What to consider before Investing in Shares

To buy or not to buy Uganda Clay Limited (UCL) Shares has been the big debate. This came at the backdrop of Uganda Clays recently announcing that a dividend of 1 Ugx per share was declared. Only shareholders whose names appear as at close of business on 23 February will be eligible to payment of dividend.
As at closing of the 3rd February 2016 each UCL shares was trading at only Ugx12 on the Uganda Stock Exchange. Meaning that if you bought 1,000,000 shares, you will be eligible for a dividend of Ugx1,000,000 come 23rd February 2017. The dividend will be paid from 10th March to 17th March 2017 to members on the register as at close of business on 23 February 2017.

Now, should you or should you not buy the UCL shares? The answer is it depends:

1) It depends on where you are going to get the money to invest. In this case the Ugx12,000,000 (or whichever amount you chose to invest) from. This is what we call opportunity cost. An opportunity cost represents an alternative given up when a decision is made. In investing, it is the difference in return between a chosen investment and one that is necessarily passed up. You therefore need to weigh the current return you are earning where the money is at with the promised return. If you put the same amount of money in your business, in T-Bills, in Mutual Funds or any other investment vehicle, what return would your earn?

2) It depends on your risk tolerance. This is the level of risk you are prepared to accept. Shares is one of the high risk high return investments. Shares go up in price, and also down. If you buy shares at a high price and the market falls, you may lose money. But if you buy more shares and the price goes up, you’ll make money on the sharemarket. Remember the Stanbic IPO? Investors laughed their way to the bank, but when the Safaricom one came, those who had borrowed to buy the shares were fleeing from their bankers

3) It depends on your Financial goals. Before you make any investing decision, sit down and take an honest look at your entire financial situation -- especially if you’ve never made a financial plan before. Could it be part of your asset allocation, diversification or rebalancing strategy?
If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals. Shares have an excellent long-term track record of generating wealth. If you choose your shares wisely, they’ll build your wealth better than almost any other asset — if you invest for the long term.

4) It depends on whether you resonate with the vision and values of the company you are buying shares into. Owning shares means you’re also a company owner. When you buy shares, you’re buying a share of the company’s assets and its profits. In fact (and in law), you’re a part owner of the company. Where is the company headed? Who is behind the wheels? what are their long-term plans?
The above are just the basics to consider, but the ultimate decision lies with you, to buy or not to buy.

To your success!
Lilian Katiso