How to Create Wealth from Nairobi Securities Exchange

The Nairobi Securities  Exchange (NSE) is a good place to make money. Ideally anyone can make money from the buying and selling of shares at the Nairobi Securities Exchange.

Unlike other investments that require huge initial capital, you can start buying stocks with as little as KES 500 depending on the company (counter) that you are buying. For example as of today 28 Aug 2018, the CIC insurance is selling at about KES 4.50 per share. With KES 450 you can buy 100 shares of CIC Insurance Group Ltd.

To begin trading in NSE shares, you need to open a CDS account.

Any licensed stock broker can open a Central Depository System (CDS account) for you.These days you are not given a certificate as evidence for shares you own…all information is now managed via the Central Depository System.

You can get a list of Stock brokers on the NSE website. Pick a few of them, contact them and find out any charges like monthly fees. Some brokers like SBG securities do not charge monthly fee and have financial muscle being a member of Standard Bank Group.

Most stock brokers in Kenya now allow you to manage your account online. Before this, you had to travel to the stockbrokers office to place orders (Buy or sell). With online share trading, you can login from wherever to place orders( buy, sell), view statement online. You can read more on online stock brokers in Kenya. 

To open a CDS account, you will need your id card and photocopy, two passport size photos. Get more from the stockbrokers link above.

After you have opened a CDS account, ask your stockbroker on how to load the account with money. Most stock brokers have MPESA paybill or direct bank deposits. With funds in your account, you can now place you first buy order.

The stock broker will charge a small service fee of say 1.85 – 2.1% of the transaction value. Also note the Government will deduct 5% from the profit (share increase) as capital gains tax and you will get the rest.

There are two ways to make money on the Nairobi Stock Exchange.

Share value appreciation/ Increase in share price

In simple terms you buy shares at say KES 10 each. Then sell when the price goes up to make a profit. A good example now is the Safaricom share. During the IPO launch early 2008, Safaricom share was bought at  KES 5, the share has suffered in the market due to speculators and a large retail investor based…the shares were in oversupply as most of the retain investors decided to sell.  Today the share is trading at KES 29 (28 Aug. 2018). That means if you had invested one million in 2007/2008, you now have KES 6 million. That is 500%+ growth…for those investors who were patient. Its about long term….Avoid buying riparian land…invest in stocks instead. 

Dividends from shares

Using the Safaricom example. In May this year, Safaricom Plc announced KES 1.10 as divided per share on book closure 31 Aug 2018.It turns out if you purchase a good stock at a good price, you can make over 2% – 10% from this investment every year from dividend payments alone. So if you are an ambitious investor and you accumulate 1,000,000 shares…you will benefit in stock price appreciation and also annual dividend payout.

Share splits / Stock Split at Nairobi Securities Exchange

A share split divides a single share of stock into a certain number each trading at the equivalent fraction of the former price (The Snowball by Alice Schroeder). Assume Hawlast Ventures Plc share is trading at KES 600. In a 10-for-1 share split a shareholder will have 10 shares for every one held, and each share will commence trading at KES 60. Now for any one shilling increase / appreciation in value, you will be giving you as the investor KES 10….Your money will now be working for you.

How do you pick the stock to buy

Share price is affected by company profitability, the general economic outlook, future company outlook, stock liquidity, international economic situation, (example is 2008 financial crisis that led to mass exit from stocks),counties political environment etc.

There are are too many variables to consider before buying shares. The rule of thumb is this: buy a company that you are certain that will keep making profit in the near future… and keep investing the shares in the long run….disregard the short term market sentiment if it has no relation to the companies business fundamentals.

All listed companies provide financial results on their websites and you can monitor to see the profitable companies to buy.

Disclaimer: Talk to to you financial expert and lawyer before implementing any  the advice on this blog.