Investing in the stock market

The stock market is a market where shares of companies are traded. The market is regulated and the companies have to comply with applicable laws and regulations. In Uganda the stock market is managed by the Uganda Securities Exchange and regulated by the Capital Markets Authority. A company can list its shares on the stock market by going through a process called an initial public offering (IPO).

During the IPO the company invites the public to buy shares by issuing a prospectus. The prospectus has a lot of disclosures about the company including its ownership, business performance, compliance with laws and basically it enables a prospective shareholder to make an informed decision on whether they should buy the shares or not.

Once you buy shares in a company you become a shareholder.  As a shareholder you become a part owner of the company and this entitles you to voting rights at the annual general meeting and also to a share of the dividends of the company. You can also sell your shares at the prevailing share price in the stockmarket. As a shareholder you don’t participate directly in the management of the business. Rather you can vote for the board of directors who run the business on your behalf.

To participate in the stock market you need to open up an account with the Uganda Securities Exchange. You then find a broker who helps you to place your orders to buy shares in the company of your interest. 

You need to do your research before buying shares in a company. You need to research about the company, what it does, its management, its financial performance, etc. All this information can be found in the company’s annual report. You can also look at their website. You can talk to customers. You can talk to employees. You can try to assess the viability of your investment by talking to a financial advisor.

The share price of a company is determined by many factors including demand and supply forces, the underlying business performance, the general economic performance, the quality of management, and many other factors.

There are different approaches to investing in the stock market and the approach chosen will depend on whether someone is an aggressive investor or a passive investor.

A passive investor is looking for moderate returns with very low risk which implies that a passive investor will only invest in companies with a proven track record fairly stable share price and a good dividend record. She will hold onto the shares for a longer time. On the other hand an aggressive investor is looking for very high returns and is willing to accept a higher level of risk so they may invest in high growth technology startups and similar companies. An aggressive investor will tend to trade more frequently.

There are two ways to make money in the stock market you can either sell your shares for a profit or you can earn dividends. Make sure you buy great value stocks to make money in the stock market. A great value stock is one whose share price is below the actual value of the business.

To reduce your risk in the stock market make sure you have a diversified portfolio of shares. You should also diversify outside the stock market in things like land, business, bonds, etc. You can also invest in different stock markets to mitigate country risk.

Investing in the stock market can produce extraordinary returns and it is definitely something you should explore.

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