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Giba Proposal
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WHY INVEST IN SHARES (QUOTED STOCKS)
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Shares or stocks are the individual units that make up the ownership of
companies or organizations.
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The main reason why one will choose to invest in shares is to make returns that
are superior to what one can get from fixed interest instruments that are
obtained in the money market.
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Shares of publicly quoted companies can be purchased through the capital market
on the Nigerian Stock Exchange while shares in privately held companies do not
enjoy these benefits.
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The returns expected from investing in shares come either in the form of
dividend pay out, capital appreciation, issuance of bonus shares or purchase of
rights issue at a discount.
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Dividend pay out refers to the money apportioned out of earnings or the profit
after tax, to be distributed to all shareholders. It could be between 20 to 50
% of the earnings for a particular year depending on the dividend policy of an
organization.
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Capital appreciation refers to the difference in the price at which shares are
bought on the Nigerian Stock Exchange and the price at which they are
eventually sold. This is actually the one aspect through which investors make
the most returns.
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Companies can increase their share capital by issuing bonus or scrip shares to
investors simply by capitalizing some of their retained earnings. This is a
form of return on investment because the shareholders do not have to pay to own
these new shares, hence the term bonus.
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With the use of rights issue, a company plans to raise fresh capital from the
stock market through its shareholders but at a discount price from that at
which it is currently trading on the floor of the Nigerian Stock Exchange. The
discount in this case is the benefit or return accruing to the investor.
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Choosing to invest in shares requires some financial artistry involving the
understanding of some basic indices such earnings per share, dividend per
share, net asset per share, price earnings ratio, dividend yield, margin which
is same as profit after tax divided by turnover or gross earnings, return on
shareholders fund, fixed asset per share and long term debt per share etc.,
inflation, foreign exchange difference and their evolution from year to year,
over say five years.
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Presently we have created a database with all these indices and via our
recommendations, you are able to decide and know when to go in and out of the
market in order to take advantage of the four benefits of dividend pay out,
capital appreciation, bonus issue and rights issue.
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