Lack of knowledge of what it takes to make headway in the venture of buying and selling stocks has discouraged many prospective investors from investing in stocks in Nigeria and beyond. Even most of those already trading in stocks often get their fingers burnt due to inadequate knowledge of stock analysis. It was the desire to guide such people that made Ayo Arowolo, my former Managing Editor/CEO at “Financial Standard” newspaper, Lagos, Nigeria write this text entitled “Fire Your Share Analyst”.
Arowolo, also author of “The New Millionaires’ Capsules”, is a Reuters Award winner who has been involved in financial education in more than 20 years as a financial and investigative journalist. He has worked for leading newspapers in Nigeria, including the Concord Group, “The Guardian”, “The News” and “This Day”. Arowolo was the founding CEO of The Investment Club Network (TICN), Lagos, Nigeria. He now speaks to audiences around the country, focusing on how individuals can take full charge of their personal financial affairs.
The author says this text is designed to assist personal finance consumers in acquiring basic skills needed to take sound and prudent investment decisions. He adds that the purpose of the text is to create an easy-to-read guide that allows people to easily navigate today’s complex investment marketplace. Arowolo stresses that the text contains a lot of hands-on tips, which will help people to spot any shortcomings they might have as well as how to turn the shortcomings around to their advantage.
He educates that one requirement for making money in any investment is to gain deep knowledge of the particular investment terrain before making any financial commitment.
Arowolo explains that there is a banquet of prosperity in the Nigerian stock market, because it makes individual investors who invest in the shares of quoted companies, millionaires daily. He however adds many private investors also lose money in the market daily.
The text is segmented into six chapters. Chapter one is entitled “The basics”. Here, this author says many people who put their money in stocks fail to realise that investing in stocks is like buying into a company. That is, you are a part-owner. Arowolo therefore advises that before you put your money in shares of any company, you should ask certain pertinent questions. As he puts it, “Would you, for instance, invest in a company you don’t know anything about its management? Would you put your money in a company without proper paper investigations that will reveal the financial health of the company…? Yet, this is what many stock investors do. They commit their money into the hands of brokers who could be experimenting with their retirement money.”
Arowolo adds that this accounts for why many investors are daily watching their financial fortunes disappear. He illuminates that a smart stock investor only calls his broker after he has decided on the stocks he wants to invest in through research. The author asserts that a smart investor would not rely only on what the newspapers say to make decisions because it is often already late by the time the information is in the newspapers.
He advises that instead, you need to sniff around the company you want to invest in and gather relevant information that can assist you to take informed investment decisions. Arowolo says interestingly, this exercise is usually not as difficult as many people think. “Do you know, for instance, that if you know how to read the stock exchange daily official list, with some bit of analysis using the published accounts of companies, you can take intelligent investment decisions all by yourself?” he asks rather rhetorically.
On the choice between putting your money in the bank and investing in stocks, the author says if you put your money in a bank, you can only get back what is referred to as “interest”, which is your reward for allowing the bank to use your money. He expatiates that if however, you invest in shares of a good company, you may get what is called “dividend”, which is a portion of the profit made by the company distributed to shareholders. Arowolo stresses that additionally, if you decide to sell your shares, you may get capital appreciation if the price you are selling is higher than the price you bought the shares. He educates that some companies also reward shareholders with free shares, that is, bonus.
Chapter two is based on the subject matter of getting started. Here, Arowolo says before investing stocks, you need to be clear as to your objective of wanting to buy stocks. The author advises that your investment objective must be determined and understood first, before you even start to make enquiries about investment opportunities. Arowolo asserts that embarking on investing in stocks without a clear objective is a recipe for confusion and retirement misfortune.
He educates that the next step is to look at the industries that have growth prospects you can consider. According to Arowolo, part of your investigations at this stage is to also find out the key economic indicators and how they would impact on the industries. He adds that you also need to find out if there is any government policy that may impact positively or negatively on the target sectors and ultimately the companies you want to invest in. The author says you should also assess the companies whose shares you may want to include in your basket of investment.
According to him, “Factors you may consider include dividend and bonus history…, sales and profitability history. You may also want to decide whether to include companies whose shares are selling below N10:00 (penny stocks) or the expensive stocks. You may not do any extensive analysis at this stage. The objective, is to ensure that you don’t waste time analysing stocks that are worthless in the first instance. You do not need to go through the entire list of companies quoted on Stock Exchange before deciding the few to consider.”
In chapters three to five, Arowolo analytically X-rays the concepts of interpreting the stock market table; doing it yourself; and Moneywise analysis process.
Chapter six, the last chapter is based on the subject matter of Moneywise guide to analysing companies. Here, the author quotes John Maynard Keyness here thus: “The social object of skilled investment should be to defeat the dark forces of time and ignorance which enveloped out.” Arowolo stresses that one rewarding hobby you can develop as an investor in shares is to learn how to use publicly-available information of a company, especially its annual accounts, to determine how good the company is.
He stresses that this surprisingly does not require any special skills; neither does it require you to be an accountant or an economist. In Arowolo’s words, “Once you have the basic knowledge of the components of an account, the balance sheet, the profit and loss statement and the cash flow statements, and with determination, you can determine the health of the company you are investigating fairly easily.”
Style-wise, this text is okay. Arowolo injects illuminating quotes to achieve conceptual amplification and lend authorial credibility to the text. What’s more, he also employs graphical embroidery to achieve visual reinforcement of readers’ understanding. The language of the text is simple and the concepts are convincing.
However, some errors are noticed in this text, but Arowolo has compiled these errors and corrected them in a section called “Corrigenda” on page one. Probably he noticed the errors after the text had been printed.
Generally, this text is intellectually rich. It is highly recommended to those who want to be successful investors through sound financial and investment knowledge.