To start a hugely profitable business, more frequently than not, one may require a group of investors behind their back. Single merchants do not raise capital alone. Therefore, it becomes inevitable to form an alliance and pool their savings. The savings are used to start businesses as partners or co-owners. These investment groups are often formed by people with mutual agreements. Each partner’s contributions to the business venture are representable by a unit of ownership. This was the precursor to what is currently referred to as shares. This procedure has contributed to the foundation of joint-stock companies.
Initially, trading in shares began in informal hawking in the streets of London. This changed eventually as the volume of shares increased as more companies floated shares. This gave more people opportunities to buy shares. Their need for an organized marketplace for the exchange of these shares escalated. Consequently, the traders decided to hold meetings at a coffee house and they used the marketplace. Eventually, these coffee houses evolved and the marketplace became the stock exchange market. This occurred in 1773, and the first stock exchange the London Stock Exchange was established. Financial intermediaries such as investment advisers, investment banks fund managers, and brokers and instruments such as bonds followed suit as an inevitable consequence.
Considering the origin of the stock market, one can describe the Nairobi Stock exchange as a market that deals with the exchange of shares of publicly quoted companies and government-corporate and municipal bonds among other instruments of money. Established in 1954 as a voluntary organization for stockbrokers, The Nairobi stock exchange market is one of the most active markets in Africa. It is located in the Nairobi Center on Kimathi Street on the first floor.
Shares are referred to as financial instruments, whereby one may acquire ownership stakes of a company rather than an IOU statement. Returns are either fixed or guaranteed. One acquires voting rights and they can benefit from the exceptional performance. Bonds on the other hand are financial instruments that serve as an IOU. Investors and returns are fixed and guaranteed. Additionally, no benefits or voting rights are exceptional from the normal performance of a company. One can acquire shares and bonds in the primary market, where the company is issuing them.
One may acquire them from the secondary market, where one buys from investors who already have shared. This form of trade is in more frequently use than the primary method. They are also very predominant in the Nairobi stock exchange market. When one purchases a share, they often earn a share of the company and when they purchase a bond, they become creditors of the company. The shareholders gain a fraction of the company’s profits in terms of dividends. However, bondholders receive a certain percentage of interest on their bond value in intervals depending on the agreement they make with the company. This will occur until the bond matures and the principal is payable back by the company. A collective name for Shares and bonds is securities.
It helps mobilize domestic savings and hence it facilitates the reallocation of financial resources from dominant to active agents. Additionally, it liquidates the long term investments as the transfer of securities shares and bonds among the public participants. Lastly, through the exchange, companies can engage local participation in their share ownership thereby giving Kenyans a chance to own shares of reputable firms.
Additionally, companies can also raise extra finances which might be important for the development and expansion of the business. To raise funds, companies may offer extra shares and the issuer offers a prospectus, which gives all pertinent details about the operations and prospects of a company, while simultaneously stating the price per share of the Issue. They enhance the flow of international capital. Stock markets also facilitate the government’s privatization program.
Firstly before purchasing securities in terms of shares and bonds, one should decide on what company they want to buy in. During the selection process, one should implement due diligence and ensure the company is a somewhat strong or growing company. Choosing a company to invest in requires effort. There are different methods that people use when researching which company to invest in. Firstly, they use fundamental analysis which includes studying the company’s current management and position in the market. Secondly, they use technical analysis which is a method that relies on charts. In this process, they identify the trends the company has and they invest accordingly.
After deciding on which company to invest in, one needs to select a broker or an investment bank to use. The reason why this happens is that only a stockbroker or an investment bank can place an order to buy or sell securities for potential customers. One can reach the two via email, call, or through visiting their offices, and thereafter you can make an order.
During the contact process, the investment groups and the stockbrokers may relay the order to the floor traders. The floor traders, in turn, do all the actual buying and selling as they have a seat on the stock exchange. After the purchase of the securities, the stockbroker or investment bank is in charge of the rest of the work to complete the transaction. One should always ensure they consider different factors before selecting stock. These factors may be found here.
The market order is the most basic order. Here one just asks the stockbroker or investment bank to purchase or sell the securities at the best price they can get their hands on. The second type of order requires more research and prediction on one part it is similar to a limit order. In a limit order, one tells the stockbroker or the investment bank to trade only when the stock is at a certain price or better. A stop order is the third type of order and an investor can save an investor from an extreme loss. In stop order, an investor tells the broker to sell his or her securities if the price drops down below a certain specified level.
More often than not, investors invest anticipating their capital to increase as they expect prices to rise eventually. This enables them to make capital gains. Other investors purchase shares for investment income, this means they rely on dividends. One may advise such investors to invest in firms with concrete dividend declarations policy and histories. Investors with substantial financial resources may buy shares while intending to control the company through owning more than 50% of the issued capital. The marketable and transferable attribute of shares also facilitates the purchase of the shares for sales or as a means of exchange, Other investors purchase these shares to use as collateral security for raising loans.
In conclusion, shares may be a lucrative venture to invest in. It is however important to research the best companies to invest in. Through shares, one may gain several benefits. If one is looking to expand their investments, then one’s Chama may look into purchasing shares of a company.
Categorised in: General
This post was written by Martha Adhiambo
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