A Lot of people have heard about investing, while most understand that buying shares of companies in the stock market is investing. However, without appropriate education, they end up wasting their money.
The stock market holds great promise for building wealth, however. Investing without an appropriate understanding of the stock market is not investing but gambling.
To protect you from wasting your money in the stock market all in the name of investing, we spoke to an experienced professional in the stock market.
In an insightful conservation with a seasoned market investor, who has over 30 years of experience in weathering the booms and busts of the stock market, Adebayo Adeleke, general manager, Lancelot Venture, we delved into the essential dos and don’ts of investing.
He highlighted that there are two major factors a potential investor must consider before investing in any company – Internal factors and external factors.
1. Internal Factors:
These are factors within the control of an investor. The Internal Factors are broken down below:
- Define your investment goals: An investor must first define the intended goal to be achieved from the investment. Is it a long-term or short-term investment? Investment is just like building a house; the person needs to first define the type of house he wants to build. Is it a bungalow or a story building?
- Ability to manage emotions: An investor must be able to manage his or her own emotions and not allow the market noise to control his or her actions or let his or her emotions control his or her investment plans.
- Be disciplined and focused: An investor who is not disciplined will listen to the market noise, and this will lead to confusion, which can affect the investor’s decision.
Speaking on the internal factors an investor need to ensure before investing, Adebayo Adeleke, Managing Director, Lancelot Venture, said:
“You don’t listen to the noise of the market. If there is an investor who is not focused, who is not disciplined, he will begin to listen to the noise of the market instead of facing the trade that he has come to do in the market.
“They listen to one news and take action, and after some time, they regret it. So, the investor is the first to work on himself before he begins to think of external reasons or external factors relating to investments.”
- Research and understand the industry before investing: To be able to decide which stock or company to invest in, the investor needs to understand the industry the company belongs to, how and when it makes money, how the company has been performing, and if the revenue is increasing. Stay within your circle of competence.
2. External Factors:
Under external factors, the investor needs to look at metrics beyond his control and understand how they contribute to the success of the investment. External factors include:
- Understanding the Company Management: An investor needs to understand the people managing the business he wants to invest in, from the Board of Directors to the Managing Director. Understand their background and how successful they have performed in their previous endeavors.
3. Where to find information on Public Listed Companies
All publicly listed companies quoted on the stock exchange publish their quarterly results every three months and their yearly reports at the end of the year on the Nigerian exchange website.
Anyone could download these documents and read them, especially investors; the reports provide comprehensive information on each company and also provide opportunities to compare the company’s performance with the previous year, making decision-making easier.
Investing in the stock market requires educating oneself and research, and should not be treated as a gamble. However, investment decisions depend largely on individual investment goals; for instance, the type of stocks a person nearing retirement will invest in might be different from that of someone maybe in his 20s or 30s.
Therefore, an individual must understand his personal needs and define what he wants so that when he gets to the market, he won’t be lured by the noise in the market.
