How to Use ₦10,000 to Buy Shares in Stock Market
One of the best ways to make money is via buying and selling shares, but this is a story or idea not well explained to the growing youth population amidst rising lotteries economy.
In 2020, despite pressure in the Nigerian economy, stock market gained more than 50%. That’s huge, it did happen!
The rule is simple, buy low and sell high. Buy low means your cost price must be the best you could get.
Sell high means the selling price should be the best you could get. If you are in hurry, the equation doesn’t always balance.
Think about stock like a commodity you pick for resale, the same theory, different platforms.
Many people don’t really know that they can own stocks with as low as ₦10,000 and gradually build their portfolio as they adjust risks appetite.
Penny or cheap stocks are your best bet when you are entering stock market for the first time as an investor.
It’s simple, penny stocks make your entry cost lower compare to asking for 10,000 units of Dangote Cement or Nestle stocks.
Stockbrokers at SAMTL call it low-priced stocks that occupy the bottom rung of the price ladder in the stock market.
Brokers consider these stocks as those that market has not found any good basis to price up, so they remain in the price range of around 50kobo – N10 per unit share.
They are generally stocks of low-capital companies, which is why they are also called micro-cap or small cap stocks, stockbrokers at SAMTL said.
But some penny stocks have very low volume, which means that it can be very difficult to buy and sell shares of these stocks.
According to stockbrokers, other penny stocks are very volatile and have huge up and down price swings.
That is, a change in price could be significant when it comes. Imagine a stock movement from 50 kobo to 75 kobo in a week.
That is 50% increase, meaning your ₦10,000 could increase to ₦15,000. It could also swing negative – but size of the risk appears low.
Why Penny Stocks?
Stockbrokers at SAMTL explained and untie some knots that often confuse people about small cap stocks.
While there is silver lining, there also exist golden bullets.
SAMTL explained that firstly, there is the strong argument of the relative ease of substantial price increase (and decrease too!), possible with penny stocks.
Penny stock investors reason that, in a relative sense, it’s easier to achieve massive capital growth in penny stocks.
It must be said, though, that losses are equally easy.
Secondly, it is a fact that certain stocks are really at price levels that can be considered out of the reach of small investors.
While a tiny 200 units of Company A would require let’s say N200 at current price, that same quantity of Company B might take only N160 to acquire.
Not a ground-breaking investment, by any chance, but if careful selections are made, a low-income earner could easily set himself on the path to financial growth by picking such affordable investments.
So, how do you identify and pick these stocks strategically for an optimum possible returns?
Obviously, there are factors to be consider as elucidated by SAMTL analysts.
According to stockbrokers, the key reservation about penny stocks is their high risk index.
Every investment has a risk factor to it, but penny stocks entail a much higher risk. Some of these reasons are:
Poor Information
Stockbrokers at SAMTL said penny stock are usually stocks of small under-reported companies.
Some, in the Nigerian context, would be found in the second-tier listing, where regulatory requirements for listing and post-listing reporting are moderated.
Some could be relatively new companies without much track record or old companies that have gone off the limelight due to prolonged unimpressive returns or other operational setbacks.
But, when you look at insurance stocks, even the highly capitalised one in Tier-1 ranking, their share price is not expensive.
You could comfortably see lower price in this segment. Sometimes, all you have to do is to research the industry.
If you can’t, seek professional advice.
Liquidity
Penny stocks are not always liquid, so, if you plan to sell, you have to put this into consideration.
There are blue-chip stocks (stocks of bigger companies) you can be sure of selling when you want, because somebody will be there to pick them.
It isn’t usually like this when it comes to penny stocks.
You could be stuck with them, at least at the time you want to sell and that could be a major problem.
Penny stocks are relatively less liquid.
In conclusion, investing in penny stocks requires careful evaluation to identify truly viable ones and with ₦10,000, you are good to go except you want to book more.
Stockbrokers specifically said penny-stock trading thrives for investors who can’t afford shares of Dangote or Nigerian Breweries, so one needs to be very careful of how you trade penny stocks.
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How to Use ₦10,000 to Buy Shares in Stock Market
