INVESTORS’ EDUCATION: Buy a share, own a company


That is what investment in shares is all about. A share represents one unit of ownership of a company. The number of shares of a company you have, the portion of its ownership that belongs to you.

When you buy the shares of a company, you become a shareholder of that company, and you qualify for all the privileges and rights of a part owner of the company. These include: Right to have a say in deciding who manage the company; Right to regular information on how the company is managed; And Right to share in the profit or loss made by the company.

For example, Nestle PLC made a profit of N16.8 billion in 2011, and its shareholders got N11.06 per share, as their own share of the profit. So if you have 1000 units of the shares of Nestle, your own share of the profit would have been N11, 060.

But not all companies make profits, or companies don’t make profit every year. For example, in 2010 a lot of banks did not make profit but lose and there shareholders got nothing.

Purpose of the stock market
In addition to the profit made by the company, you can also make money by selling your shares, your ownership of the company, at a price higher than you bought it. That is the purpose of the stock market. It is a market for buying and selling (trading) shares of companies. The buying and selling takes place in the stock exchange, and in Nigeria, this is represented by the Nigeria Stock Exchange, located on Customs Street, Lagos Island.

Last week, 2.81 billion units of shares, valued at N22.19 billion were traded on the Nigeria Stock Exchange (NSE).

In the stock market (or stock exchange), there are people licensed to assist those who want to sell or buy shares of companies. They are called stockbrokers.

But why can’t anybody trade on the Exchange. The stock market cannot at the same time accommodate all the people that want to sell or buy shares. It would be chaotic. Also is the challenge of sellers finding buyers of the shares of a particular company. The Stockbrokers make this simple, by acting as agents for those who want to trade their shares.

Furthermore, investment in shares can be risky; hence expert advice is needed to make the right decision on the shares of particular companies to buy, and at what price to buy. That is one of the roles Stockbrokers are licensed to play in the stock market. They advise investors and shareholders on what to buy or sell, and at what price, and what time. In Nigeria, there are about 156 active licensed stockbrokers.

On the Stock Exchange, you can only buy or sell shares of companies that have registered with the authorities of the market to allow their shares to be traded. These companies are called Listed Companies i.e they are on the list of companies that investors can trade their shares on the Stock Exchange. They are also called “Quoted Companies”, because the prices per share of the companies are quoted on the Exchange. As at last week there are about 198 Quoted Companies on the Nigeria Stock Exchange.

On a daily basis, the Stock Exchange publishes information about trading activities in the shares of each quoted company. This include the price at which the shares were traded, number of shares traded, and how many transactions (deals) in which they were traded. These are contained in the Daily Summary issued by the Nigeria Stock Exchange at the end of each trading day (usually from Monday to Friday).

Like in other markets, prices of shares move up and down in the stock market. When the price of the shares of a company goes up, the share (or the company) is said to “Gain” or “Appreciate”. When the price goes down, the share (company) is said to “Lose”, or depreciates.

Companies whose share price gains are called “Gainers”, and those that record lose are called, “Losers”. Last week, 55 companies were gainers, while 27 were losers. The top five gainers (those that recorded highest increase in share price) were Wema bank, Prestige Assurance, Transcorp, Julius Berger and Forte Oil while the top five losers were John Holt, UACN, Morison, Jos Breweries and Cap PLC.

So, if you own the share of company, you can make money selling it at the stock exchange. For example if  you had originally bought the 10,000 shares at N1 per share and you sell it at N2 per share, you would have made a profit of N1 on each share or N10, 000. Of course this is in addition to profits you have shared while you were a shareholder. But it is not always as simple as this. (To be continued next week)

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