How to begin investing in Stocks

1. Understand Listed Companies

Listed companies are those companies whose shares are bought or sold at the stock market. In Kenya, we have over 60 listed companies. The companies are divided into the following sectors;

• Agricultural 
• Automobiles & Accessories
• Banking 
• Commercial & Services
• Construction & Allied
• Energy & Petroleum
• Insurance
• Investment
• Investment Services
• Manufacturing & Allied
• Telecommunication

Note: A wise investor will always invest in two or more sectors so that they can diversify their investment risks. 

Every investor should have a deep understanding of those companies they are interested in investing because investing in companies that have been making losses may not be a wise investment decision. If the investor is not sure about the performance of a company they could always seek for investment advise from an expert.

2. Find a good Stock Broker

Brokers are mandated to trade stocks at the stock market because millions of people have stocks and therefore cannot be allowed to trade as it would make the market impossible to operate. Stock brokers send their dealers to the market to buy and sell shares on behalf of their customers. You can choose your stock broker from the list I have provided about stock brokers on an earlier post. I would however recommend stock brokers who have huge trading volumes and whose financial health is good because stock brokers are companies and some have closed shop with clients money. 

3. Open a CDS Account

A central Depository Account is an account where shares are deposited when you purchase them. It is equivalent to a bank account but rather than deposit money, the account is credited with shares when you purchase them. You can open a CDS account through your stock broker. Usually, when you buy or sell your shares, your stock broker will send you a monthly statement indicating the number of shares bought or sold and the balance of shares in your account. 

4. Deposit money with your Stock Broker

Once you have a CDS Account you are ready to invest and you can deposit money with your stock broker and issue them with a purchase order for specific stock(s). It is important to note that the minimum number of shares that you can buy is 100 shares from any company that is listed at our stock exchange. This means that if a stock costs Kshs 1 you only need Kshs 100 plus brokerage fee to start investing. Usually the brokerage fee is 1.8% of the amount you intent to invest and the fee is inclusive of other taxes and fees as well.

5. Build a Portfolio 

As an investor you should build a portfolio of more than two stocks. A serious investor will find analysis for stocks which should help them make the right decisions about which shares to buy. Some of the stock analysis that can help investors make a good investment decision include;

• Price to Earnings Ratio Analysis (P/E Ratio)
• Price to Book Ratio Analysis (P/B Ratio)
• Price to Sales Ratio Analysis (P/S Ratio) 

We will be looking at some of those analysis on this blog so that they can help us make the right investment decisions.