YOUR QUICK GUIDE TO UNDERSTANDING STOCKS

 

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I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful      – Warren Buffet

This is a famous quote from Warren Buffet’s book, titled ‘Think like Warren Buffet’ where he was practically giving advice on how to become a wise investor. A quick glance through various search engines on the words investor, investment and invest automatically brings up words such as stocks, shares and shareholders. Talking about financial investment and knowing how to invest wisely often times involves dealing with stocks. Now for some of you, you probably have come across the word before and perhaps know certain things about what it entails, while for some other people, you are not so acquainted with it. We are going to be brushing up on what stocks mean and take you on a quick tour on understanding how stocks works.

So what is a stock? Stock simply means a share in the ownership of a company. In simpler terms, it means being one of the owners of a company. Owning stocks in a company means you are entitled to its earnings (which is the amount of money that particular company has earned during a specified period) and assets (refers to an element of economic value belonging to the company and which is expected to produce a benefit in future periods). You might have come across words such as equity and shares, they both mean the same thing as stocks. Now let us delve further into what owning a stock means. Owning a stock or shares in a certain company means you own a part of that company. So the higher the shares you own in that company, the corresponding higher percentage you own in that same company.

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Now for regular folks like you and I, owning a share in a company, let’s say for example, Pepsi, does not mean we can go into any of the company’s outlets and begin to order the staffs around, and sorry to ‘burst your bubble’ again, it doesn’t also mean you get free pepsi cola drinks whenever you want at any of their outlets. It doesn’t really work that way. What it technically means is that you own a piece of every trademark of that company, buildings, furniture, equipment and also, earnings of that company. Your entitlements are majorly two things; the earnings and voting shares. Earnings has been simply and briefly explained earlier on, while voting shares simply means the particular shares that bestows the shareholder with the right to vote on matters of corporate policy making as well as electing those who will constitute the board of directors.

The proof of your ownership of a particular stock is the stock certificate. It is a swanky piece of paper which ideally represents your stock. Several years back prior to the emergence of portable computers and internet services, stock certificates were almost always in the possession of the owners of the stocks. This was the medium which stocks were being traded. To buy or sell your shares in a company, you must have your stock certificate with you as this serves as the proof of your ownership. But today, you don’t have to have your stock certificate physically with you as it is electronically stored. This makes it safer to keep and easier to trade with. Having learnt what a stock certificate means, the next thing you should know are the types of stocks.

There are basically two main smorgasbord of stocks, Common Stock and Preferred Stock. The common stock is the most likely type of stock you would have heard, read or watched being talked about. Majority of stockholders deal with this type of stock. It basically means what we’ve been talking about; having a part in the ownership of a particular company with a claim to its profits and also with the ability and opportunity to participate in voting in members that will constitute the board of directors. With common stock, you also get to be paid dividend (a distribution of a company’s earnings to its shareholders) depending on the amount of profit the company is raking in. Preferred stock is a ‘special’ type of stock where shareholders are assured of a fixed dividend. The stock also doesn’t have the same voting rights as the common stock. In short, it differs from the common stock mainly in two ways; having a fixed dividend as opposed to the variable dividends associated with common stock and also, not having the same voting rights.

We’ve discussed what a stock is, the meaning of stock certificate and likewise the major types of stocks. Now let’s talk about how people make money by investing in the stock market. When you buy a common stock, you have two major source of generating income. The first way is through dividends as we talked about earlier. This is when the board of directors of the particular company that you have invested in decides to pay you a certain amount of money as part of the profit they made. This is usually proportional to the amount of shares you have in that company. So basically, you get a higher dividend than someone with a lower amount of shares in that same company. You should also know that there is no rule that says a company must compulsorily pay you dividend, although a lot of companies do. Secondly and most importantly, you can generate income by selling your shares at a higher rate than they originally were. For example, you buy 1000 shares at a company at the rate of N20 per share. This means you have N20,000 worth of shares invested in that company. As the company grows and becomes more profitable with the aid of a good management team, great product or service and exceptional marketing skills, potential investors and regular folks see this as a good investment and likewise invest in that company. Gradually, the naira per share value of that company will rise, let’s say to N100, so automatically your naira worth in that company becomes N100,000. You can decide to cash out your N100,000 by selling your shares to an interested buyer through a broker (an individual or a firm behooved with the role of matchmaking buyers to sellers and vice versa).

Trading of stocks is done through an exchange, which is an avenue for buyers and sellers of stocks to meet and discuss the price of the particular stock involved. There are two types, the physical exchange and virtual exchange. The physical exchange involves a trading floor where transactions are carried out. You might have seen something similar depicting this in a movie or news channel, where men and women wearing suits or jackets waving their hands up and yelling out certain words and numbers to each other. The other type, which is the virtual exchange, involves trading electronically. There are virtual brokerage firms that allows the investor the liberty and comfort of trading from anywhere they want through the use of mobile devices, tablets or computers. The exchange can be compared to an e-commerce site such as Konga, which links up buyers to sellers and vice versa. In Nigeria, the stock exchange is known as the Nigerian Stock Exchange (NSE) while in the United States, the major stock exchanges are the NYSE (New York Stock Exchange), NASDAQ and AMEX (American Stock Exchange). The NYSE is an example of the physical exchange; while NASDAQ is a virtual exchange where trading is done electronically with no floor brokers or any central location. London houses the popular London Stock Exchange, Hong Kong Stock Exchange (HKEX) is the major stock exchange in Hong Kong while Brazil is home to BM&F Bovespa.

Let me conclude by indulging you on the reasons why companies issue out stocks to individuals or institutional investors. You ever wonder why these companies will want to share ownership of their companies and subsequently share their profits? The reason is that at some point every company needs to raise capital. They might need to raise capital for a big and extensive project they are working on, to expand their business or simply to service off a debt. So instead of going to the bank to get a loan to fulfill the capital need of their projects or expansion plans, they sell off a certain percentage of their company. This works well with the companies as they are not required to pay back any debt or interests incurred on the debt. When a company decides to sell out part of its company to the public for the first time, it is called an Initial Public Offering (IPO). Individuals and institutional investors buy shares during the IPO of some companies in the hope that those shares will be worth more than they originally were after a while. This is where the distinction comes between the two entities Primary Market and Secondary Market. The primary market involves buying shares from a company during its IPO, while in the secondary market, investors trade previously issued shares/stocks. When people refer to the stock market, most of the times, they are referring to the secondary market.

Balogun Oluwafemi

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The Cycle of Workforce

The Cycle of Workforce
I know most of us have been in a particular seminar, lecture, workshop or training in which a speaker once tried to motivate and encourage you to be a leader and not a follower, to be your own boss and not a servant. I myself and including most of you readers have been once or more in this kind of lecture or motivational forum.
Years back when I started hearing these speeches about being a leader and not a follower, a boss and not a servant, what mostly went through my thoughts was; who will then be the servant? Who will do the petit jobs such as a messenger, house cleaner, security guards and such jobs as that? Back then I didn’t understand much then as I do now, and even now I don’t understand much as I would in the future. All these speeches and lectures concerning the concerned topic are actually true and are not far stretched.
What it means is what I personally call ‘The Cycle of Workforce’. This is a phenomenon in which the total workforces of an Organisation, a Company, State or a Nation are in cycles. I know it is impossible not to have jobs such as security guards, cleaners, messengers, garbage clearers etc. What you should make sure is you not turning these jobs into permanent jobs. These jobs are just meant for you to serve and work for a specified amount of time pending the time in which you are building plans for your next move and steps in life. You use the time you work in such jobs to save some extra cash, to plan ahead such as to enrol in a creative and quality educational institution if it so pleases you, to gain experience and skills in some field and then to meet and connect with people in your own little way. With this, you set goals and time limit in which you plan to work in such jobs and when the time comes for you to move on, make sure you are disciplined enough to opt out and quit the job.
Don’t ever be satisfied with your status quo and trust me, a lot of people, even your close friends and family members might question your judgement and decision. You don’t need to start defending and arguing about the decision that you have made or that you are about to make, just keep quiet and save the energy to build that which lies ahead of you. The road might not be smooth initially and might even get tougher with time, but I assure you as you stay on course with dedication of your time, energy, resources, skills and efforts, you will eventually breakout of the dark loom of obscurity into limelight.

Balogun Femi

 

HOLYFIELD’s DONATION… HOAX OR TRUE?

 

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Just getting back from a trip yesterday afternoon, I decided to take time to rest while watching TVC. Flashes of several news making the headlines were highlighted by the news anchor, but I was subtly interested in the one showcasing the pugilist Evander Holyfield donating cash in the amount of three million dollars ($3,000,000) to Lagos State. The money is meant to be used to buy health equipment for health facilities for some of the hospitals in the State. I was bewildered to see a legend like Holyfield come to Lagos State and extend a philanthropic hand to the health sector. This appeared unequivocally as a magnanimous deed, one that should be truly appreciated. Watching on, I saw the great Nigerian ‘Machiavelli’ Tinubu standing beside the Legend while Governor Ambode was also not too far away. At this point, the curious side of me became partly conscious as to what was going on, something wasn’t right and was a little off, but seeing that I needed sleep, I decided to allow the byzantine thought pass.

Waking up this morning, I had a discussion with a friend and talked much about the three million dollars Holyfield donated to Lagos. The math just wasn’t adding up. How will Holyfield who as of April 2017 was valued to have a net worth ranging from five hundred thousand dollars ($500,000) to one million dollars ($1,000,000) make a three million dollar donation to Lagos State, Lagos o. His net worth is one million dollars at its best, and that is not even liquid cash. Fifteen years back, there won’t even be any need for this write up as the Legend was making a buck load of money. It is estimated that he made about $230 million in his career as a boxer. He had several endorsements and money was flowing in a quotidian manner. He even purchased a mansion that spanned about 230 acres and had 109 rooms in it. The mansion was being serviced and maintained with a whopping $1 million every year. He was ‘celebrity-wise’ rich back then and could afford to donate as much as he wanted, but in today’s reality, Holyfield cannot afford to donate $3 million. Logically, the man doesn’t even have that amount of liquid cash with him.

That Holyfield is broke isn’t news, it is a trite statement people in the United States are used to. This was the same man that was being threatened of imprisonment if he failed to pay his child’s support, an amount equivalent to $300,000. Baba simply couldn’t afford it. He also failed to pay $6,000 as child support for his 10 years old son. His mansion was auctioned off when he couldn’t pay for it again as he was in severe debt crisis. The Pugilist also failed to pay an amount of $550,000 for services rendered for a landscaping job done for him in Utah. When it got worse for him, he decided to sell off 20 pairs of his fight gloves, his Olympic bronze medal, championship rings, about 20 math robes and short, including his victory belts. This is all just to say that ‘Baba is broke’ (babu kudi). So, what is the true story behind his donation to Lagos State?