HOW TO MAKE A FORTUNE IN THE STOCK MARKET (PART 1)
My name is Remi Adeoye, a Senior Officer in the Police Force and a Serial Entrepreneur. Welcome to Business tips with Remi Adeoye.
Today, we will be talking about the Stock Market and how to make a fortune from it.
First, we need to lay some premises:
1. This is not a solicitation to anyone to invest in stocks. It is just knowledge and experience sharing. Those who wish to act based on this series by investing in the stock market do so of their own volition and at their own risk.
2. This is not an advertisement for any stockbroking house or firm. While characteristics of effective and efficient stockbroking firms will be discussed in generic terms, none will be mentioned by name. Those who choose to invest are advised to carry out due diligence so that they don’t entrust their money to pretenders in the market.
3. This is not an advertisement of any company’s products even though it is inevitable that some of those products will be mentioned by name to demonstrate the resilience, popularity and acceptance of such products in the market place. This is necessary to show how such popular products have powered the companies’ performances over the decades.
4. This is not an invitation for anyone to entrust funds to me to invest or manage on their behalf. I am not a stockbroker or funds manager. All such offers will be rejected whether made in public or in private.
5. A deliberate effort has been made to demystify technical jargons employed in the stock market to make it easy for even a secondary school student to understand. This series is not meant for ‘experts’ in the field and it will be appreciated if contributors don’t make their contributions complex or elitist.
6. The series is informed by my personal investing experience in the stock market over the past 25 years. Perspectives, contributions and questions will be entertained and appreciated.
7. Finally this is not a get-rich-quick scheme. Rather it imparts historical facts, principles and methods which if understood and implemented rationally are capable of generating good fortune for the investor over time.
The stock market is a place where sellers and buyers of shares and other securities like bonds, etcetera meet to trade. That place is called the stock exchange. For the purpose of this discussion we will be talking about the Nigerian Stock Exchange. It is located at No. 2/4 Customs Street in Lagos with branches in Abeokuta, Abuja, Bauchi, Benin, Ibadan, Ilorin, Kaduna, Kano, Onitsha, Owerri, Uyo and Yola. Building for the Port Harcourt branch has remained uncompleted for many years.
Shares or equities are units of ownership in a company. Stocks refers to shares of various companies. For example shares of First Bank are First Bank Stock. The terms are used interchangeably. The concept of shares came about with establishment of big and complex businesses that required pooling money and other resources together from different sources to raise capital to carry on business. The shares then represent the proportion of money individuals and groups contribute to finance the company. Shareholding is used to determine how profit will be shared among various contributors or investors.
For example if we are setting up a new business and we require ten million naira which is to be contributed by different individuals, we can say okay let us put a value of one naira on each share and create ten million shares to represent the ten million naira. If you contribute N100,000 you own 100,000 shares. If you bring N500,000 then you own 500,000 shares in the company.
The shares may also be denominated in 50K in which case a man who contributes N100,000 will own 200,000 shares while the woman who brings N500,000 will own one million shares. The money is then pooled together and put to work to produce goods or services, rental of office space, purchase of machinery and equipment, raw materials, marketing and distribution costs etc.
The goods produced are sold or the services rendered paid for. At the end of the year the company’s accounts are audited to determine if profit was made or loses were incurred. If profit was made, the board of the company meets to decide how much of the profit should be re-invested in the business and how much should be shared to those who own the money the company is doing business with as recorded in the shareholders’ register of the company.
Whatever is paid out is called dividend. The company announces how much is paid per share and what the total payout is. Each investor’s entitlement is then calculated by multiplying the dividend declared per share by the number of shares each member of the company owns.
The money is sent in a cheque-like document called dividend warrant to each shareholder’s address in the books of the company’s registrar. However the part that is reinvested in the business means creation of additional shares called scrip issue which are then distributed as bonus shares to members of the company according to the proportion of their investment. These new shares are deemed paid for by the profit re-invested which would have been shared as cash to shareholders.
To be continued…….
Please drop a comment if you learnt a thing or two from this article. I will appreciate it.