Investing in the Stock Market: A Guide for Beginners

Investing in the stock market can be quite scary. You have probably heard of the horror stories of people losing their money. Or thought the process of starting is too complicated. Or if you are like me, you thought that you needed a lot of money to get started.

Because of this, you probably shied away from the stock market and thought that it’s not for you.

But here is the thing. Investing in the stock market is an excellent way to grow your wealth over time. Yes, it carries great risks but it also can bring great returns.

To see how great the returns can be, read this article about the performance of Safaricom shares by the Rookie manager.

Now that I have your interest, I want to show you that investing in the stock market is not as scary as you think. And that even you can start investing with less money than you expect.

But before we get into all that, let’s understand what the stock market is all about.

Understanding the Stock market

A Stock exchange or market is a place where stocks are traded. They allow investors to buy and sell shares of a company among each other. In Kenya this place is the Nairobi Securities Exchange (NSE).

When companies need to grow or expand, they raise money by selling part of their business as stocks or shares in the stock exchange. If you buy one, you own a small part of that company and become a shareholder.

Shares can rise in value over time which means you can sell them at a higher price than you bought them. This profit is known as capital growth.

For example, If you bought shares worth KSh. 10,000 and sold them at KSh. 40,000, your capital has grown by KSh 30,000.

Another great thing about owning shares is the chance to share in the profits of the company. When a company makes a profit, it may choose to distribute it to its shareholders through dividend payments.

Dividend payments allow you to create an extra stream of income from your shares. This is a great way to earn passive income.

What are the Risks

Share prices can change suddenly. This can be due to many factors including economic conditions, company performance, unfavourable company announcements or market demand and supply.

The key to managing risks is first of all do your research and consult experts in the field.

Secondly, understand that for you to fully benefit from the stock market, you need to take a long term view. This will give you more time to recover from any dips fluctuations that normally happen.

How to get started

In Kenya, for you to trade in the stock exchange you need to get a licensed stockbroker.

The broker will help you create a Central Deposit and Settlement (CDS) account. A CDS account enables you to buy and sell shares at the Nairobi Stock Exchange (NSE).

What to look for in a Stock Broker

Before deciding to select a stockbroker, here are the things to look out for:

• Market insights. Does the broker provide you with the latest market insights? This is especially important if you are starting out or don’t have much time to do your own research. It will help you make decisions on what shares to buy.
• Tools for market research. Does the broker provide you with tools to do your own market research and analysis? These tools include charts/graphs, live market feed etc
• Trading fees. Having a lower trading fee is always ideal but might not be the best for you. This is because one may offer higher trading fees but then offer more options and services. It all depends on what you want to achieve.

Here is a list of all licensed stockbrokers in Kenya.

How much money do I need to get started

To get started, you need to buy a minimum of 100 shares. The amount of money that you will need is dependent upon the price of the share.

So for example, if one Safaricom share is worth KSh 38 (as of this writing), you would need KSh 3,800* to be a shareholder of Safaricom.

Other stocks may cost as little as 1 shilling. So for as little as KSh 100*, you could be a shareholder.

*The price excludes extra fees that may be charged by your broker

Final Note

Getting started in investing in the stock market is not difficult. Take your time to do your research. Start small, make mistakes, learn and grow your investments over time. And remember, for the best returns, the key is to invest for the long term.