News Column

What Most Shareholders Don't Know About Stock Trading (II)

June 16, 2014

William Jimoh



Investors in the capital market like every other area of business are always particular about the return they derive from their investment. This often times, is the motivation for investing.

To shareholders in the equity market, these returns come in form of dividend and sometimes, bonus share and price appriciation which help them to solidify their investment base either by reinvesting on the same stock or looking out for another potential company where they hope to get more reward. Even when some shareholders who have been clamouring for a more robust market understand the benefits of trading on their shares, they still prefer to hold on to them awaiting the dividend no matter how small it may be.

Some minority shareholders, who spoke with Vanguard Investors Forum, explained some of the reasons why shareholders prefer to hold on to their shares.

Excerpt:

Sir Sunny Nwosu, National Coordinator, Independent Shareholders Association of Nigeria (ISAN):

The importance of trading on any company's shares is that it shows the viability of the stock and also helps to build up capitalisation, which is the strength of the shares. Trading also helps shareholders to go home anytime with something and that is the joy of the whole process, because when you are investing, it is a form of saving. For these reasons, shareholders cannot but be very passionate about their return which is dividend, it is because just like when you put money in the bank, you expect that interest will be paid to you and if the interest is not forthcoming, there is nothing wrong with you asking questions as regards non payment of interest.

William Adebayo, Chairman, Greenwich Shareholders Association of Nigeria (GSAN):

That shareholders hold onto their shares rather than trading on them will always remain a source of concern to stakeholders in the market as long as the fundamentals of such companies remain very sound.

For a stock like Friesland Foods WAMCO Nigeria Plc, makers of Peak milk, their fundamental is so sound that the shareholders that have their shares hardly sell or trade on it because, if you look at the market today, this is the only company that pays the highest dividend in Nigeria if not across the continent.

Their structure, fundamentals and past financial records are such that when you have their shares, you do not even think of selling or trading on it because you are sure of the return for which reason, you can go to bed and sleep because the future is bright for you.

Another thing with such companies is that their bonus policy is also very good meaning if there will be trading on such shares, it will be very minimal. That will, therefore, increase the price of buying it because many shareholders who can afford such stock will long to buy it. And the higher the demand, the higher the price.

It is only when such companies give bonuses which normally come in five years intervals that you see people off loading their holdings. Even when some shareholders are in need of money, they still hold on to it.

A minority shareholder will prefer to borrow money in the bank with interest than to sell his/her shares in Friesland, because at the end of the day, they know that the interest they will have to pay is nothing compare to losing their holdings in such company, which is like raw gold.

This is not applicable to listed companies alone. Unlisted company like MTN, the minimum unit you can buy is 4,001 in dollar and at the end of the day, when you convert this to Naira; it will be a million plus. Another reason is that companies in this category pay you dividend four times a year and Friesland also pay twice a year which is another reason why the company remains very relevant and those that have the shares will not trade on them.

Imagine if you have share in any of these companies in a moment like this when the Naira is becoming weaker everyday making it detestable for the holders to sell them for weaker currency. They do so with the mindset that the currency will be stronger and they can sell in the future to make more money.

Another stock you can talk about today in the capital market is Nestle, which most shareholders are unwilling to sell today. Most of them bought the shares when the price was between N200 and N400 and not as high as N1,083, which is the price today. They feel that if they sell now, they may never be able to buy it again.

Normally, if there is much demand, the price of the stock will go up and if there is more supply than demand, the price will fall and that is what has kept the price of these stocks high over the years.

If you are living in a country like Nigeria where the inflationary trend is very small, it is better you hold on to your rewarding shares because by the time you sell them, to buy them again, you will find out that your N100, 000 cannot buy up to 100 units, because the brokers will remove two percent as commission on each of the shares and there are other charges attached to buying and selling of shares.

The most important thing is for shareholders to buy share that have good fundamentals so that they can have an edge over inflation.

Oduyemi Olufemi, member, Nigeria Shareholders Solidarity Association (NSSA):

Shareholders are left with no other option than to hold onto their shares considering the economic situation in the country.

As investors, who have been in the market for long, we take the performance of the companies into consideration, and we also consider things like the owners of the companies and their Board of Directors in respect of any decision we make as regards their shares including when to trade.

Another thing we consider is in house information of these companies.


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Source: AllAfrica


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