BACKGROUND
This document seeks to direct the minds of its readers to the benefits of investing in stocks and shares. Many people either do not know in detail, or have not given serious thought to the idea of investing in shares. Others who are interested may not have the time to go through large volumes of literature on the subject, nor do they have the time to listen to long (sometimes-boring) lectures from stockbrokers. Effort is therefore being made here to present readers with brief, clear and direct information on the subject. No attempt will be made at covering all and any conceivable aspect of the matter. However, it is hoped that those who read through the material in this paper would have enough information to either invest in shares or, at least, begin to ask the right questions.

THE NIGERIAN CAPITAL MARKET
The Capital Market is the mechanism for the redistribution of long-term funds. (From those who have the idle funds, i.e. investors, to those who need such funds, i.e. companies). It is the opposite of the Money Market, which concerns itself with the dynamics of short-term funds. To put the market in proper perspective, it will suffice here to say a few things about the key players in the Capital Market.
The Investors: These are the owners of the capital invested in companies that produce goods and services. They bear most of the risk associated with investment in such companies just as they enjoy most of the capital gains and dividends. Major decisions, which affect the fundamental structure and objectives of the company, are taken by the shareholders in General Meetings.
The Companies: These are the issuers of the stocks and shares, which the investors purchase in anticipation of dividends and capital gain. Whether these companies do well or not depends on a complexity of macro and micro factors among which are: political stability, fiscal policy, liquidity, inflation, management, marketing and advertising, etc.
The affairs of these companies are conducted by their respective Boards of Directors (who are removable by the shareholders) and their Management team. Companies are of different types, each
differing from the other by virtue of the nature its ownership, limitation of liability, legal status, etc, etc.
A Company could either be a Private Company (LTD) or a Public Limited Company. (PLC) The difference lies essentially in the maximum number of its shareholders, disclosure standards and other statutory distinctions. Also, a company could either be “limited by shares” or “limited by guarantee”. In the event of liquidation, the former limits the shareholders’ liability to the value of the shares, which they hold while, in the latter, the liability of the owners is limited only to the amount they have guaranteed to pay.
The Intermediaries: These are the persons and institutions serving as bridge between the investors and the companies as well as between the investors themselves. They include Stockbrokers, Issuing Houses, Investment Advisers, Banks, Registrars etc. How well these intermediaries carry out their responsibilities impinges on the dynamics, efficiency and transparency of the Capital Market as a whole.
The Regulatory Authorities: They set the rules for the issue, purchase and sale of shares as well as provide the enabling environment for exchange of shares with money.
They encourage enlightenment of the public; foster competition between the key players as well as prescribe, enforce and review disciplinary action for violation of established rules of operation. They include the Securities & Exchange Commission (The apex regulatory organization for the Capital Market) ; the Nigerian Stock Exchange (a self-regulatory organization) and the recently established Abuja Stock Exchange. It is pertinent to mention here that the Federal Government has begun to implement the decisions contained in the White Paper on the Odife Report, which sought to streamline/restructure the entire Capital Market. These include the promulgation of the Nigerian Investment & Securities Decree 1999 and other recent policy pronouncements of the Government in this area.

TYPES OF SHARES
For clarity of presentation, stocks are defined here to mean a block of shares. Share could simple be defined as a set of rights and obligations which a person has in a company, evidenced by a certificate or other generally acceptable instrument. In this paper, share should be read to include stocks.
The major types of shares are:
Founder's Shares: These are special shares usually allotted to the founders of a company to protect him (or them) from future expropriation.
They are now phased out in public companies, as they are no longer allowed under existing regulations.
Preference Shares: These are shares carrying special rights and which usually entitle its holders to a first right to dividends before the other categories of shareholders. Preference shares could be Cumulative (the unpaid benefits of a particular year are added to those of the following year) or Non-cumulative; Redeemable (the owners could ask for the cash value of their shares at a future prescribed time) or Non-Redeemable; Convertible (could be converted to ordinary shares) or Non-Convertible.

Usually, the portion of the annual profits to be distributed to Preference Shareholders is expressed in percentages.
Ordinary Shares: These are the predominant shares of a company. They usually have a standard value (par or nominal). In case of liquidation, ordinary shareholders are paid only after all other creditors and preference shareholders have been settled since they are regarded as the residual owners of the company. They usually constitute the majority of the shareholders. This paper will proceed on the premise that only ordinary shares are being discussed since they constitute about 95% of all the shares (equity) in the Nigerian Capital Market.

INVESTMENT DECISION: WHY SHOULD I BUY SHARES?
Whenever a client presents himself to a Stockbroker, the first question usually put to him is why do you want to buy shares? Understandably, the probable answers to this question are varied. There are some that have no definite reason. Others are influenced by emotional considerations. A client once said that he bought the shares of a certain bank because it was essentially owned by states of his tribal origin. Needless to say that the bank has gone into liquidation today. Another client pinned his interest on the charisma of a Company's Chief Executive Officer.
To put it succinctly, three major objective factors could inform a person's investment decision. They are:

The Savings/Investment Factor: Shares provide a person with an alternative savings/investment avenue. While saving in a bank account is attractive mainly due to availability of cash at short notice, the diminutive effect of inflation on bank savings makes investment in shares a more viable option. It is well known that shares provide better hedge against inflation when compared with cash.
The future value of shares (including all dividends and capital gains) almost always surpasses that of cash. Moreover, the rights attached to shares provide the holder with some form of corporate empowerment which cash does not. For example, every shareholder has a say in the governance of a bank in which he holds shares but only few, very high profile customers could have any influence the governance of that bank.
The Speculation Factor: Some clients simply want to trade on shares mainly for short-term profits. They therefore concentrate on shares with propensity for price appreciation. Not much consideration is given to the company's interim income streams (i.e. dividends). Just as returns could be high for speculators, the risk of total or substantial loss could be just as high.
The Target Investment Factor: This is usually applicable to those whose primary aim of buying shares of a company is to achieve goals other than (or, in addition to) income or growth. Usually, such investments are limited to a particular target company. For instance, where an investor is interested in becoming a director of a particular company, he could continuously mop-up large chunks of the company's shares through the Stock Exchange until the shares become sufficient for the desired purpose.
In other instances, an investor could be interested in becoming a distributor of a company's products. He progressively buys up a reasonable percentage of the company's shares and thereafter persuades the company to consider him for product distribution, on the basis that he is a major shareholder.
An investor is therefore expected to reflect on these options and decide what his Investment objective is. This will enable the Stockbroker to determine the type of shares to recommend to him

RIGHTS OF SHAREHOLDERS
Generally, the rights, privileges and liabilities of shareholders are as prescribed or influenced by:
1. The Nigerian Investment & Securities Decree 1999
2. The Companies & Allied Matters Decree, 1990
3. The Memorandum and Articles of Association of each company, and
4. Common Law, Equity and other statutes relating to the rights and obligations of shareholders.
However, the following are some of the basic rights of shareholders:
Right to receive notice and to attend all the General Meetings of the company and to vote therein: This gives the shareholder, irrespective of his holding, the right to ask questions and proffer useful suggestions on how the company could be efficiently and profitably run. A Company is required by law to hold an Annual General Meeting (AGM) once a year and not more than eighteen months is allowed between one such meeting and another. At this meeting, shareholders are presented with the financial and general affairs of the company. They are called to approve the accounts, approve dividends, elect directors, approve remuneration of Auditors etc, etc. Any General Meeting other than the Annual General Meeting is called an Extra-Ordinary General Meeting. Such ad-hoc meetings become necessary whenever there are fundamental issues requiring immediate action and cannot wait till the next AGM arise.
Right to Receive Accounts: A shareholder is legally entitled to receive the Balance sheet, Profit & Loss Account and other statutory information relating to the company. This enables him to review his position as a part owner of the company and to divest if he is no longer satisfied.
Right to Dividends: A shareholder is entitled to share in the profit of the company by way of dividends. It must be noted however, that dividend cannot be paid unless the Board of Directors of the company declares it.
Also, dividends are expressed on a pro-rata basis in relation to the shareholder's total holdings. For example, dividend of 50k per share declared by X Company Limited will be multiplied by the1000 shares owned by Mr. A to arrive at N500.00. This is then paid net of 10% withholding tax. Dividend warrants have an initial life of 6 months but could be revalidated after 6 months at the request of the holder. Where a shareholder does not cash his dividend within 12 years, the cash value returns to the company for re-investment or other purposes.

Right to Preferential Allotment:
Where the Board of Directors of a company deems it necessary, all or part of the new shares of a company could be first offered to existing shareholders.
Where a shareholder rejects all or part of such shares, then other fellow shareholders, and subsequently, the public would be invited to purchase the remaining shares. This is called RIGHTS ISSUE. Many people who are not financially disposed when Rights are offered often ignore the Rights Circular thereby losing their rights and diluting their holdings. Happily, the Nigerian Stock Exchange has now made it possible for shareholders that do not want to purchase their Rights to sell such rights on the floor of the stock exchange. This new arrangement has now made it possible for shareholders to get some benefits from their Rights, which they totally lost in the past because they could not pay for them.

WHAT A STOCKBROKER CAN DO FOR YOU
In developed countries, companies and individuals retain Stockbrokers just as they retain Doctors and Lawyers. People remain in constant touch with their Stockbrokers to monitor their share portfolios and to send them timely, profit - driven instructions.
There is no exhaustive list of what your Stockbroker can do for you, but the following will suffice:
To buy or sell shares on your behalf.
This is the traditional service rendered by Stockbrokers. The procedure for buying and selling shares is outlined in this document.
To advise you on the current market value of your shares.
A stockbroker is equipped with the professional skill to advise you on the current market value of the shares you already have or wish to purchase. The Nigerian Stock Exchange publishes the prices of shares on a daily basis and this is a standard reference document on the price of quoted shares in Nigeria.
To track lost or unclaimed dividends and certificates on your behalf.
A shareholder usually encounters problems whenever he changes his or her address or post box number without notifying the Registrar. This could lead to the loss of dividend warrants or certificates due to him. At other times, the negligence of the Registrars could lead to the use of incorrect or incomplete addresses.
In all such cases, your Stockbroker could investigate the matter and collect all outstanding items on your behalf for a modest fee.
To assist you to transfer the shares registered in the name of your dead relative to your name.

In this case, your stockbroker will advise you to retain services of a Lawyer who will first obtain Letters of Administration (in the case of a deceased person who died without executing a Will) or Probate (in the case of a deceased person who left a Will) After the Lawyer's job, a Stockbroker will help you to complete additional processes at the Registrar's office after which your name will be endorsed on the certificates of the deceased relation.
Thereafter, you can sell, pledge or howsoever deal with the shares in the same way that the original owner could have dealt with them in his lifetime.
To manage a share portfolio for you.
Depending on your investment objective (dividend, capital gain or a combination of both) you could deposit funds with your Stockbroker who will use his professional skills to invest in shares with high potential for price appreciation. The ultimate objective here is to grow the funds at a rate higher than a term deposit account in a bank.
To assist you to raise capital from the Capital Market for your business expansion or establishment.
If your business is profitable but you lack the capital for expansion, your Stockbroker could advise on the prospects of raising funds for this purpose either by Private Placement or even through a Public Issue. You may however be required to produce sufficient information, carry out some organisational restructuring or even sell part of the business to others in order to make the business look attractive to the investing public.
To give you general advice on investments.
You will benefit immensely if you habitually ask your broker for advice on investment related matters.

HOW TO TRANSFER SHARES
Transfer of shares from one person to another is guided by rules and usage’s of the Nigerian Stock Exchange and other related Laws of the Federation of Nigeria. These rules are well known to Stockbrokers who are available to advise you. It is amazing that a lot of people do not know much about the Nigerian Stock Market. For instance, many people still believe that shares can only be purchased when a company issues shares for public subscription. That process (known as Primary Market Transaction) is only one of the ways by which shares can be bought. After the public issue, those who bought the shares can still sell them at any time on the Stock Exchange through a Stockbroker. This is a Secondary Market Transaction.
The following general steps are followed when shares are being transferred:
Purchasing Shares: A client who wishes to purchase shares goes to a Broker to instruct him. Where the client is already definite about which shares to buy, the process becomes simpler. But where the client does not know what he wants, the first step will be to have an investment interview to determine his background and his objectives. He is then advised on the shares that will suit his objectives. He issues a mandate letter to the Stockbroker, signs Transfer Forms, provides funds for the purchase of the shares and collects an official receipt therefor. The client's funds are deposited in the Stockbroker's Trading Bank Account in readiness for trading at the Stock Exchange.
The Stockbroker obtains an account number for the client at Central Securities Clearing System (CSCS) and goes to the floor of the Exchange to bid (demand) for the shares. If the bid is successful, the Stockbroker processes the client’s documents and lodges it with CSCS. The stockbroker then issues the client with a Bought Contract Note which indicates the number of shares purchased, the price, transfer charges and the total amount payable for the transaction. The CSCS will on demand, at any time after 3 days of the transaction, issue a statement of holdings as evidence of the shares purchased. The shareholder can use this statement for any purpose, which he would with a share certificate.
Selling Shares: Whenever a shareholder requires cash he could instruct his Stockbroker to sell his share certificates. The price at which the shares will be sold is the ruling price at the Stock Exchange on the day the shares are traded. On receipt of the share certificates, the Broker will, after independently confirming that the certificate actually belongs to the client, issue him with a Scrip Receipt while requesting him to sign Transfer Forms and issue the mandate letter for the transaction. The certificates are then sent to the appropriate Registrar for verification of signature. Clients are normally advised to always keep a record of the specimen signature they used for the purchase of their shares to avoid difficulties in future verification exercises. One helpful way to deal with this problem is to have photocopies of each Transfer Form signed by you.
Where the Registrar declares the client's signature as irregular (there is a difference between the original signature and the present one), the physical presence of the shareholder before the Registrar or any other acceptable means of identification could cure this defect. In other difficult cases, the client could collect a signature confirmation letter from his bank since this is acceptable to most Registrars.
Whatever the method adopted, once the Registrar verifies the shares they are deposited at the Central Securities System Limited (CSCS).
Once deposited at the CSCS and duly acknowledged, then the Stockbroker may offer (sell) the shares on the floor of the Stock Exchange. If a buyer is found and a deal is done, then the Broker returns to the office to issue the seller with a Sold Contract Note indicating the price at which the shares were sold, the deductible charges and the net amount payable. Before 5 working days, the proceeds of the sale will be automatically transferred to the selling Broker’s Trading Bank account through the automated inter-bank settlement system (known as NIBSS). The selling Broker will then issue a cheque (less commission and charges) to the selling client. In general, the speed of a sale transaction depends on whether or not the shares being sold are in high demand at the time.
Nominal Transfers: Where a person wishes to transfer shares to his son or wife bearing the same surname, the process is described as a nominal transfer. Nominal transfers are getting quite popular these days as an effective means of settling one's inheritable shares amongst one's children and relatives while one is till alive. This eliminates the trauma often experienced by the widow and/or children of a deceased person over Letters of Administration, Transmission, etc, etc. After the nominal transfer, the original owner could still keep the certificates if he doubts the capacity of the beneficiaries to handle the shares responsibly due to immaturity.
In the event of death, no further processing would be required since the transfers would have already been effected. The beneficiaries would only have to regularise the signature and thereafter can then sell, pledge or use the shares for any other purpose.

SHARES AS SECURITY FOR BORROWING
Today, stocks and shares rank as one of the best forms of collateral for obtaining credit facilities. This is essentially due to the relative ease of verification, perfection and realisation. Borrowers and lenders find it more convenient to handle shares than landed property (due to the long and tortuous perfection and realisation process usually associated with the latter). First, the price (or value) of shares quoted companies can be readily determined by consulting the Daily Official List published by the Nigerian Stock Exchange. In other words, valuation of shares is not only objective, but also transparent. Since these prices are not static, it would be appropriate for the lender to use a convenient cut-off date (for instance, the date of approval of the loan).
Secondly, once the certificates are valued and verified they can be sold without much difficulty. The borrower, of course, would be asked to sign all necessary documents entitling the lender to sell in event of default. Thirdly, the borrower still enjoys all the benefits of his holding (e.g. dividends, bonus and rights issues) even though the original certificates have been deposited with the lender or are otherwise encumbered.
The following simple steps govern the perfection process:
The borrower approaches a bank with a feasible proposal (e.g. LPO from a blue-chip company).
The borrower presents his share certificates, signs Transfer Forms as well as other lien documents. Where the borrower's shares are in the CSCS, the borrower submits the CSCS statement of share holding along with signed Transfer Form and letter of authority from the borrower to sell the shares.
The bank evaluates the companies which shares are being pledged to determine whether they are stable companies on the basis of which shares a loan can be granted.
The bank then determines a forced sale value of the shares. Usually, 25% to 40% margin of safety is discounted from the value of the shares to arrive at a reasonable forced sale value.
Where the bank is satisfied as to the suitability of the shares as collateral, the certificates are sent for verification at the respective company Registrars. In the case of shares in CSCS, the statement of share holding is confirmed at CSCS.
For physical certificates, once the shares are verified, the lender is free to allow the borrower to collect the money. In the case of shares in the CSCS, the bank notifies CSCS of their intention of lend money based on the shares and CSCS places a holding charge or lien on the shares, so that they cannot be sold without the lender’s consent.
Once the borrower repays the loan, the bank returns the certificates to him. In the case of shares in CSCS, the bank informs CSCS of the repayment and CSCS removes the lien placed on the shares and the borrower takes back his shares.

In summary, shares when used to borrow money provide a good window of opportunity for investors to boost their working capital and/or solve pressing problems at short notice. Readers are therefore encouraged to test the veracity of this assertion by asking their banks whether they would accept shares as security. The answer will most likely be yes.

HOW TO MONITOR YOUR SHARES
It is not enough to buy shares for the sake of doing so. It is equally important for an investor to keep an eye on the movement of the prices of the shares he has bought and to gather all other relevant information, which directly or indirectly affect such shares.
The first and most important step is to appoint a firm of Stockbrokers as your personal or corporate adviser on this subject. This is not to say that Brokers are prophets who can foretell with exactness what the future of all the shares will be. Rather, the Broker, by training, experience and professional leverage, has greater access to the relevant information, which, invariably, affects the fortune of shares. The advice of your Stockbroker could, for instance save you from piling all your funds in one company or to get out of an investment that is going bad. The next advisable step is to have your Broker send you periodic statements on your shares in particular and information on the Capital Market in general.
It is also beneficial to compliment the efforts of your Broker by personally reviewing the Daily Official List of the Nigerian Stock Exchange as published in major newspapers. In addition to the newspapers, prices of stocks quoted on the Nigerian Stock Exchange can viewed on the Nigerian Stock Exchange web site (www.thenigerianstockexchange.com) Only those who show keen interest in their investments have the opportunity to sell off in good time if the trend of information on a particular company becomes progressively unfavourable. They are also more likely to learn of new profitable shares that have been introduced to the market. In summary, monitoring your stocks could serve as a most rewarding pastime if the steps in this section are followed.

RISK FACTOR
No enlightenment document can be said to be balanced and complete without any reference to risk factors. It is a known maxim that “the higher the risk, the higher the return”. It is on this basis that we recommend shares as a less risky investment outlet, especially when compared to investments in the money market, wholesale/retail trading, commodities trading, etc. Under stable political and economic conditions, share prices rise and fall moderately, while other prices exhibit higher volatility.
This is not to say that there are no risks in buying shares. Sometimes, price depreciation could cause occasional worries. But more times than not, these are temporary situations, which usually stabilize with time. Rather, it is only advisable for an investor to spread his risk in a manner that will hedge against inflation, disasters and depression. The recommended spread should be between liquid investments (fixed deposit), semi-liquid investments (shares, Treasury bills, bonds, futures and derivatives) and solid investments (real estates, machinery and other fixed assets). Those who have followed this system have found themselves better prepared for both short-term and medium term obligations. I trust you will do the same.

CONCLUSION
In concluding, I wish to thank you for patiently following me up to this point. It now remains for you to take positive steps towards investing in shares. Your children’s future, and indeed yours, could be better assured if you decide today to set aside a portion of your disposable income for investment in shares. The positive indicators now manifesting in Nigeria’s economic and political environment further underscore this optimistic position. The popular view is that the worst is over and that as the confidence of foreign investors is fully restored, the much awaited economic turnaround would be achieved more sooner than later.