“Risk comes from not knowing what you are doing” Warren Buffett
In this article I will be speaking specifically about investing in equities and not bonds. The Kenyan stock market has performed fantastically over the last few years or so especially some of the larger companies like Safaricom. I believe that Kenyan companies will perform very well compared to their global peers because of the infrastructure investment that is being made in the country as well as the positive demographics ie a young and fast growing population. Investing in equities is going to be very important for my journey towards financial independence, and not just Kenyan equities but I plan to start investing outside this country as well. The pros of investing in the stock market or equities is that:
- Equities have low unit value – you can invest with as little as 1,000 Shs as opposed to other investment forms like real estate for example which take a considerable amount of capital which puts it out of the reach of many people. I would really like to be invested in real estate but unfortunately I cannot afford it so I would rather build capital through investing in the stock market for now.
- Its a passive investment- meaning that you can own a piece of a great company but you don’t have to manage it or go and work there, all you have to do is sit and wait for the results and the dividends to come in.
- Its easy to invest – once you have done your research, all you need to do is fund your account and instruct your broker on what you want to do. There is no need to deal with brokers, employees , accountants or lawyers. With the CDS account your dividends are deposited straight into your bank account
I think allot of people have very unrealistic expectations about equities, in speaking with people I sometimes get the impression that they believe that they can invest a small amount lets say 10,000 Shs and that in a few years it can multiply to millions making them very rich. Well this is not true, investing in stocks is like investing in any other business. A good company will increase in value most years based on how much it can grow its earnings and earnings growth will typically be between 0% and 30%. So when investing in equities please be realistic with your expectations, equities go down as well as up.
I recommend that one invest a consistent amount every month or so no matter if the market is up or down, during bull markets you will buy less shares than during bear markets. As the Kenyan universe of stocks is quite small, I think eventually you should look to invest outside the country as your portfolio gets larger.