Friday, December 08, 2006

Investing in shares at Nairobi Stock Exchange

What are shares?
A share as the name suggests gives you a share in a company, that is you partly own a company and are able to get a share of its profits. Where the company is listed on a stock exchange, you will get a share of the profits (in the form of dividends) and vote on major decisions affecting the running of the company (e.g. selection of the board members).
Why would anybody want a sell a share in their companies?
Most companies will sell their shares either privately (by inviting known investors to take a stake in their company) or publicly (by listing on a stock exchange). The reason for inviting other people to share in their company will be many including as a way of raising additional finance to grow further; as a way of measuring themselves against peer companies and an even as an exit strategy out of the particular company.
Why invest in shares?
Most of us when we want to save often find it a tiring and long process. Part of the reason for this is because one is almost totally reliant on increasing wages or reduced expenses for one to be able to save more. The other reason is one gets very little assistance from the banks by way of savings rate. In the UK, you get between 0-12% pa interest in a savings account and for the higher rates one has to open a current account. In Kenya, one has to open a fixed account to even get 4%. Others are reliant on investments in real estate where in the UK one may get up to 15% pa on the appreciation of your property’s value(although you in need to adjust for the interest on your mortgage). In Kenya, one can get higher returns, but you require huge capital upfront.
Invest in shares and in the majority of instances, you will easily generate returns of 30% or more on one share alone. These will be in the form of dividend (a share of the company’s profits after taxation) and profits due from sales of the share due increase in price. For IPOs (that is where a company lists itself on the Nairobi Stock Exchange or any other stock exchange), you can even double or triple your outlay on one share alone.
How does one acquire shares on the Nairobi Stock Exchange?
The NS has around 50 listed companies in which you can buy shares in. Presently, you can only buy shares through a stockbroker (they buy and sell shares and fixed bonds on the stock exchange on behalf of investors). Once you decide what company you want to invest in, you will then go to a stockbroker. You will open a CDS (Central Depository System) share account with them; indicate what company’s shares you want to buy and then agree on the price you want to buy them at.

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