Investing in the Stock Market: What You Should Know

10 min readJul 15, 2024

In September of 2021, Wise Money Africa published an interesting post on Instagram. They asked the question: A brand new iPhone 13 or Apple Stocks? To help you make a decision, they looked at the price of Apple shares in January of 2019, about the same time the iPhone XS Max was still hot. The share price at this time was $35. A new iPhone XS Max had a baseline price of $999.

For the price of a new iPhone XS Max, you could buy 25 Apple shares. Fast forward to September of 2021, those 25 Apple shares were worth $3,785: almost four times what they were worth in January of 2019. This is June of 2024. As of the time of writing this post, the Apple share price is $196.89. Those same 25 shares would be worth $4,922.

The intention of this post is not to tell you not to enjoy the good things of life. After all, you work hard, so you deserve it. The intention is to let you realize the power of investing.

The Stock Market

The stock market exists to allow companies to raise money from the public. Bank loans can be expensive and risky. However, if they sell millions of tiny fractions of their companies to everyday people, they can invest that money into new products, bigger research projects, and new ventures.

As the owner of a tiny fraction, you own a bit of the company. Where the company pays dividends, it should get to you also. The growth of the company is reflected in the value of your investment. Just like the value of those 25 Apple shares rose 393% between 2019 and 2024, the value of your ownership also grew.

On the flip side, where the company is not doing well, maybe due to product recalls, scandals, or financial misappropriation, your investment also takes a hit. So, for instance, if Apple went through a rough patch, and the value of their shares fell by 10 percent in February of 2019, the value of those 25 shares could go down to $899, losing about $100 within a month.

Some Hard Truths About Buying Shares

It won’t make you rich overnight

Warren Buffet, the investment genius, started buying shares at age 11. It took him roughly 21 years before he was able to accumulate his first one million dollars. Notice that I used the word “accumulate” and not “made”. Today, he’s worth over one hundred billion dollars.

Shares are not like cryptocurrency coins that can be 10x overnight. Shares reflect the value of a company. It is rare for a real company to 10x in value overnight. An exemption is Gamestop’s stock price in 2021, which has since dropped massively in value, making it a terrible stock option. Real and sustainable growth takes time. Look at the chart below. Nividia is currently one of the most valuable companies in the world with a market cap of $2.97 trillion. It is on its way to overtaking Apple, which currently is the most valuable company in the world with a market cap of $3.02 trillion.

Notice the growth of Nividia. In December of 2023, the share price was at $466.27. When the market closed on Friday, the 7th of June 2024, the share price was at $1,208.88. In the past six months, it has grown by 159.27%. Now, that’s sustainable growth.

Let’s bring it back to you, the young and budding investor. You’re a Nigerian with NGN 100,000 to invest. Let’s say you invested it in Nividia in December of 2023. That money would have grown to NGN 259,270. Did your money increase in value? Yes. Did you become rich? No.

Invest only what you can afford to lose

If your Q2, 2024 goal was to invest in shares and you bought Zenith Bank shares on April 1, 2024, your investment would have been drawn down by 25.28%. So, on your NGN 100,000 investment, you’d have about NGN 74,000 left.

Now, if this is all the money you have in the world, you’re most probably going to have palpitations and fears, and you may do what most people would do, quickly withdraw what is left for the fear of further losing your money. Your money, your choice.

However, a business won’t always have a smooth ride. The roads would be rocky at times. It won’t always be profit and profits, you must be ready to shoulder losses at times. This is why you shouldn’t invest what you can’t afford to lose. Your rent is due in a month, but you want to risk it in the market for a quick 10%? That may be a very wrong move.

Morgan Housel noted in his book, The Psychology of Money, that you shouldn’t invest what would make you lose sleep. If you catch yourself checking the value of your investment every minute, maybe you should invest in something else, because the markets will test your patience and resilience. I promise you that.

The market does not move in a straight line.

‘To the moon’ was a common phraseology during the crypto boom. Many people wanted to get on the next hot coin. Some got rich, some got nothing, and some others got the rug pulled under their feet. Instead of heading to the moon, they fell into the pit.

Many people don’t know that the market does not move like a linear graph. It is more of a line graph. Here’s an example of the two types of graphs:

Credit: Javapoint.

(A) In this diagram is a linear graph — a straight line. (B) is a line graph, it has lows and highs on the way to the top.

Take a look at Transcorp’s share price chart:

It looks like The Rocky Mountains in North America. It is never straight. The meaning of this is that you might be up 5% today and down 4% tomorrow. However, if you shut out the noise and let it play out over time, you’re most likely not losing. The chart above shows Transcorp’s share price falling. That’s true. However, if you look at the price from December of last year, you’re still not at a loss. The chart above is a six-month chart. Below is a one-year chart:

As of December of 2023, the share price was NGN 6.90. By the close of the market on the 7th of June 2024, it was NGN 10.30; a percentage growth of 49.28%.

The market does not move in a straight line. It is never linear.

Avoid the fear of missing out.

To be honest, you’re not missing out on anything. Your money is still with you. Before you invest, analyze. Be clear-headed. Let me tell you about Gamestop.

Gamestop prides itself as the largest video game retailer in the world. It is a Fortune 500 company and it is publicly listed on the New York Stock Exchange. Before 2021, GameStop had struggled for years due to declining sales, increasing competition from digital game distribution, and the general shift away from physical retail. In 2020, the stock price went as flat as $1.40. Hardly was anyone buying Gamestop shares. Suddenly, on the 25th of January, 2021, Gamestop’s share price went 2100% in a single day. The price got to as high as $81. This was an insane move for a struggling stock. A lot of people jumped on it at that peak expecting it to go higher, but it hasn’t gone higher since then. Here’s the chart:

Stephen A. Schwarzman, the Chairman and CEO of the Blackstone Group, in his autobiography, What It Takes: Lessons in the Pursuit of Excellence, noted that in investing, you want to be selling at the top and buying at the bottom; and even while you buy at the bottom, be sure it is the bottom. Many of those who bought Gamestop didn’t heed that advice. Today, Gamestop sells at $28.22. Imagine you bought at $80 hoping to get ‘to the moon’.

The fear of missing out is a virus that makes potential investors feel like a deal is just too good to miss out on. So, they put their hard-earned money on a bullish run that might have peaked or be peaking soon. Instead of analyzing the fundamentals, you rush into it in the hope of getting your cut, but you end up getting caught in return. Price starts to adjust and the run declines; you’re now stuck in between selling or holding.

Intrinsic Value

Warren Buffett has a methodological and mathematical way of calculating intrinsic value. I am not the best at maths, but the closest definition I can give at any time of day is that: intrinsic value denotes the following:

the strength of the brand
Share earnings in the past five years
Share price growth in the past five years
Competitiveness
The strength of their products
The chairman or brand figure

Let’s take an example. Apple is a strong brand that has delivered admirable earnings to its shareholders over the years. The share price has grown from year to year without taking a break. It has built an ecosystem and a pull that keeps drawing new customers into its ecosystem. Apple, a single brand, currently owns 20.8% of the world’s smartphone market.

iPhone users get software updates for up to seven years. That’s how strong their products are. Finally, Tim Cook has successfully built on the solid foundation laid by Steve Jobs. Now, this is the kind of company I would put my money on. It checks all the boxes for me. I don’t need to go through their balance sheet and income statement; these tell me all I need to know.

If you conduct this test before you invest in shares, you’re most likely not going to lose your money. However, if you put your money on a stock because of a bullish run, you’re more likely to lose your money. A smart business principle is that you should invest your money in a brand that has continuously shown potential.

A little aside from stock market investing; a lesson I learned early in life is that you should hardly invest your money in the idea phase of a business. Instead, invest in its growth. Let it show some promise first.

Patience is Key

I was just having a conversation with a friend who is a seasoned futures trader. We were talking about market returns and profits. If you booked (made) 20% profit on your capital in a quarter, that’s a good one. However, if you are looking to make one million Naira out of one thousand Naira in a shortfall, you might need to consider armed robbery or allied businesses. In investing, profit is built over time.

Warren Buffett made his first million dollars after buying shares for about 21 years, and six years after starting a partnership. It is not that automatic.

The patience to grow your capital over time is what builds wealth for you. Moreover, there will be times when you make little profit or even losses. This leads to the concept of compound interest.

The Miracle of Compounding

Compounding is said to be the 7th wonder of the world. Morgan Housel started his book, The Psychology of Money, by telling the story of a janitor who retired with about $8 million. How did a low-income earner with little education amass that much? Compounding.

The janitor invested what he could from his little income over the years in the stocks of reputable companies and indexes. This grew into millions by the time he retired. Here’s an illustration that might help. If you invest NGN 10,000 monthly for 15 years, you’ll get a compound interest total of NGN 6,778,630.94. If you keep the same amount in a safe for 15 years without missing a month, you’d have NGN 1,800,000.

Compounding is how Warren Buffett became wealthy. The principle is that by reinvesting the capital with the interest, your investment grows exponentially. At the onset, the growth might be slow. This is because your capital is still growing. As your capital grows, so do your investment returns. This table illustrates this:

On this table, your annual investment contribution stays the same at NGN 120,000, while your interest grows. You might notice that in the first four years of investing, your investment stays below one million Naira, but from the 5th year, the growth starts to be more substantial. You can find the compound interest calculator online.

Conclusion

Investing in the stock market is a powerful way to grow your wealth. By owning stocks, you gain a share in the companies, some of which may even pay dividends. Consider setting aside a certain percentage of your earnings each month to build a future nest egg. However, it’s crucial to thoroughly research these companies, remain patient, avoid greed, and leverage the benefits of compound interest. With careful planning and informed decisions, stock market investing can be a rewarding strategy for long-term financial growth.