NSE) is one of the biggest investment vehicles available for those who are keen on investing their hard earned money and getting a handsome return on their capital.
According to Peter Wambu, investment in the stock market is a must do for any serious Kenyan who is keen on having financial freedom.
“Investors need to evaluate their investment styles,” he said. “Some investors prefer long term investment as opposed to others to prefer short term investment. Such short term investors are traders. They are mostly young people who prefer to make money on market swings; up and down movements of the stock market. Such traders need more information and tools to enjoy success in trading.”
Such tools mentioned include watching the index and stocks moving average, stochastic charts, relative stock index among others. Altogether, such tools fall under the category of technical charts or technical analysis. They are key to successful stocks trading. Technical analysis combined with fundamental analysis, where an investor looks at the company’s balance sheet, management, financials, debt ratios are the cake on the icing of any investment journey.
“For those who are not keen on the volatile stock movement, there is safety in investing for dividends,” said Wambu. “An individual with a significant number of shares is prone to benefit massively from yearly dividend payouts. For those who are risk averse and fear investing in the stock market, they are safe buying government bonds which give 8-10% interest per year.”
Wambu who was accompanied by others investment professionals from Abacus Wealth Investment Company, opined that other investment vehicles worth considering include buying long term bonds, that take 30 years to mature. The returns are guaranteed and the investor is no longer worried of the market swings.
“To succeed in the stock market, you need to buy the right stocks at the right price, at the right time. Secondly, you need emotional intelligence. Rise above your emotions,” he said.
The veteran investor, who has been in the stock market for over 13 years opined that investing in the stock market is not a walk in the park. Lack of emotional intelligence can be disastrous as a newbie investor is bound to buy high and sell low as opposed to doing the opposite in order to make a profit.
For those who find it difficult to invest in the stock market, Peter Wambu had one advice: Copy the gurus. Some of the gurus mentioned include Warren Buffet. The third richest man in the world with wealth approximately $ 70 billion. He has one philosophy “never lose money”. He is known for practicing value investing, buy low valued stocks and holding to them for over 30 years and selling them at a premium. In the Kenyan context, investors were urged to buy what the big boys buy. Big boys are the pension funds, investment banks, SACCOs and institutional investors. The big boys are professional investors at the Nairobi Securities Exchange and they rarely go wrong. A newbie should just copy their investment styles. Buy the shares that they buy and sell the shares that they sell.
One of the key money management practices that was passed to investors is cutting losses shot. Don’t let your losses get bigger.
“When you buy a stock and it goes down by 10% sell it immediately”, said Wambu. “If you don’t control your losses, your finances will be wiped out. Hope, is not a strategy in the market. Don’t sit back and hope that things will change for the better, sometimes they get worse. The sooner you cut your losses, the better for you. Even gurus make losses, don’t be afraid to make losses once in a while.”