When I was starting out on acquiring financial education, I couldn’t get a comprehensive source of information on investing in shares in Kenya.
I had to do quite a lot of research, most of which I don’t regret doing.
Just in case you are starting out on investing, I hope that the article below will give you a comprehensive guide on investing in shares.
First things first, what is a share?
A share is a unit of ownership of a company or business.
This means that when you buy shares you become part-owner of a business along with other shareholders.
In Kenya, you can only buy shares in groups of 100.
That means that if one share is ksh.5, you need at least ksh.500 to buy these shares.
After buying shares from a company you become a shareholder.
This means that you are not only part-owner of the company but you can also take part in the decision-making process of that particular company.
A shareholder is also entitled to dividends. Dividends are money paid to a shareholder at the end of a company’s financial year.
How to buy shares of a company.
Before you buy shares of any big company it is prudent to do thorough research first.
Do not buy shares based on the reputation of the business alone. This is because big companies are not always good investments.
But before that know the purpose of your investment. Are you buying a share for capital appreciation or for the dividends and capital appreciation?
budgeting tips for beginners
Buying for capital appreciation alone or in other words in the short term means that you are buying shares today, for example, @ksh.2.21 so that you can sell them tomorrow or in the near future at a higher price like @ ksh.2.57.
That is to sell at a higher amount at a later date.
Buying for capital appreciation and dividend payments or in other words for the long term means that you are buying shares today @ksh.5 so that you can sell these shares ten or twenty years later @ ksh.20.
The best-case example is of Safaricom shareholders.
When Safaricom sold it’s an initial public offer (IPO) in 2008 @ ksh.5. Some shareholders sold these shares after a short while when they saw that the share price was plummeting or going down.
They sold these shares for as low as sh.3.50. This was a bit too soon if you ask me.
Others held on to these shares for a long time.
In the year 2018, 10 years later the later sold off their shares @ as high as sh.31. Getting more than 400% return on investment (ROI).
It might even surprise you that some are still holding on to these shares up to this very day.
As a rule of thumb always buy low and sell high.
Step 2: Choose a broker
A broker is a mediator who will buy and sell shares on your behalf.
A broker can however only do so with your permission.
The broker can only buy and sell what you want to buy/sell.
A broker can also advise you on what to buy/ sell.
A broker will also help you open a trading account. Opening this account may cost ksh.1200 to open and sh.100 per month to keep it active.
Before choosing a broker
compare their broker fees with that of other brokers.
Also, look at how much they will charge you per transaction that is their transaction cost.
Where do you get a certified stockbroker?
Head on over to the Nairobi securities exchange website.
There you will get a list of accredited stockbrokers in Kenya.
make sure to sign up to a list of some of the best stockbrokers in Kenya
Step 3: Open a CDS account.
A CDS/ (Central Depository and Systems account)
This is whereby all your securities will be electrically stored. It is like a cloud for your investments.
Before this system people received a certificate after buying stocks/shares.
A CDS account eliminated the need for this certificate.
How to open a CDS account
Go to your stockbroker and file an account opening form.
You could also do so by going directly to the CBK.
Requirement: 2 passport size photos, original and copy of ID/ passport.
Some brokers may, however, ask for other documents in addition to these like utility bills and tax returns.
The best part is that opening a CDS account is completely free of charge.
Step 4: Choose companies to invest in
This is the most crucial part In my opinion.
This is because choosing a good company can give you good returns on your investment.
But making a poor choice in a company can make you lose money faster than you can blink.
To avoid making a poor decision, do thorough research on the companies that you are interested in investing in.
Just in case you don’t know where to start, here are a few pointers.
1. Pick a company that you understand.
Are you interested in technology? If so choose a company from that very industry.
This will help you know when the company is performing or not.
2. Look at the financial health of the company.
It may sound funny at first but knowing how well a company is performing is important.
Otherwise how else is it supposed to make more money for you?
With that said look at the financial statements of the company/ business.
a) Does the company pay out dividends?
If yes, the company is in good financial health.
Thereafter have the dividends been increasing or decreasing throughout the years.
b) Is the company in bigger debt than it’s income?
If yes this means that the company’s income will not be paying dividends.
Rather the income will be used to pay off interests on debts and these debts.
3.The price of stocks:
It is important to look at the price because a low price may not always mean affordable.
It may indicate that the growth of the business is slowing down. Whereas a high price may indicate that the company is expected to grow rapidly in the near future.
These were just a few tips for you to start your investment journey.
However, remember that knowledge used is more important than knowledge acquired and not used.
So start your investment journey today.