DETERMINING STOCKS TO INVEST IN

One main question that investors the world over would appreciate a simple straightforward answer to is; “How do I know what to go for and when”. Unfortunately, there is no clear-cut answer to this question. Brokers usually have a list of recommend shares ranked under a time or risk continuum. This is normally quite general. The decision on the shares to invest in should take into consideration a number of factors against which you as the investor should then identify those stocks that fall into this criterion from the recommended list or even explore other unrecommended options.

Cash Outlay

Shares identification will largely depend on whether you are bringing in a lump sum amount or you plan on Drip-feeding you trading account. A lump sum approach enables you as the investor to spread out your funds over a number of counters in different industries thus diversifying your risk. It also gives you a chance to balance out your portfolio down the risk reward and investment horizon gamut.

Drip-feeding implies that you will be putting in a certain amount over certain intervals such as monthly or quarterly or uneven intervals. One of the main things that make investing in the stock Exchange stand out from other investment channels is the relatively low entry requirement. With a 100 minimum shares requirement, you can start out with as low as Kshs. 10,000 and gradually build up your portfolio. There are two strategies you can use to build your portfolio with drip-feeding approach;

1- Buy a few shares in a number of counters, and then keep adding the shares in these counters with every subsequent funds input until the shares in those counters hit your target.
2- Buy a substantial amount of shares in a single counter with each funds input.

In my opinion, option 2 has a better result. Buying a substantial amount makes you appreciate capital gains much better. If you for example buy 100 shares of three different counters and each goes up by Kshs. 10, this translates to a Kshs. 3,000 profit. If on the other hand you decide to go for 1,000 shares of a single counter and the price appreciates by Kshs. 5, you reap a Kshs. 5,000 profit. The strategy also gives you a chance to analyze the market with every outlay as you identify the potential counters at each investment point.

Investment Horizon

Stocks to invest in will also depend on the amount of time you wish to have the funds in the market. As mentioned in one of my earlier articles, please do not take funds that will be required within the year into stocks. For any funds required within the year, the 91-day and 182 day Treasury bond should be considered. Funds that can be invested for anything above a year can then be balanced between stocks and bonds. The balance will depend on the third factor, the risk Threshold.

Risk Threshold.

This is quite personal since only you can tell how strong your heart is to absorb loss shocks, as this is bound to happen, and how much of this loss you can absorb. If you are a risk taker, then you can go for an equity filled portfolio, and even experiment with risky stocks, if you are a risk averse, your portfolio should then capture less risky counters and could also be padded with some Treasury bonds.

Based on your personal analysis of these factors, you can now pick out a portfolio balance that best suits you and your requirements.

MARKET REVIEW

Investors and potential investors on the Kenyan Stock Market seem to be having a lot on their table with regards to where to put there funds and how split it to ensure a piece of everything. What with the Kenya Re IPO expected in the first quarter of Year 2007, Mumias Sugar Public offer of the governments 18% holding also expected over the first quarter, and a number of other companies having expressed their interest in listing their shares. Looks like Kenyans will be quite busy over the coming year as the market rivals the political arena in getting top attention.

Strong results trickling into the bourse are adding to the dilemma as the prices soar higher despite the rising Treasury bill rates currently at 8% on the 182 day Treasury bill and 6.7% on the 91-Day Treasury bill.

Kenya Power reflected a 29.4% appreciation in net profits on the end year results released yesterday, 28th September 2006. and attributed this largely to increased fuel costs recovery. These results came soon after Kengen’s strong results release, which saw the share price hit a Kshs. 36.75 on yesterday’s trading. Unga Group recorded a second consequent year on profits albeit much lower than over the previous year at Kshs. 36 mn. Down from the previous years Kshs. 72.5mn. The decline was attributed to an adverse effect by the avian flu scare on the animal health and nutrition business.

Uchumi also seems to be reaping the fruits of all the efforts its management have been putting into waking the wounded giant. Reports show that the supermarket’s sales now exceed Kshs. 200 mn. Per month, an impressive 87% increase over the same period last year, while earlier closed branches are gradually being re-opened. Even the sleeping Sameer is now stirring to life as it’s price, which had dropped to a low of Kshs. 13 now playing at around Kshs. 18.

With almost everything seeming to shine in the limelight of success, there is just no telling where the market is headed to and how long it will take to reach there.