Finances : Patience in Stock Market investing

MANY financial advisers will counsel that if you have savings that you need to invest yet you do not have the time to watch over a business, the best place to keep your money is in holding stock of listed companies. But they usually add that on the stock exchange you can make money as well as lose it. Again you will be told that investing in stocks is too risky for the uninformed and that help from investment advisers should be sought. This information if often conflicting and confusing, so let’s make some things clear about stock market investing. Stocks are the longest-term investment you can buy. When you are investing in a company stock, you buy a piece of its future. You now own a piece of all of that company’s future profits until you sell off your share or the end of time or the end of the business. Several empirical studies have shown that over the long-term, equities or common stock vastly outperformed all other investment tools including bonds, term deposits and preferred shares. As a result, for the overwhelming majority of the investing public, long term exposure to common stocks through individual companies, mutual funds, or index based investments is usually a good idea. If the company in which you own a part does well you are entitled to share in the profits through dividends if the company pays them and attend shareholder meetings where you can vote on company matters and be heard. The master of stock market investing, Warren Buffet says that do not invest in a business you do not understand. By understanding the business, you have an idea if the business has potential for growth or not. Lets say you want to buy shares of KCB. You know that KCB has just opened branches in all parts of Rwanda, has entered the Ugandan and Tanzanian markets and is well established in Kenya. From KCB’s history in Kenya and its aggressiveness in the region you say, yes, this is a company with a good future. So you buy its shares and wait for them to grow. If you buy at Rwf 150 per share and after two months the share price rises to Rwf 160, then falls to Rwf 130 in the following month, then you begin to regret and panic about losing your money, the stock market is not then for you. But if you wait for five or ten years by the time KCB starts leveraging on its regional reach, when it does have to invest much because it already has its framework, the profits will rise as more people go for the advantages of branches in the whole region. You will earn more dividends every year and the value of your shares should have risen to perhaps Rwf 1,300. Stock market pays for the risk taken. Every investment grants risk, and the profit stands similar to the value of risk taken. If you have enough of budget and manage to invest in best of stocks, then the stock market is all there to unfold bigger benefits for the risk taken. Patience is very important in making money of the stock market is very crucial and even if you are not very financially literate, you can read about a company’s past performance and judge by yourself if it has a good future. Avoid buying shares because everyone is buying shares. It is like buying a car just because everybody is buying the same car. Ends

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Finances : Patience in Stock Market investing