A majority of Kenyans still thik that NSE stands for Nairobi Stock Exchange even after rebranding to Nairobi Securities Exchange. Well, The NSE or the Exchange as it is commonly known is the principal bourse in Kenya, offering an automated platform for the listing and trading of multiple securities.
The Exchange is the sole licensed exchange in the country established in 1954 and it continues to avail new products including; Exchange Traded Funds (ETFs), Financial and Commodity Derivatives, REITS, Carbon Credits and Mobile based products like M-Akiba.
The products traded at the Exchange are Shares and bonds which are basically money or financial products. Another name for Shares is Equities, while Bonds are also known as Debt Instruments. The instruments attract returns to the investor in terms of dividends and coupon payments respectively.
The securities market is divided into two; primary market which is where new issues Initial Public Offering (IPO’s) are first offered and the secondary market being where already existing securities are traded.
A share represents partial ownership of a company and a majority of companies’ issue stocks to raise capital. Investing at the exchange has no standard amount and an investor only considers the risk profile, time horizon and savings mode in order to partake.
Step One: Setting Investment goals, objectives and Statement
Before partaking to invest at the bourse, one should establish and understand the aims to be accomplished from the investment as well as the period to be taken based on how much one plans to invest.
When for example your goal is to invest in the shares, one should either have a long-term goal or short-term to take advantage of share price increase. Setting of one’s investment goals is key in helping one choose the various investment vehicles to invest in. Having clearly defined investment objectives is the basis of the investment in securities.
Step Two: Selection of Investment Vehicles
Having set the investment goals and objectives, an investor visits an intermediary of the NSE also called a stockbroker who will help in execution of the investor’s orders, offer investment advice and analysis for the investor so as to align the goals with the products at the bourse.
The investor here is assisted in doing an extensive analysis of the investment vehicles. This is done through either Fundamental analysis or technical analysis of the vehicles. This will make the investor make an all-inclusive decision at what kinds of investment vehicles to invest in, the period to be taken, and the risks involve, returns and the amount to be invested.
Step Three: Formation of A well-Diversified Portfolio
Having selected the investment vehicles in guidance with the stockbroker, an investor is further helped in forming a diversified portfolio aimed at mitigating risks and raising the expected returns. The process here entails mixing different securities say shares and bonds or shares from different companies based on the efficient market hypothesis-EMH forms. This means that the performance of each security is independent and any losses are easily offset by the gains in another. It is highly advisable that investors exercise portfolio diversification so as to reap high returns from the Exchange.
Step Four: Portfolio Revision and Opening of CDs Account
Here the Investor is taken through a revision of the investment vehicles and then opening of the Central Depository Account. The CDs account is a mandatory requirement for one to trade at the Exchange. The account is opened by a Central Depository Agent that includes stockbrokers and investment banks.
The account gives an investor an electronic platform on which one monitors and trades the securities. The Central Depository system that holds the CDS account is managed by the Central Depository and Settlement Corporation CDSC that was established in 2004. This means that one doesn’t need to be given a paper certificate as a shareholder. This step is where the investor is led into the actual process of investing at the bourse through the various vehicles. The process marks the beginning of investing at the Exchange for any investor
Step Five: Portfolio measurement and Performance evaluation
Having invested into the securities, an investor here now keeps an eye on the bigger picture of monitoring the performance and adjusting where need be. It should be noted that share price movements are due to information and any changes will affect the value of the investor. The investor through the guidance of the stockbroker or investment bank must thus closely monitor the movements to offset any losses and mitigate risks involved.
The worth and performance of a company are considered as the biggest factors in the determination of stock prices. The investor can thus buy or sale securities based on the price movements and goals. This marks the end of the investment process through which an investor gets to partake the exercise at the bourse as they say ‘At the stock market you have to behave as if you take a bath in cold waters: jump in, and get out again quickly.’
The exchange must adhere to bring on board the middle class individuals to partake into the NSE investing rather than leave them to engage in gambling and other betting products. To learn more about NSE trading, check out the annual NSE Investment challenge. All in all, remember, “Everyone has the brain power to make money in stocks. Not everyone has the stomach.” Peter Lynch.
Article by Martin Kuelekho