Maria Auma: Converting your Lose Change into Stock Options
Have you ever been faced with the dilemma of having a stack of coins and not knowing what to do with them? There are lots of ways to put your clinking coins to good use. Besides trading the coins for paper, we can also trade the coins for paper assets, i.e. stocks. Think about it, banks are the only place where one can walk in and hand over a stack of coins to the teller without looking like an idiot.
Yes, I know what you are saying – but the interest rate is too small, but the amount of shares I will purchase is too little. Don’t be deceived by how small the numbers on the stock market may appear. For such a strategy you need to think long term. The reason why a lot of investors cry that they are not reaping their long term benefits is two simple reasons:
- They started out late
- They want to cash out in the short term
It’s clear here that one is obviously a result of the other. You cannot reap where you haven’t sown. More importantly however, you need to sow in good soil with the right fertilizers.
There are two types of strategies when trading futures – the long term investment strategy (buy and hold) and the short term investment strategy (buy and sell). The long is generally preferred when you have ample time to sit and wait around for your investment to appreciate, for example in the case of a young adult graduate fresh out of campus. The short is when you are a little older and don’t have twenty or thirty years to spare, for example an adult aged 40. Notice that a 40 year old is better off trading short because he can reap higher capital gains now instead of waiting until he is 60 years. But in order to reap high capital gains, he has to select the best stock option. And in order to do that he needs to study the market closely.
The best ways to make money in the short term is at an Initial Public Offer. The subscription price is usually below the market price. The reason for this is because the owners of the company want to ensure that all the shares are fully subscribed too. So they will offer a lower price to the primary market. Potential investors will purchase the shares wholesale before the IPO date and then proceed to sell a huge quantity of their shares during the IPO. Usually an IPO lasts between 7 to 14 days, by which any profits will have made someone a millionaire or a billionaire. The more shares you subscribe to, the more money you will make. This was the case with alibaba (New York Stock Exchange) and UMEME (Uganda). Interestingly enough, in Uganda there was a lot of negative hype concerning UMEME about its performance during the IPO, but basic economics made some people a lot of money.
Most short-term investors are actually traders because they buy a share in exchange for a premium. There are a lot of things to consider when trading short term and one needs to employ a lot of tact when determining whether to short (sell) or to go long (buy). A good example is with KQ airlines. This was a prime candidate for shorting strategies for anyone who was watching the markets closely. Why? Because the moving averages have tended to move downwards in the past couple of months. However, monitoring moving averages is not the only thing that an investor needs to take note of. It helps to have insider information and to read the news. Why? Because this is where you will know whether a company is merging with another (which would be a good long-call strategy) or expanding to more outlets (which would mean higher operational expenses prompting you to employ shorting). It sounds confusing at first because it is in the beginning. However, the more often you trade, the easier it becomes.
The second way, which is the long term strategy, is to identify a company and invest in it by buying shares, wait ten to twenty years and cash out. It is even wiser to invest in your preferred stock over the years to allow it to grow profitably. This will give you more bang for your buck. Take your time selecting which company to invest in. Choose a company based on the following:
- Financial performance overtime
- Management team and Board of Directors
- Brand
- Customer Relations
- Strategy
- Dividend Policy
All of these companies display their financial records for the public. You will have ample time to review their books of accounts to see how they have been performing. Are they making profits, if so, do they pay dividends; are they making losses, if so, what are the debt restructuring techniques they employing to turn this around; Can you pick up profiles of the management team or board of directors running the show, if so, do they have the good faith to make the right calls for their shareholders; What is the brand like; is the product or service being offered scalable and affordable to a large majority? What are people saying about the company? How do they treat their customers? What is their long term strategy, do they have branches across the globe? Are their expansionist policies tenable?
These are a lot of questions that need to be answered before you invest for the long haul. Researching about a company will save you a lot of hard earned money or make you a lot more depending on which company you invest in. Remember, this is a decade long investment. You don’t want to lose all your money to liquidation down the road because you failed to carry out your own due diligence. And while you are at it, perhaps consider becoming a preference shareholder – just to cover your blindside.
About the coins – I confess this is what I do with mine.
Maria Auma is CEO of Blue Luxury Investments, Kampala, Uganda.
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