Tips on investing

There is this massive talk globally about investment opportunities in emerging markets like China, India and other developing countries. Billion of dollars are moving from one country to another; reaping billions more for the investors who chose to invest in these ‘high risk’ markets. With Safaricom initial public offer (I.P.O) round the corner, Kenya is likely to join this global map and attract attention. This means that there is a chance for the supply of money to outstrip the supply of investment opportunities creating a stock bubble. As an investor, this new ‘era’ calls for new tactics, some that I will aptly share and others for which you must discover for yourself to prevent making massive losses.

In order to be a skilled investor, you must the first and most important step; separate your feelings and emotions towards a particular share or company and treat every investment as a separate entity from yourself. Many people see their investments as an extension of their self worth and get deeply affected when they make wrong decisions. You need to reach a point where you can say “I lost a million today but that’s but I will smile anyway”. Avoid going mad or entering into depression. You need to enjoy the whole investment experience and be sober enough to let go of any stock with no strings attached-no hard feelings. This will allow you to make the right investment decisions to minimize losses especially in risky investments.

The second thing that you need to do is control on your greed. Investing in stocks is a very sober activity- I repeat, investing in stocks is a very sober activity! This means that at all times you must not allow yourself to be overtaken by any temptation like greed that will throw out all rational thought out of the window. I normally set date deadlines and percentage earning for every share I investing in. For example, I will calculate the expected price that a given share can attain based on a number of factors say Ksh. 50 and then set my selling price which is normally below that target price say Ksh 45. I would then purchase the share at the current market price say at Ksh 30 and set a date on which I sell it, e.g. one month from the date of purchase if it does not achieve the given price, or strictly sell it at Ksh 45 even though that happens in two days or I learn the price might peak at Ksh 60. The additional Ksh 15 is not my profit but for some else. I have set my profit margin and strictly stick to it. This has helped me avoid making losses in overpriced shares like in the case of Uchumi and Sameer Africa.

The third thing, which actually, I have already started to explain, is to do due diligence on the company that you intend to invest in. Read any and every information you can lay your hands on before buying a given share. Be patient and understand its price swings, the market forces that affect it, its products and services amongst other things. Seek to understand all that’s in your ability to grasp and listen to others in the industry and hear their views, testing their motives of investing that particular share. This will help you make really informed decisions about the share and give you the assurance that you made the right decision to invest in the company with no regrets in the future. Chances are you will be able to spot opportunities that no one else sees and cash in at the right time.

Finally asses yourself and establish clearly your objectives for investing. By assessing yourself I mean discovering your risk tolerance, your capital outlay, and your temperament. This is to avoid getting heart attacks because you invested in highly volatile shares because your health is more important than any amount of money. You also need to invest in amounts that you can handle and afford loosing among many other things. Set your investment objectives like a need for a stable income, quick cash gains or to use the stock market as a form of savings for a house or your retirement days. This will really affect your share portfolio and investment mix. Once you have established your objectives and know yourself, I advice to stick to those objectives and to avoid investments that do not suit your character.

There are many more things to consider which you will learn as you gain experience in the stock market. I always say that before you make any decision in life; ensure you’re your heart, your mind and your spirit are in agreement with what you are doing. The stock market is no exception to the rule. Do not follow the crowds make your own independent decisions based on the above. You shall never be wrong and if you find that you have made any loss, you shall be able to live with yourself and your investments, wake every morning, look in the mirror and smile. Isn’t that truly fulfilling!