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.

According to financial experts, answering these questions would depend on some of the following factors: where you live, your circumstances, your income, and if you need this money to fund your lifestyle or not, are you an ex-pat or local, your current age, and other things about your circumstances. How much risk do you want to take? A good financial plan is bespoke to your circumstances—not what the latest news headlines show.

In response to questions, Adam Fayad, Founder, Global Online Advisory Firm, said the biggest reasons people fail in investing are analyzing and watching fear-mongering news too much, getting emotional, and also taking random advice from friends.

Tips on Saving your Funds from Inflation

According to Fayad, people who succeed in investing tend to do the following things:

1. Logic over emotions. So many people buy high and sell low due to fear. Linked to this is the concept of “doing your research”, which for most people just means buying if the price is going higher, or another emotional impulse.
2. Focus on the long term. A long-term plan shouldn’t be affected by stocks rising or falling, by 20%.
3. As it is safer, diversify both in terms of time and asset diversification—not putting all your eggs in one basket.
4. The last point is especially the case for middle-aged and older investors.
5. Take advice where needed. This could be to do with tax, investing, or other issues.
6. The more complicated your situation is, the greater the chance that advice will add some benefits.
7. Don’t try to time the perfect time to buy assets, also known as market timing, which doesn’t work.
8. And finally, they don’t stay in cash. Cash is a 100% guaranteed inflation loss.
9. If you buy assets, they will go up and down, but even if they go down, you don’t face a loss (only a decline) unless you sell out.
10. Nobody “lost” money investing one day before the stock and real estate crash in 2007-2008, if they kept their nerve. Prices recovered within 3 years.