NSE #12: Stock Investment Strategy

There are a few stock investment strategies --

1. Investing in only dividend paying blue-chip stocks, to get yearly income from investment.
2. Investing in high growth stocks that may not pay dividends
3. Investing in only undervalued companies -- whether they are blue-chip or penny stocks.

Fortunately for us in Nigeria, the stock pool is so small that you can only apply one investment strategy -- value investing. Why? All the companies on the NSE that are worth investing in, pay dividends. So you can't say you want to be a strategy 1 investor by choice; there's no other choice. Also, Nigeria is considered an Emerging market (high growth market) and, by US standards, all but 13 companies listed on the NSE are Low Cap. Looking at the financial statements of all the companies, we've got only growth stocks and dying stocks. So you're going to end up as a growth investor; it's the only sane option.

The only strategy you'll end up using is finding great companies selling at bargain prices. This is called Value Investing. It's the best investment strategy for non-full-time stock traders [you and me]. Even billionaire Warren Buffet began his investment career as a Value Investor. If you want, I can mail you his annual letters of how he ran his investment partnership while starting out in his mid 20s.

It's about finding the true value of a company, it's future prospects, and deciding if it's worth investing in and at what price.

image: chestnutandcedar.com

And that's the only stock investment strategy in Nigeria [says the gospel according to me].

I will soon begin showing you how to figure out the true value (based on book value) of a company,how to give a reasonable consideration for it's future outlook and how to determine the maximum price to buy at.