What is your share?
I am always encouraged when readers promote what should inform discussions in this column at any point in time. And so l was last week when l received an interesting email from an ardent reader of this column.
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In all, what this reader wanted to know was what it meant “to be a shareholder of a company”.
In summary, this was what his submission was about: “Bernard, l have read a lot in the newspapers lately about a bank trying to raise capital through the Ghana Stock Exchange by offering shares. The bank has also gone ahead to advertise for people to buy those shares.
“l am a bit confused because l would want to buy some of the shares on offer but at the same time l would want to have my money when l need it. What does it mean to be a shareholder of a company?
“Is it really okay to buy shares because we always hear of stock markets crashing but we don’t hear of people receiving their money back after the crash! I need to read your comments on this please”.
Well, over the years, l have had to deal with issues of this nature in this column constantly, so l had to do a quick search in my files to see if l could find something similar ever sent to me.
Checking through my files, l noticed that sometime in 2009 a similar question was posed to me by a reader, who sought to find out, at the time, as to whether it was still fashionable to invest in shares.
His question was premised on the financial market meltdown of 2008, following a global crisis that had hit most of the world’s leading financial sectors.
Equities were worst hit, as markets nose dived and pension funds suffered. All stocks were hit though, but equities suffered the more as its “ordinary” status meant that in the event of liquidation there wasn’t much priority accorded, as compared to loan stocks.
Today, share ownership is back in the news in Ghana because of a considerable number of corporate actions on the Ghanaian Stock Exchange, notably, an offer of shares by a leading Ghanaian bank to raise some capital.
The offer has been, in the main, lauded as significant to the stock market as it deepens the market in many ways.
Offering an opportunity for buyers and sellers to engage in a vibrant way because of the offer is one important act that the managers of the exchange view with pride but equally engaging their attention is the fact that once the process is over and the shares are duly listed and therefore traded in, market capitalisation will also go up, which could improve the exchange’s appeal.
Let us now turn our attention to the question of what it means to be a shareholder of a company and possible consequences. Naturally, most of us are risk-averse. Not many of us would like to venture into the unknown that easily.
This is one of the reasons why it is very difficult to convince people to invest their money in certain types of businesses or even in the bank. To some, a bank can still lose their money so they prefer to keep them at home!
It is this attitude to investment that has led people to argue, sometimes, that there is no point in holding shares since in their view the stock market is a capricious and dangerous place.
It does not fit in, as far as their investment plans are concerned; just as the reader sought to put across because he wanted to have his money back, even when he was holding shares!
Well, the view by those “stock market averse” may have a grain of truth in it, but it does not obscure the fact that if you know what you are doing, the arguments for holding shares are just as good as those for holding unit of a growth fund.
Holding shares is still a good thing despite all the noise about its dangerous or perhaps unreliable nature.
Over the years, studies have proved that in the long run, shares have earned much better returns than rival investments like bonds or deposits, and that total equity returns are well ahead of inflation.
It does not necessarily mean that you will make money out of shares at all times. Of course, markets can move up and down, and investors who are reckless and time their deals badly can lose money.
It is all to do with your understanding of the market, literally. The argument is that with a sensible strategy and a long-term view there is no reason why investors should not do at least well out of shares, as they do out of pooled investments, like the collective investment schemes brandished around these days.
Well, there is this obsession with T-Bills in Ghana simply because of its “risk-free” nature and the guaranteed returns at the end of its term.
Everyone is doing it and therefore not surprising that today most Ghanaian banks, as part of their assets and liabilities management strategies have resorted to buying T-bills, as bad loans portfolio grows. Therefore, the little investor can be excused for following the “gurus”.
Bear in mind that when it comes to taking a position in shares, before jumping in at the deep end, it is always advisable to decide what sort of investor you are. There are good reasons why you should invest in T-bills at a particular point in time and not shares. Therefore investing in shares may not be good for you at all times.
What you need to consider mostly is whether you are looking for growth, income or a mix of the two before you make up your mind on which instrument to invest in.
For those who are a lot more exposed to the language and technique of finance, they may consider other factors too. You should also decide how actively you want to be involved, that is, whether you are going to be a regular trader or you just want a portfolio which doesn’t require much attention.
Well, the dynamics are not as difficult as has been portrayed here, as you can always use the services of a licensed dealer in these securities market. The basic conclusion is that a shareholder has a “share” in the business and therefore a part-owner, no matter how little the holding is.
That shareholder enjoys income in the form of dividend when the company is doing well, and capital growth when the share price rises because, again, the company is doing well.
Beyond that, it is also an investment avenue where you stand to lose it all should the company go under. So it is the risk and reward dichotomy that plays out here.
