A 400% growth in your investment is probably an excellent definition of residual income. Interestingly, five Nigerian stocks grew more than this in 2023.
Stocks of companies such as Transcorp Group, Chams Plc, and MRS Oil Nigeria, grew by 400% in 2023. While this could make Nigerian stocks look attractive, you need to first figure out where to buy them.
Where to buy Nigerian stocks
There are many Nigerian stock options to choose from, but one of the first things to consider is the safety and regulation of the platform or broker. A broker is a trained individual or organization that serves as a middleman between investors and the financial system, facilitating transactions and connections between the two.
Ensure they are licensed by the Nigerian Securities and Exchange Commission (SEC) to protect your investments. It's also important to look at the reputation and track record of the broker to avoid scams. Also, compare the fees and charges associated with each platform- such as transaction fees and hidden costs, as these can impact your overall returns.
Here are the different options you have when you decide to buy Nigerian stocks.
Direct purchase through stockbrokers
You can purchase directly either by using traditional stockbrokers or online brokerage platforms.
Online stockbrokers are financial intermediaries or platforms that facilitate the buying and selling of financial schemes, primarily stocks, through the Internet.
They offer investors a convenient and cost-effective way to participate in the stock market. These platforms enable users to execute trades, monitor their portfolios, access market information, and conduct financial research all through online interfaces. Some examples include Stanbic IBTC Stockbrokers, Meristem Securities, and ARM Securities Limited.
On the other hand, traditional stock brokers are firms or individuals that provide you with comprehensive stock trading services as an investor. Unlike online brokerage firms, their services are personalised, giving the investor tailor-made services that are almost similar to lawyers and their clients.
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While services of traditional stock brokers are comprehensive, their fees are significantly higher than online brokers.
Choosing between the two depends on factors like personal preference, how much you want to invest, and how long you're willing to invest.
Investment platforms
Online investment platforms are probably the most convenient and accessible way to invest in Nigerian stocks. Some investment platforms include Chaka, Trove, and Bamboo, which just launched Nigerian stocks.
Available via mobile apps, these platforms can either be "execution only", where you make all the investment decisions, or "do-it-for-me", where you're asked about your investment preferences and appetite for risk so you decide which investment portfolio is good for you.
How to choose which stock to buy
Transcorp Group and some other companies growing their stocks by over 400% doesn't automatically mean they are the best to buy. Here are some things to look out for before you buy Nigerian stocks.
Know your financial goals
Your financial goals should determine which stocks to buy. Are you willing to invest long-term or short-term? Some people make this decision based on their age. If you're a young investor, you could be more focused on growing your money over a long time.
An older investor, for instance, could be more focused on keeping their money safe for retirement or investing a small amount of money for the short-term.
Regardless of your age, your financial goals should drive your stock choices.
Understand your risk
Before you start investing, think about how much risk you can handle. Some stocks can be like a roller coaster, up today and down tomorrow.
These might make you a substantial amount of money, but you could also lose a lot. Other stocks might be slow-paced yet steady. They might not make you rich fast, but you are less likely to record loses.
It’s important to know how much risk you are comfortable with, so you can choose the right investments.
Invest in what you understand
Only put your money into companies that you understand. If you don’t know how a company makes money, it might be hard to tell if investing in the company would be a good investment. It is important to buy stocks based on the company's chances of succeeding than because everyone else is buying it.
Don't chase high yields
It might be tempting to buy stocks that pay high dividends.
Sometimes dividends look higher than they actually are because a company's stock price is falling. Always check to ensure the company is making enough money to keep paying those dividends. If the company is in trouble, the high yield might not last.
Check for competitive advantage
Look for companies that are better than their competitors and have something special that helps them stay on top.
This could be a strong brand that everyone knows and trusts — maybe patents that protect their products — or lower costs that allow them to sell their products cheaper than others. Companies with a competitive advantage are more likely to keep growing and making money.
Avoid value traps
Sometimes, a stock might look cheap — like it’s on sale — but be careful because the company might be having major issues, and that’s why the stock is cheap. A cheaper stock is not necessarily a better deal.
