The prime focus of this blog is finding quality business opportunities you can invest in in Zimbabwe. The international stock market is populated by day traders who buy and sell in a short period of time in order to make a quick profit. The question is, is it possible in Zimbabwe? Investing on the stock market is viewed by many as nothing more than a gamble where your fortunes depend on your luck.

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Another school of thought is of the opinion that the stock market is best left for institutional investors only.In some cases, potential investors shy away from investing on the Zimbabwean stock market because of lack of knowledge and sometimes perceptions about the prevailing geopolitical and economic environment. This is regrettable given that the stock market is an investment avenue that can be key in building an investor’s portfolio. In this article, we will look at the factors to consider before investing on the Zimbabwean stock market, techniques to select shares to invest in as well as investment routes.

Investment Objectives and Constraints

The first step to take before investing on the stock market is to determine your investment objectives and toalso take into consideration any constraints that you may have. Investment objectives, put simply, are the reasons for making the investment. As an example, an individual may invest so as to be able to pay school fees for their child while another individual may invest in order to buy a car.Other investment objectives could be to maintain the purchasing power of the investment or the objective could simply be stated as a return target such as ten percent per annum.

Investment constraints, on the other hand, speak to the factors that restrict the options available for investment.Examples of these constraints include investment horizon,risk appetite, income needs from an investment and the amount available for investment. For example if an investor intends to pay school fees in six months, this limits the investment horizon to that period. Risk appetite is more complex and considers both the investors willingness and ability to take risk.

It is important for an investor especially in Zimbabwe to consider their investment objectives and constraints because the Zimbabwean stock market is volatile. This means that share prices can go up or down in relatively short periods of time. The stock market is therefore more suited to investors with a long term horizon as well as thewillingness and ability to take risk.

Methods Used for Stock Selection

A number of companies have theirshares listed on the stock market and these appeal to different investment needs. On the Zimbabwe Stock Exchange, there are about seventy five shares beingtraded at the moment. Given that it may not be practical to invest in all the listed shares, an investor needs to narrow down their choices by only selecting shares that meet their investment objective and constraints.Broadly, the shares to invest in can be selected by using either fundamental analysis or technical analysis.

Fundamental Analysis

Fundamental analysis involves the assessment of thefactors that affect the value of a share. This includes looking at the company’s financial statements, its business model, assessing its management as well as determining the company’s strength relative to competitors. This information is then used to determine the value of the share. There are a number of valuation methods that can be used to determine the value of shares. If the value determined using the chosen valuation method is higherthan the current share price, it would mean the share is undervalued and an investor can use this result as a basis for buying the share.

Technical Analysis

Technical analysis involves the use of charts and graphs to identify patterns and trends to predict thefuture price direction of shares. The graphs and charts are generated from the historical price statistics of the share. This method favours investors who are speculating on the stock market and have a short term investment horizon. Technical analysts almost always have a ceiling and a floor price for a share. The ceiling and floor are prices that they determine the share will not exceed upwards or downwards respectively. The current price in relation to the ceiling and floor price are used to determine whether to buy or sell the share.

Stock Market Investment Routes

The next step is to decide on the investmentroute to use to invest on the stock market.In Zimbabwe there are various routes available to invest on the stock market namely through Stock brokers, Asset managers and Unit trust managers.

A stock brokeris a regulated professional traderwho buys and sells shareson the stock market. A Stockbroker may execute a deal as per instruction or offer advice on a deal whilst leaving the final decision with the client.In some instances a stockbrokergiven an individual’s investment objectivemay make all dealing decisions on the individual’s behalf and this is termed discretionary dealing.All trades on the ZSE are executed through stockbrokers.

Asset managers require an investor to sign an investment management agreement.The investment management agreement stipulates what the asset manager can and cannot do when investing on behalf of the investor. Depending on the discretion on the investment management agreement asset managers may also conduct execution deals or discretionary deals similar to those done by stock brokers. Asset managers would still trade on the stock market through a stockbroker as they are not licensed to trade on a stock exchange. They also charge management fees for theirservices. The advantage offered by asset managers is thatthey have a research function and as such make informed investment decisions.

A unit trust is a collective investment vehicle where individuals pool their funds and the unit trust manager then invests the funds. To access the stock market one would need to invest in an equity unit trust fund. Unit trusts also trade on the stock market through stockbrokers and also charge a fee for their service.A unit trust affords an investor an investment in a basket of shares from a relatively small investment amount.

Summary

Investing on the Zimbabwean stock market requires that an individual conducts research and makes investments that are aligned to their investment objectives and constraints.  One may select to invest through a stockbroker, unit trust manager or asset manager. Research techniques discussed in the article are mainly identified with institutional investors but can be equally helpful for an individual investing on the stock market.

For more information on How to invest on the Zimbabwean Stock Market, speak to our Expert Eagles by sending an email to experteagles@www.ziminvestors.com or gsimbarashe@gmail.comIf you do not have enough money to Invest on the stock market but you still want to invest, email me on the above emails or call me on 0733369923