Ask Double A

In this edition, we take on yet another question sent in by a reader of this column.  In the next edition, I will unveil how we can work together in 2013. See to it that you do not miss it for anything.

How do I invest correctly in Stocks?

Many thanks for your insightful weekly articles. I need your advice urgently. I believe I am not investing right and I have made up my mind to correct everything and start properly. I have investment in the shares of about 45 companies quoted on the Nigerian Stock Exchange. I am confused on how to track them. How much shares should be ideal for my portfolio and what tips do you have for me as I rework everything?

From experience and from interactions with some of my friends who have invested successfully in the Stock market, I would suggest that you try to limit the number of shares in your portfolio to a range of between five and eight at the most. To succeed in any investment endeavours, especially in the stock market, you need to be laser-focused. To succeed, you need to have quite a lot of information on the companies that issued the shares you are buying. With as many as 45 stocks in your basket, this assignment becomes difficult.

The truth is that you do not gain any special advantage collecting shares anyhow. You can make even more money from three on which you have enough information than 45 stocks on which you have very limited understanding of their dynamics.  This may sound very funny, but I have friends who could not tell readily which shares they actually have in their portfolios. They just accumulate as they are inspired without following any principles. Some have shares of companies that were long gone out of business in their portfolios. You must have adequate understanding of the components of your investment portfolio at the least to achieve success.

The first step you should take in moving forward is to get your portfolio of shares screened and reconstructed. You should sell off those that are not contributing much and use the proceeds to buy more of the stocks that have done well and are likely to do well in future given your investigations. Prune everything to about eight initially, and ultimately, you could stop at a sizable number of about five.

Second, in pruning, you should allow your investment objectives to guide you. Think through your reasons for investing. Is it for regular income or for long-term keep? Do you want to speculate on all or on some?  Would dividend income matter to you? When you are sure of your objectives for investing, you can then accumulate the types of shares that would meet these objectives. If you are a speculator, you should not try to buy certain shares that have achieved some level of maturity and are not likely to witness any dramatic price appreciation. The suggestion is that you should pick stocks that match your investment horizon or temperament.

Third, it would also be wise not to restrict your selection to one sector only. You should research into about four to five industries and pick the best shares from each of them and include such in your portfolio. It would mean, for instance, that if you have seven stocks in your portfolio, all of them should not be from the same sector, banking for instance. You should consider other industries that have the prospects for growth. This insulates you from total disaster should things go awry with your sector of choice in the market. Even at that, you should regularly review the stocks and the industries for the purpose of weeding out stocks and industries that do not meet your investment expectations. Do not be emotional at all about the exercise. Remember it is your money and your life, really. It is worth giving enough attention.

If you intend to speculate, you should have entry and exit strategies and be disciplined enough to follow your plans. Greed is the number one emotion you have to eliminate if you want to achieve success in your investment in the stock market.  In addition, you may want to further diversify your risk by looking outside the market.

I believe strongly that you are on the right path. Someone once said that once you are on a wrong destination, every bus stop you reach is a wrong bus stop. It is better to stop and retrace your steps and do things correctly rather hoping and wishing that things would correct themselves. I wish you good luck.

How Do I Decide the Passion to Pursue?

I am a very creative person.  I won’t say I have passion but passions. I can come up with 10 ideas in a week and this continues anytime I am alone. I also have multiple skills. I can sing. I can dance. I can draw. I can make people laugh. Surprisingly, I am a graduate of Microbiology. My concern is: which one is my passion and how can I identify it?

You are not alone. A normal human being, research has shown, can have between 500 and 700 ideas he or she can tinker with per time! If you are pushed to the wall, for instance, there are things you would discover you can do. Any time I travel abroad, I am usually amazed at how quickly my friends cross over to other skills. I have friends who studied Mass Communication in Nigeria but had to study Nursing to be able to work abroad. Some studied Medicine in Nigeria but had to switch to Information Technology (IT). Every human being is so wired to multitask.

Here is a line you should ponder on. Nobody is an accident on this earth. There is a special assignment you are created to accomplish before you return to your maker. You must discover this assignment and commit every cell inside of you into accomplishing it. Nothing else would give you fulfilment. Money won’t. Material possessions won’t. Your spouse won’t. The discovery of this purpose comes at different times. Some can know what they are here to do from birth. Some discover this at 30. Some do at old age. Your passion is something you can do even if you are not being paid for it. Real living starts once you discover this. And it gets interesting when you are paid for it.

The discovery of your assignment can come from different sources. You can discover your assignment through difficult problems you face. For instance, someone who goes into personal bankruptcy many times because of wrong investment moves can turn the situation around and become a guru on how to help people get out of financial difficulty. In that case, he does not need to consult any book; he is the book on bankruptcy!  The challenges you face are usually not meant for you. The ultimate intention of the Higher Power is that when you fix the problems, it would be easier for you to teach other people how to fix same problems.

You can also discover your passion by observing what constantly engages your mind and attention. There are certain desires that come to your mind regularly. Pay attention to such and take time to know more about such. If you concentrate very well, one would become dominant. That may be a clue as to what you should be doing.

Your personality is also key. God specially created everybody with certain personality traits. Some have analytical capability. Some can be creative and so on. While it is possible to combine multiple personality traits, it is likely that one would dominate. Focus on the dominant one and nurture it carefully.

You can also ask people around you to let you know what they think you are good at doing. You should not be surprised that people can read you accurately. Your spouse should know what you are good.

Irrespective of how you came about your passion, including developing a skill, my advice is that once it is discovered, devote everything you have to nurturing it until you become a brand in that area. Bill Gates dropped out of school when he discovered that his passion for IT would be frustrated by the academic environment. Tiger Woods started to play golf at a very tender age. I suggest you take inventory of every interest you have and zero in on one. This may have nothing to do with what you currently do. Let me also advise you not to compare yourself with the next person. It is the easiest way to derail. If you text your request to the number above, I would recommend one great book that would open your mind on how to discover your passion. All is well.

Yours in pursuit of enduring wealth

Ayo Arowolo

PS: Feedback: In order to serve you better this year, I would want you to spend about five minutes to give me your feedback on the column . Let your feedback cover the following:

•What I have gained reading the column. Be specific

•What I think can be improved on. Be specific

•What I would like the column to cover in the coming weeks

•Any other suggestions

Send your feedback to [email protected]

Everyone who sends a feedback would get a email containing the recommended books ( at least three) from my mentor .