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Fire Your Share Analyst
Lack of knowledge of what it takes to make progress in the venture of buying and selling stocks has discouraged many potential investors from investing in stocks in Nigeria and beyond. Even most of those who already trade stocks often burn their fingers due to insufficient knowledge of stock analysis. It was the desire to lead such people that made Ayo Arowolo, my former Editor-in-Chief/Managing Director at “Financial Standard” Newspaper, Lagos, Nigeria, write this piece titled “Fire Your Stock Analyst”.
Arowolo, also the author of “The New Millionaires’ Capsules”, is a Reuters award winner who has been involved in financial education for more than 20 years as a financial and investigative journalist. He has worked for leading newspapers in Nigeria including the Concord Group, “The Guardian”, “The News” and “This Day”. Arowolo was the founder and CEO of The Investment Club Network (TICN), Lagos, Nigeria. He now speaks to audiences across the country, focusing on how individuals can take full control of their personal financial affairs.
The author says this text is designed to help personal finance consumers acquire the basic skills needed to make sound and prudent investment decisions. He adds that the purpose of the text is to create a simple guide that allows people to easily navigate today’s complex investment market. Arowolo emphasizes that the text contains a lot of practical advice that will help people to see the shortcomings they might have and how to turn those shortcomings to their advantage.
He teaches that one of the conditions for making money in any investment is to gain deep knowledge of a particular area of investment before making any financial commitment.
Arowolo explains that there is a banquet of prosperity in the Nigerian stock market, as it makes individual investors who invest in the shares of listed companies millionaires on a daily basis. However, he adds that many private investors also lose money in the market every day.
The text is divided into six chapters. The first chapter is entitled “Basics”. Here this author says that many people who put their money in stocks do not realize that investing in stocks is like buying a company. That is, you are a co-owner. Arowolo therefore advises that before investing your money in the shares of any company, you should ask certain relevant questions. As he says, “Would you, for example, invest in a company whose management you know nothing about? Would you put your money into a company without proper paper investigation to reveal the financial health of the company… ? Yet this is what many investors into stocks they do. They put their money in the hands of brokers who might experiment with their retirement money.”
Arowolo adds that this explains why many investors watch their financial wealth disappear on a daily basis. He emphasizes that a smart stock investor calls his broker only after researching the stocks he wants to invest in. The author claims that a smart investor would not rely only on what is written in the newspaper when making decisions because it is often already too late when the information is in the newspaper.
He advises that instead, you need to sniff around the company you want to invest in and gather relevant information that can help you make informed investment decisions. Arowolo says interestingly, this exercise is usually not as difficult as many people think. “Do you know, for example, that if you know how to read the daily official list of the stock market, with a little analysis using published company accounts, you can make intelligent investment decisions yourself?” he asks rather rhetorically.
On the choice between putting your money in the bank and investing in stocks, the author says that if you put your money in the bank, you can only get back what is called “interest”, which is your reward for letting the bank use your money. He points out that, however, if you invest in the shares of a good company, you can get what is called a “dividend”, which is a portion of the profits made by the company distributed to shareholders. Arowolo stresses that in addition, if you decide to sell your shares, you can get capital appreciation if the price you sell is higher than the price you bought the shares at. He educates that some companies also reward shareholders with free shares, or bonuses.
The second chapter builds on the theme of the beginning. Here, says Arowolo, before you invest in stocks, you need to clearly define your objective of buying stocks. The author advises that you must first determine and understand your investment objective, before even starting to inquire about investment opportunities. Arowolo argues that jumping into stock investing without a clear goal is a recipe for confusion and disaster in retirement.
He teaches that the next step is to look at industries that have growth prospects that you can consider. According to Arowol, part of your research at this stage is also to find out key economic indicators and how they would affect industries. He adds that you also need to find out if there is any government policy that can positively or negatively affect the target sectors and ultimately the companies you want to invest in. The author says you should also evaluate companies whose stocks you may want to include in your investment basket.
According to him, “factors you can consider include history of dividends and bonuses…, history of sales and profitability. You can also decide whether to include companies whose shares are selling below N10:00 (penny stocks) or expensive stocks. In this you can’t do extensive analysis at this stage. The goal is to make sure you don’t waste time analyzing stocks that are worthless in the first place. You don’t have to go through the entire list of listed companies before I decide on a few to consider.”
In chapters three through five, Arowolo analytically X-rays the concepts of stock market interpretation; work alone; and the Moneywise analysis process.
Chapter 6, the final chapter, is based on the subject matter of the Moneywise Guide to Company Analysis. Here the author quotes John Maynard Keynes as follows: “The social goal of skillful investment should be the defeat of the dark forces of time and ignorance that have enveloped them.” Arowolo points out that one of the hobbies you can develop as a stock investor is to learn how to use publicly available information about a company, especially its annual accounts, to determine how good a company is.
He emphasizes that it surprisingly does not require any special skills; nor does it require you to be an accountant or an economist. In Arowolo’s words, “Once you have a basic knowledge of the components of accounts, balance sheets, profit and loss statements, and cash flow statements, and with determination, you can pretty easily determine the health of the company you’re researching.”
Stylistically, this text is okay. Arowolo inserts enlightening quotations to achieve conceptual reinforcement and lend authorial credibility to the text. Moreover, he also uses graphic embroidery to achieve visual reinforcement of the reader’s understanding. The language of the text is simple, and the concepts are convincing.
However, some errors were noticed in this text, but Arowolo collected these errors and corrected them in a section called “Corrigenda” on the first page. He probably noticed the mistakes after printing the text.
In general, this text is intellectually rich. It is highly recommended for those who want to be successful investors through good financial and investment knowledge.
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