The Nairobi Securities Exchange(NSE) is a dealer market that provides an organized trading platform for the buying and selling of financial instruments of publicly listed companies. Currently listed on the NSE are 64 stocks from companies across 11 sectors of the Kenyan economy; banking, investment, investment services, agricultural, telecommunications and technology, manufacturing and allied, automobiles and accessories, construction and allied, commercial and services, the insurance sector and energy and petroleum.
Since automation of the trading services in the late 2,000. It has now become easier to trade in the shares in the NSE. One needs the following;
- A computer
- Some financial market knowledge
- Starting Capital
- The internet.
The trading mechanism of the NSE was automated in the late 2000s and has enabled ease in trading since then and more trades can be executed per minute.
Putting your money in stocks basically means having a stake in companies that have been listed in the Nairobi Securities Exchange this entitles you to get a share of the organization’s earning. You can benefit 2 fold if the market perceives the company to do well the share price will go up and you can sell your shares and cash in the difference i.e. what you paid for the shares and what the share price is currently. Companies also declares dividends and you can earn dividends or bonuses.
There are several companies in the NSE. Safaricom and the banks havce lately been doing very well and investors have seen their equity increase significantly.
Gains are not always guaranteed; last year saw most the companies have negative returns. It is also important to remember that you may have to take a very long term view to benefit from investing in shares.
It will be important to become familiar all the various approaches to financial analysis and valuation. Some brokers will provide financial reports free of charge if you sign up on their platforms. With experience you also become very familiar with the working of the NSE.
Stock trading allows one to make a profit against buying and selling securities.
Unlike other forms of investments stocks are highly liquid i.e. can be easily converted to cash because of the high amount of buyers and sellers present in the market.
If ever you wished to cash out, it will be easy to find a buyer, and sell. It would normally take months to find a buyer for the property in case of need for cash.
A great advantage of stock trading is that taxes are paid on gains only when one sells the stock. Losses on trades can also help reduce the taxes paid on gains. In bonds investment, however, taxes are paid annually.
Choosing a Listed company to buy shares
Before buying the stocks of any company, it is vital that you conduct thorough research on the company before investing in their stocks.
Do not be tempted to invest in a company based on its reputation or big name.
Many big names have failed to produce results or even failed altogether. Uchumi, KQ, Mumias are some of the big names which have seen their stock price plummet in the recent years.
These tips below will help you choose the best company to invest in:
- Invest in a company whose business model and industry you understand to remain updated and informed with its share performance. Follow business news closely to understand the developments in the industry and the company so that you are always making an informed decision. Subscribe to newsletters from brokers and banks so that you can peruse through analyst reports, this will be a good starting point to help you pick stocks.
The advantage is that it will prevent you from the hype that comes with such investments.
- Evaluate the financial health of the company.
Go through years of the company’s financial statements to understand whether it is growing or not. Look for consistency in finances and profitability. One good quarter should not tempt you into making such a huge investment decision.
- Does the company have any debt, and how much?
The share price of companies listed by NSE Kenya with more debt tends to be volatile than companies with no debt.
The income generated by the company goes to debt and interest repayment and not growth.
Determine a company’s dividend before investing. A dividend is money paid out to stock investors.
While many people consider it a regular income, it is often a sign that a company is in good financial health.
At the same time, you should check at the company’s dividend payment history. Is the dividend going up or down?
- Check the price of their stocks.
Some investors tend to go with cheap stocks and other expensive ones.
A company’s stock may be cheap because its business is slowing down or growing less.
Their stock may also be expensive because the market is expecting the company to grow its revenue to rise rapidly in the coming years.
As a rule of thumb, buy stocks you can fairly expect to increase in value later. The best way to approach this situation is to look at the company’s stock value combined with future expectations in earnings.
NSE is among the few trading houses in Africa offering a wide variety of assets, among them stocks, bonds, derivatives, Exchange Traded Funds(ETFs) and Real Estate Investment Trusts(REITs). These provide good candidates for a less risky portfolio.
A derivative is a financial instrument that derives its value from an underlying asset or security, such as a commodity, stock, stock index, precious metals, bonds, etc. Derivatives are helpful in reducing risk in one’s portfolio because they involve transferring risk from those who want to avoid it to those who want it.
An ETF is an investment fund traded on the stock exchange, much like stocks. It holds assets such as bonds, commodities or stocks. Most ETFs track an index – a stock or bond index, with some allowing slight deviations from the index. They are attractive investment options for investors because of their tax efficiencies and their stock-like features. ETFs are exempt from capital gains tax upon the sale of the ETF. Just like stock owners, ETF holders are eligible to receive dividends.
A REIT is a regulated investment vehicle that allows persons to collect money or money’s worth, with the intention of earning profits or income from real estate as beneficiaries from the trust. REITs derive their revenue from income in rentals – IREIT, or from development and construction for sale and/or rental – DREIT.
Stockbrokers are involved in in-depth research of the market and as professionals, may advise their clients in trading issues. When choosing a broker, a few pointers to look out for are the services they provide, the expertise of the brokerage, and, most importantly the trading fees charged. As a beginner, some brokers may seem unattractive because of the various fees charged, but this should not reduce the standard or quality sought when choosing a broker.
Click on the link below to see the updated list of brokers