Buying shares is one of the easiest ways to make money in Kenya.
A Short Explanation of How to Begin Making Money from Stocks
The rich deploy wealth preservation with tax shelters as the principal wealth-building strategy for which, over time prevent the gradual loss of value of invested wealth. It is difficult for the middle class was to do the same, hence they would poorer and poorer. It is then obvious that the road to true wealth is long-term and consistent investing in equity markets. Buying shares offer a great alternative for non-business owners to own businesses. Also, business owners are able to increase their portfolio businesses through leverage.
Hence the truth about investing in stocks and bonds can be summed up by Benjamin Graham when he wrote that:
“The real money in investing will have to be made – as most of it has been in the past – not out of buying and selling, but out of owning and holding securities, receiving interest and dividends, and benefiting from their long-term increase in value.”
So let’s break this down.
Making Money Starts by Buying Shares in Growth-Oriented Companies
The value should be at the centre of your decision when picking winning stocks to place in your million shilling share portfolio, as without it, you find yourself playing with numbers until the cows come home. Invest in a company that is going to do well in the long term and assesses whether or not you are ready to hold the stocks for a long time even though you don’t intend to. So there are no shortcuts here.
You have to do your homework to find the intrinsic value of the stocks trading on the NSE before picking your winning stocks, which mainly are the undervalued stocks.
How Much Money You Make Depends on How Your Capital is Allocated
Most of the time, non-experienced investors are too scared to buy shares at the right time. I would advise that you research and learn until you are not nervous anymore. Realize that if you did not research a stock and its value plummets, then it is your fault.
The success of your holdings within the company to a large degree depends may on the following decisions:
a. A company can reinvest the funds into future growth by making capital expenditures that are expected to increase profits.
b. A company can strengthen its balance sheet by reducing its debt or building up liquid assets.
c. A company can send you cash dividends for some portion or the entirety of their profits – this way you can return capital invested to use as you wish or reinvest the cash by buying more shares.
d. A company can decide to repurchase shares on the open market and hence reducing the number of shares in the market – reduced supply of shares will push up demand for shares hence the stock price will rise.
Any Money Made Boils Down to Total Return (Including Capital Gains and Dividends)
We use total return as the performance measure of any investment we make, that is its rate of return considered over a given period of time. For stocks, we consider capital gains and dividends earned over a given period of time.
Take a hypothetical company whose current share price is KES 10, growing at 20% for 10 years through a combination of both expansion efforts and share repurchases, it should be nearly worth KES 620 per share within a decade assuming the company maintains the same price-to-earnings ratio. On the other, within the same given period, the company pays dividends to you as a shareholder – so the total return would be the total earnings in dividends and capitals discounted to 10 years invested.
Understand that your stock wealth is primarily built on the following:
a. An increase in the share price. Over the long-term, the market valuing of stocks may increase due to increased profits as a result of expansion efforts by the company or share repurchases.
b. Dividends. When earnings are paid out at the end of the company’s financial year in the form of dividends.
Final Thoughts
The levers are within your grasp: so start now, add regularly and invest well. Here’s to your million dollar share portfolio! And perhaps even millions in dividends.
Happy Investing!
Meanwhile, You can click on the following links to read more on stocks and building wealth:
- Leverage: The Key to Amassing Wealth
- 3 Paths Of Wealth Accumulation
- 10 Laws of Building Wealth
- 9 Biggest Investor Mistakes & How to Avoid Them Like A Ninga
Disclosure: This information is provided to you as a resource for informational purposes only.
