This archive report was first published on 23 June 2021.
Investing in the stock market can be a daunting task, especially for beginners. However, with the right guidance, anyone can navigate the world of stocks and make informed investment decisions.
According to Warren Buffet, 'Be fearful when others are greedy, and greedy when others are fearful.' This advice is particularly relevant in today's fast-paced market where emotions can often cloud judgment.
John Yuaya, a full-time trader in the stock market for two years, and Johnson Nderi, the manager of corporate finance and advisory at ABC Capital Limited, share their expertise on what one needs to know when investing in the stock market.
Published on June 23, 2021, by Enterprise, this article provides valuable insights into the world of stocks and how to make the most of your investments.
What is the Stock Market?
The stock market is a platform where buyers and sellers negotiate prices and make trades. It operates like an auction house, where investors can buy and sell shares of publicly traded companies. The Nairobi Stock Exchange is one of the most prominent stock markets in Kenya.
Debunking Common Myths
One common misconception about the stock market is that it is a form of gambling. However, this is not entirely true. While it is possible to lose money in the stock market, it is highly unlikely that you will lose your entire investment in one day.
Another myth is that the stock market is directly affected by the economy. However, this is not always the case. Stock prices often factor in what investors think will happen in the future, which is why share markets usually rise during a recession.
Short Selling
Short selling is a strategy where an investor makes money when a company's share price goes down. This is achieved by borrowing shares of the stock, selling them, and then buying them back at a lower price to return to the original seller at a profit.
Yuaya explains that short selling is a speculative market where investors can buy short stocks and get leverage from their broker, allowing them to invest with as little as Sh2,000.
Cash Market
The cash market is a platform where investors can buy and sell shares of publicly traded companies. This market is essentially a place where investors can own the stock and have all the advantages, including voting rights.
Yuaya advises that most investors trade on the cash markets, while traders deal with derivatives.
Choosing the Right Investment
Before investing in the stock market, it is essential to do your homework. There are several things to check about the company, including the top management, product, and track record.
Yuaya advises that investors should ask three questions before choosing an investment: what is the desired investment horizon, what is the risk appetite, and what is the required rate of return?
Getting a Good Broker
Choosing the right broker is the first step in investing in the stock market. According to Yuaya, it is beneficial to find a forex trader regulated by the Capital Markets Authority (CMA) of Kenya.
Yuaya recommends two top brokers in Kenya: FX Pesa, which requires a minimum deposit of $5, and Scope Markets, which requires a minimum deposit of Sh2,000.
When choosing a broker, Yuaya advises to consider how easy it is to communicate with them, how much commission they will charge, and how easy it is to withdraw and deposit money.
