Zimbabwe stock market can boost your income

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For years, our sister paper The Herald, has been carrying the stock market price sheet on the back page of its business section every weekday.

Likewise, state owned broadcaster, the Zimbabwe Broadcasting Corporation (ZBC), reports on the stock market performance on its 8pm news every weekday. One would have expected the majority of Zimbabweans, who read these papers and listen to the news bulletins daily, to be active participants on the stock market.

Sadly, this is not the case.

According to Zimbabwe Stock Exchange chief executive officer Mr Justin Bgoni, through his Twitter handle:

“The need for ordinary Zimbabweans to participate on ZSE remains a big concern. With daily trades around 300 in a country of 14 million people, we have not yet cracked this.”

This was not the first time Mr Bgoni has tweeted about lack of participation by retail and individual investors on the equities market.

In June he tweeted that the average daily trades were as low as 250.

One would then ask; why the low participation on the buying and selling of stocks/shares by individual investors.

Years after the Zimbabwe Stock Exchange was established, why is it that the buying and selling of stocks is still regarded by many as a market for the elite and the well-to-do.

Interestingly, ordinary Zimbabweans indirectly participate on the stock market through their pension funds and insurance policies.

Did you know, the bulk of your contributions to pension funds such as Old Mutual among others, is invested on the stock market.

According to a 2020 first quarter pension funds report by the Insurance and Pensions Commission (IPEC), which regulates pension funds, more than 47 percent of pension funds’ assets are invested in the stock market.

In fact, NSSA and Old Mutual are the biggest investors on the stock market. This means the majority of contributors to pension funds are indirect participants to the stock market.

But despite the faith that such large institutions place on the wealth creation that comes from the stock market, it’s a practice that has remained alien to many Zimbabweans.

But what is a stock market?

A stock market, equity market or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses.

Investment in the stock market is most often done via stockbrokerages and electronic trading platforms.

The stock market has very low barriers to entry.  Almost anyone can own a publicly traded company’s stock and potentially grow their own investment account.

Actively trading and investing in a successful company’s stocks, helps to diversify your ability to create income.

This income comes in form of what is known as capital gains. This is when you dispose of your shares at a price higher than the one you bought at.

In simple terms share prices go up when there are more buyers than sellers. If that happens, you make unrealised profits. However, you only make real profits when you dispose the shares at a price higher than you bought them at.

Of course prices also go down when there are more sellers than buyers of the company you hold. If that happens, you will have an unrealised loss. However, you only make a real loss when you dispose your shares at a price lower than the one you bought at.

Apart from income that comes through share price appreciation, one can make money through dividend payments made by the company one is invested in.

A company issues dividend payments to reward investors with a share of company earnings.

Dividends are usually paid two times a year. 

The stock market can be both a wealth building and wealth destroying machine.

It goes through cycles of long term uptrends (known as bull markets) and long term downtrends (known as bear markets). It is thus important to know that the stock market is not the Holy Grail of riches where all you do is buy stocks and win.