Do you fancy the stock market?
All investment activities are not for the faint-hearted but, of course, some are more risky than others.
In fact, there are investment products like treasury bills that have been conveniently cloaked as ‘risk-free,’ meaning that you are guaranteed a return, regardless of what happens in the marketplace.
Well, it sounds good when you are looking at only the returns that you get from the investment vis-à-vis the amount that you invested; however, when you look at the ‘real returns’, which will then compel you to look at the other alternative investment vehicles (opportunity cost as well), you will notice that after all, playing safe by investing in T-bills could not be the best option at all times.
This brings me to the point where l believe that when you really fancy playing investment games on the stock market, you should still see the fashionable nature of shares, despite the seemingly high risk they carry.
The point is this: Shares, especially the most ‘common’, described as ‘Ordinary Shares’ do not carry any guaranteed returns. You earn more when the company is doing so well, and lose big when it is performing badly.
Because of the way returns (income from dividends and capital growth from share price appreciation) from ordinary shares appear so uncertain, most people tend to shy away from investing in them. Those with a short-term investment plan horizon, especially, always see the capital market as far more unattractive than the money markets.
But indeed, shares are extremely fashionable when you are prepared to stay for the long-run and should not be easily overlooked because of ‘short-termism’.
Look at this example of how shareholders of some companies have made successful gains by backing the right company: On September 2, we woke to the news that Vodafone had sold its 45 per cent stake in Verizon Wireless to US telecoms group, Verizon Communications, in one of the biggest deals in corporate history.
The deal, estimated around US$130bn (£84bn) was announced by Vodafone after the close of trading that day on the London Stock Exchange.
Quickly, l tried to find the implications of such a deal on the shareholders of Vodafone and this is what l found: “Vodafone shareholders are set to receive a £54.3bn payout following the sale of the group’s 45 per cent stake”.
In fact, Vodafone is a favoured stock in the UK. According to market analysts, the Legal & General Ethical Fund has the largest exposure to the telecoms group, followed by Scottish Widows UK All Share Tracker, Fidelity Global Telecommunications and RWC Income Opportunities.
Globally, Vodafone continues to enjoy a lot of growth, making it one of the world’s valued brands.
Even though in the case of Vodafone most of the major shareholders are all institutions, individual shareholders, even if in the minority, also stand to benefit handsomely from the deal.
Over the life of an investment, especially when looking at an investment period of more than five years, it has been proven that shares tend to perform better than other investment products.
The stock market has offered an avenue where people could become part -owners of businesses without the need to start the business themselves. It is a very exciting place to be, if indeed you know what you are doing.
Mind you though, it shouldn’t be that scary for you! You could also become a stockbroker in five minutes! In previous editions l have explained how this is possible.
The Ghana Stock Exchange is the place where you can also become a part-owner of a company. Shares in public companies can be owned by anyone in the country, provided you are above the legal age limit that authorises you to do so.
You don’t need to have millions to be a part-owner of a company; how much you invest is up to you, but like all ventures that carry risk you should not invest what you cannot afford to lose.
You must also understand that the whole idea of ‘playing’ on the stock exchange is all part of the grand science of investing. Saving or investing a part of your income is not the preserve of the very rich, or the very ‘posh people’.
It is a right that we all enjoy, just that only a few are prepared and able to claim that right by way of ensuring that they take advantage of the opportunities available.
If you fancy the stock market then it means that you are prepared to take calculated risk; calculated risk in the sense that risk pervades finance just as gravity pervades physics so you can’t avoid risk entirely.
So my belief is that if you follow the rules and do your homework, you too can be successful at playing on the stock market. Frankly, forget the jargons; you can be a stockbroker in five minutes! And l mean it!
Like the lottery, you’ve got to play first before you can win, so you have to get involved first before you can take advantage of the upside potential of investing in the stock market.
By Bernard Otabil/The Mirror/Ghana