Common Investing Misconceptions at the Uganda Stock Market

Statistics have it that there are approximately forty thousand investors on the seven companies listed at the Uganda Securities Exchange. Fifty percent of these are amazingly Kenyan. Simple arithmetical reasoning will definitely tell you that there are approximately twenty thousand native investors at our bourse. Statistics at the Nairobi bourse are however quite enviable as there are approximately one million investors on the fifty - four listed companies. Well, you could argue that the Nairobi bourse is roughly half a century older than the Ugandan bourse. Such an argument could however appear far – fetched given the fact that for the solid twelve years of trading the bourse has only attracted a meager one thousand seven hundred new native investors per annum. The same analysis at Nairobi reveals that the bourse attracts roughly twenty thousand new investors per annum. If my simple analytical skills are anything to go by, then, something is definitely amiss. As I turned each and every stone to unearth this great disparity in statistics, several investing misconceptions that Ugandans hold came to light. It is my great pleasure to detail them to you.

A trading account is paid for

Top of my list is the general illusion that one has to pay for a securities central depository (SCD) account. An SCD account is akin to a bank account and it obviates the need for a share certificate when buying and selling shares. Well, should I confide in you? I opened mine two weeks ago. This is such a killer misconception. Just for the record, ‘It’s free of charge! ’ All you have to do is visit your favorite stock broker and request for one.

It’s a rich man’s ball game

‘How much do you need to invest?’ Take a wild guess please. Shares are bought and sold in blocs of one hundred shares. Let’s envisage that you opted for Uganda Clays Limited (UCL) shares. The share price as I wrote this was at Ugsh 40 per share. For one hundred shares, you needed Ugsh 4000 and obviously the broker’s commission, say 2.1% of the amount you intend to invest, hence amounting to Ugsh 4084. The most invaluable question to most Ugandans should be, ‘How much do we spend on airtime in a week?’ It’s a no – brainer. Everyone can buy and sell shares. Well, we could pass the buck of this particular misconception to the many stock brokers that require a minimum of Ugsh 100, 000 from retail investors but we must commend in particular Crested Stocks and Securities for their relentless efforts to avail trading opportunities even to a Ugsh 5, 000 retail investor.

It’s an easy way to get rich quick

Ask any Ugandan investor and he or she will attest to the fact that the Stanbic initial public offer (IPO) was a wonderful investment. On lookers during this IPO vowed to never let chances slip their widely open investing arms. Then came the Safaricom IPO. Safaricom, as it seemed, was quite a force to reckon with in the mobile technology industry. Mr. Investor who did not reap big from Stanbic thought Safaricom was a godsend. He went up to the hilt in bank debt and dreamt of the share price tripling and quadrupling only to be invited for a rude shock. Do you think such an individual would ever think of the stock market as a possible investment platform? Mr. Robert Baldwin, CEO crested Stocks and Securities, on that note, advises that only five percent of your savings should be deployed in the stock market and not any other type of money.

You need to be a financial genius to invest

Mr. Semakula is a farmer who seldom visits Kampala. Should we ask him whether an investment in shares is worthwhile, he would probably retort, ‘No thanks, I know nothing about shares and companies.’ Thanks to his honesty but let’s enlighten him with the fact that all he needs to do is shop for an investment advisor. Share price movements are affected by a whole lot of factors, say, a company’s latest acquisition of an efficient production machine and many more. Most folks however have this notion that the share price is dependent entirely on company financials. Such a notion is a rather misguided one. It therefore comes down to investment advice. As Mr. Baldwin recommends, a good investment advisor should be able to gauge a few critical elements. These are; risk tolerance, expectation gain and finally your intended investment timeline.

It’s my hope that you will earnestly reconsider your perceptions about the stock market and hopefully become an intelligent investor. Watch out for part II of this feature next week.