More Kenyans are investing in shares as the market knowledge and access grow. Buying of shares in the country happens on the Nairobi Securities Exchange through various authorized brokers. Hence, let’s review the factors to consider before buying shares in Kenya.
The other term for shares is stocks. In the process of investing in this market, you might come across terms such as the stock market. They all refer to the same thing. Investing in shares has its risks and rewards. The rewards happen in form of dividends and share price gain while the risks happen in form of share price loss.
Hence, you need to perform adequate due diligence before buying shares to minimize the risks of making the wrong investment decisions.
In the past, there have been some companies listed in the Nairobi securities exchange that failed and are currently under receivership. Such a situation only means shareholders are suffering losses with the chances of losing their investment remaining high.
Benefits of buying shares in Kenya
Dividend payouts– Listed companies regularly pay dividends. This is mostly semi-annually or annually. The amount of dividends is based on a company’s performance. Hence, better-performing companies will most likely pay higher dividends.
Share price gain -If the company is performing well, the value of its shares experiences constant growth over some time. This growth of value in shares is known as share price gain and results increase in your value as a shareholder.
Participation in company’s leadership– As a shareholder, you are eligible to participate in choosing the company’s leaders in the annual general meeting. This ensures your investment is under the leaders you trust.
Factors to consider before buying shares in Kenya
There are various factors you need to consider before buying shares in Kenya. This is part of conducting due diligence to ensure you are making the right investment. These include;
1. Company performance
You should evaluate the market performance of companies you intend to buy shares from. Some of the key details to check include financial performance in terms of assets and profitability. Only buy shares from a company that has been performing well.
There is a high chance the same will continue. Another important factor to check is the performance of products and services the company offers. You should some factors such as market share, relevance, and sales volume.
A company that has been experiencing growth in sales is likely to perform better than those that are stagnating or declining.
This information is readily available as all listed companies are required to regularly publish their market performance.
2. Share price
Company shares are valued differently in the market with each having its share price. The share price values are determined by factors of demand and supply and hence keep changing.
However, according to the set policies, the minimum amount of shares you can buy per transaction in Kenya is 100. Hence, your capital is what will determine the number and type of shares to buy.
As an example, if a share is trading at 1000 shillings, you will need at least 100,000 shillings to make a transaction. If a share is trading at 10 shillings, then you only need 1000 shillings to invest. Hence, it is necessary to evaluate the share price and chose the ones that correspond with your capital.
The share price could also indicate market performance and investors’ confidence. A company that is performing well will likely experience a rise in the share price. A high share price is also an indicator of investors’ confidence in the market.
You need to have an account with a broker to buy shares in Kenya. Some of the major brokers in the market include stock brokers and investment banks.
Opening an account with a broker requires you to provide your basic KYC documents such as a National identity card and KRA pin. Once the broker approves the account, you should top up to start investing. Learn More on How to Open a CDS account in Kenya.
Brokers charge various fees and commissions to facilitate this process. Hence, you need to do adequate market research to settle on the best broker who is affordable. In return this reduces your trading costs helping to increase your returns.
Another element to evaluate from a broker is the trading services support. These include information such as market updates and customer training. A good should offer your regular support to increase your chances of success in the market.
4. Investment duration
There are various reasons why investors buy shares in Kenya. Some do it for trading purposes in the short term while others are in the market for the long term. Short-term traders buy and sell shares regularly to make quick profits.
On the other hand, long-term buyers could be in the market for up to 10 years. Hence it is critical to define your investment duration before buying shares. This will also help to determine the amount of capital you are willing to invest in the market. If you are doing it for the long term, you should only put in money you don’t need in the short term.
Short-term trading of shares requires market experience and time. This is because you have to keep checking the market for opportunities. You should also know how to utilize some available tools such as leverage.
However, if you are new and not familiar with the market, focus to invest in the long term. This does need any special skills. You only need to buy and wait. Shares take time to gain value and hence focusing on the long term will increase your chances of profitability.
5. Majority shareholders
Public listed company decisions are made by the majority shareholders. Hence, you need to ensure these shareholders can make the right decisions before buying the shares. Some of the decisions majority shareholders make include appointing the leadership and passing some key votes on matters such as dividends.
Another element to check on this line is if the government is a majority shareholder. Companies that have the government as a majority shareholder could suffer from political interference hindering progress. An example of such is choosing leaders based on political standing other than qualifications.
Hence, for such companies, you should ensure to do adequate due diligence before investing.