Welcome to the second last series of the share investment articles that I will be covering. I am really challenged on time but I hope that you will learn a thing or two in the scanty articles that I have been publishing. If you have not yet read those, please revisit the followings:
In today’s article, we are covering my views on what you should consider before deciding whether or not to invest in the shares.
The first consideration that you should be looking at is whether or not you can afford the shares. Do you have the money to buy the shares in your bank account or in savings somewhere to buy there shares? If yes, you can proceed with the additional considerations below. If not, perhaps you can read the remainder of the articles for future reference. The last share offer that was done to the public, I had friends asking if I can lend them money to invest which I personally do not think it is a good option. The banks were also offering loans to buy shares but I can almost guarantee you that the interest on the short term loan will exceed the benefit you will get the share ( at least in the short to medium term).
Second consideration that you should be looking at is the competitiveness of the shares to other similar company trading in the same environment as well as the returns those shares has been yielding for investors. In a Namibian context, the other banks that are really comparable to the standard bank shares are FNB, Bank Windhoek and Letshego. What are their share prices currently trading at? Compare that to what you are paying for this share? What have these shares being paying as dividend over the last year? This will help you determine whether the share is priced appropriately and the dividend that has been forecasted is realistic.
I am unfortunately do not have the latest information on the various share price but if you look at the Republikein of any week, you will be able to see the share prices that the comparable companies are trading at. ( Market watch section)
The third consideration that you should be looking at is your intention for buying the shares. Why are you buying the shares? Are you looking at a short term investment or a long term investment? Some people buy the shares because they believe that the share is undervalued ( i.e selling below valuation) and believe that it will appreciate in value within a short period of time so that they can sell it at a profit. This is normally a short term view which is also a more riskier than a long term view. With a long term view, you are concerned about the dividends that you will be getting from the share in the long run as well as the increase in value of the shares. This means that should the company share decrease in value over the next two years and no dividends are paid out, you will not have sleepless nights because you know with time the market will correct itself.
Finally one must look at the risk attached to the investment. If you already own shares in the other banks , you will probably want to look at how diversified your risks are? The global economic outlook is not looking any better in 2020 and hence companies ( including banks) can expect pressure on profits. Banks are making lower margins on loans granted out as customers have more options. With no new government work that are being issued out, this also means that people are not borrowing that much so the risk attached to your investment is almost higher than it would been if the economic outlook was positive.
With the above considerations, I think it is a personal choice to buy or not buy the shares. Do you have the money? Do you believe the share price is worth it? Why do you want to buy the shares and are you willing to take on the risk?
The choice is yours